26 Jun 2020
What to do if You’re Denied a HELOC
The COVID-19 crisis has undoubtedly thrown a wrench into a lot of people’s finances. Many have seen a drop-in income because their investments have lost value, while others may need to supplement their cashflow in order to help out family or friends who have lost their jobs or taken a pay cut.
Many are therefore turning to a Home Equity Line of Credit (HELOC) in order to increase their cashflow during these difficult times. A HELOC is a revolving line of credit that’s secured against your home, with the amount you can borrow depending on the amount of equity you own in your home. The more equity you own, the more you can borrow, up to a maximum of 65% of the property’s appraised value.
Why a HELOC?
Even pre-pandemic, a HELOC was an incredibly popular finance solution, and there are many reasons why HELOCs are so popular. HELOCs, allow you to release the equity held in your home while allowing you to continue living there. Furthermore, they typically have lower interest rates than other loans (currently around 3.45%), which, coupled with the fact that you can opt to make interest-only payments, means low monthly repayments.
Sounds great, right? Unfortunately, more and more people are seeing their HELOC applications denied. You must first qualify in order to be approved for a HELOC and many banks are putting more stringent measures in place to protect themselves from the economic impacts of COVID-19. Therefore, many people are finding themselves denied a HELOC due to insufficient monthly income, a low credit score, or the wrong debt-to-income ratio.
What if you’re denied?
So, what’s the alternative for people looking to increase their cashflow in the current climate? The CHIP Reverse Mortgage is a strong alternative for homeowners aged 55+. Like the HELOC, it allows you to draw money from your home (up to 55%) while still living in it, however it also has some unique advantages.
Firstly, it’s much easier to qualify for a reverse mortgage than a HELOC, as the qualification criteria is purpose-built for those who are retirees or those who may not have a regular monthly income. This makes the reverse mortgage a much more attractive option for those who feel stressed about whether or not they may qualify.
Furthermore, the money received from a reverse mortgage is tax-free and you’re only required to pay back the loan once you sell your home or move out, which means no monthly repayments (and therefore no penalties for missed payments!). You can even use your reverse mortgage to consolidate other loans, avoiding the monthly repayments you’re making for these as well. Without having to make regular payments, you’re free to enjoy the improved monthly cashflow that a reverse mortgage can provide!
And with a reverse mortgage, it’s impossible to default and lose your home or end up owing more than the value of your home, due to the conservative lending practices provided by HomeEquity Bank, which ensures there is still equity left in the estate for your heirs to enjoy.
If you’d like to learn more about how the CHIP Reverse Mortgage can help you increase your cashflow as an alternative to a HELOC, contact your DLC Mortgage Broker for more information.
Posted by: Agostino Tuzi
National Partnership Director, Mortgage Brokers