End-of-Draw Performance Not as Bad as Feared
Corelogic
One effect of the rapid increase in home prices from 2000 to 2006 was the increased use of home equity lines of credit (HELOCs) as a method for homeowners to extract equity from their properties. HELOCs consist of a “draw period” and a “post-draw period.” At any time during the draw period, borrowers can borrow up to a specified credit limit, or pay part or all of the outstanding balance. During this period, borrowers are only required to pay interest on outstanding balances.
When the draw period ends, most HELOC loan structures change to an amortizing loan, requiring the borrower to pay a fixed amount each month based on the outstanding balance at the end of draw period. The monthly payment of HELOC borrowers having a positive balance at the end of draw period may rise, increasing the risk of loan delinquency and/or default.
