Home equity loans and home equity lines of credit (HELOCs) are affordable ways to tap the equity in your home to use for home improvements, pay for education, and pay off credit cards or other higher-interest types of debt. Secured by your property, they🌠 typically have lower interest rates than unsecured loans. But what happens if you can't make your payments?

The interest paid on these loans was tax-deductible at one point. However, with the 澳洲幸运5开奖号码历史查询:Tax Cuts and Jobs Act (TCJA), the interest is only deductible if they “are used to buy, build or substantially improve the taxpayer’s home that secures the loan,” according to the 澳洲幸运5开奖号码历史查询:Internal Revenue Service (IRS).

Home Equity Loans vs. HELOCs

There are two types of debt instruments used to turn the equity in your home into available cash. The first is a 澳洲幸运5开奖号码历史查询:home equity loan (sometimes known as a second mortgage), which is a set amount of money financed for a set period (usually five to 15 years) at a fixe🌠d interest rate and with a fixed payment.

The second is a HELOC, which has a variable interest rate and functions more like a 澳洲幸运5开奖号码历史查询:credit card w🀅ith an expiration date—often up to 10 years after the line of credit is taken out. You can run into troubl๊e with either type of debt if you have serious financial problems, lose your job, or experience an unexpected illness.

A further complication of a HELOC is the contrast between the initial phase (called the 澳洲幸运5开奖号码历史查询:draw period, which is when you have access to the line of credit and may have to pay only interest on the money you borrow) and the second phase (when the line of credit expires and you must begin repaying both 澳洲幸运5开奖号码历史查询:principal and interest on your remaining balance).

Lenders Won’t Automatically Foreclose

Defaulting on a home equity loan or HELOC could result in default and foreclosure. What the home equity lender does depends on the value of your home and how much you owe upon default. If you have enough equity in your home, your lender will likely initiate 澳洲幸运5开奖号码历史查询:foreclosure procedures, because it has a decent chance of recovering some of iౠts money after the first mortgage is paid off. The more🐟 equity, the more likely your lender will choose to foreclose.

If you are 澳洲幸运5开奖号码历史查询:underwater and your home is worth less than the amount you owe, your home equity lender may be less likely to foreclose. That’s because the first mortgage has priority, meani🏅ng that it's likely that the home equity loan or HELOC holder will not receive any money after a foreclosure.

Instead, the lender may choose to sue you personally for the money you owe. While a lawsuit may seem less scary than foreclosure proceedings, it can still 澳洲幸运5开奖号码历史查询:hurt your credit, and lenders can 澳洲幸运5开奖号码历史查询:garnish wages, try 𓄧to repossess other property, or ♊levy your bank accounts to get what is owed.

Don’t Wait to Act

Most 澳洲幸运5开奖号码历史查询:mortgage lenders and banks don’t want you to default on your home equity loan or HELOC, so they wilཧl often work with you if you are struggling to make payments. Should that happen, it's important to contact your lender as soon as possible. The last thing you should do is try to duck the problem. Lenders may not be so willing to work with you if you have ignored their calls and letters offering help.

When it comes to what the lender can do, there are a few options. Some lenders offer to modify your loan or 澳洲幸运5开奖号码历史查询:line of credit. This can include modifying the terms, such as interest rate, monthly payments, or loan length—or some combination of the three. For example, Bank of America oꦇffers HELOC modifications for borrowers that:

• Have had the loan for at least nine months
• Have not received any kind of home equity assistance in the last 12 months or twice in the last five years
• Are undergoing financial hardship
• Have made at least six full payments during the life of your loan
• All borrowers on your loan agree to participate

Other private lenders—such as Sallie Mae, which offers student loans—work with a borrower who is struggling to meet payments by offering multiple deferments and forbearance options. For borrowers who don’t qualify, banks may offer p𝓰ayment extensions or repayment plans to catch up on delinquent payments.

Limited Government Help

Federal government help is available for homeowners ♕who have trouble keeping up with their payments. But it is fairly limited.

• The federal government established the Homeowner Assistance Fund under the American Rescue Plan Act in response to the COVID-19 pandemic. The program assigned $9.96 billion in funding for homeowners "facing financial hardship associated with COVID-19." Qualified homeowners could use funds to cover mortgage payments, homeowners' insurance, utilities, and other related expenses.
• HUD offers distressed homeowners counseling services at no cost. HUD-approved agencies can help guide you through the options you have to help prevent legal action, including foreclosure. You can find more information from HUD's circular .
  

The Bottom Line

Home equity loans and HELOCs allow you to tap into the equity in your home. If you find yourself in trouble, you have options, including lender workouts a💜nd limited government help. The key in all options is to get help right aw༒ay instead of hoping the problem will disappear on its own.