Monday, November 24, 2008

Something to watch

One Project Closer posted some great info on HELOCs and what to do if yours is frozen. We bought our place at well below its appraised value, so I was pretty OK with getting one when we figured out all of the renovations we wanted to do to the house. I've been keeping an eye on it since we started hearing stories about freezing and canceling as the housing market crumbled and so far so good. I also watch Zillow and our bank's Home Value Estimator in the home equity section of their website. I've noticed a few things that I thought others out there might want to know about. Here's our situation.

The bank's estimator is the higher of the two, but our HELOC didn't bring our debt against the house anywhere near that amount, even if we maxed out all the available credit. Zillow seemed pretty consistently reasonable, if a little on the low side-- again, though, maxing out the HELOC wouldn't ever put us upsidedown. Lately, both these values have been going steadily up and this reflects the market in our town and in our specific zip code. Several houses on our street and directly behind us have recently sold for much more than I thought they would, the neighborhood became an Historic District, and the town as a whole never experienced a housing boom, so there's been very little to slump; it simply steadily, but in very small increments, showed increases in home values.

Last night, I took a look at Zillow, just for shits and giggles. We're in this house for 5-10 years and so my monitoring of the value has been mostly academic. Zillow shows a relatively healthy increase over the last month or two. Well if that's what Zillow shows, I thought, what must the bank's estimator show!?! So I checked. Um...it says our house has decreased by an unrealistic sum of money (interestingly, to a sum that makes our debt suspiciously close to 80%). It's now similar to the Zillow estimate, but that's beside the point-- the bank is showing what I think is a false decrease in home value; in other words, whether the new number is correct or not is irrelevant. What matters is that the bank is looking at the house and saying that it's decreasing rapidly. The same estimator shows other decreases in our neighborhood of 30k, 8k... It's all over the place, over a very short time and in a neighborhood I know to be going up in value as evidenced by numerous recent sales. Hopefully, the estimator simply recalibrated and the bank is looking at it as such, and not as an actual decrease in value. It also doesn't take into account any improvements that we've made.

So then I decided to check our HELOC-- to see what the new rate would be if we locked it. Our bank has a feature with their HELOC that allows the consumer to lock a portion of his or her debt into a fixed rate. It's higher than the revolving rate, but it's fixed. The website also used to allow you to do the whole thing online; get a quote, lock the rate and transfer the money without dealing with their operators. This feature has disappeared within the last couple of weeks.

This may mean absolutely nothing-- or it may mean that the bank is about to do another mass reappraisal of its HELOCs like it did earlier this year. Now may be the time to think about anything you want to do in the near future and pull the cash for it. Most of our remaining repairs are from the storm, and therefore covered by insurance, or we've bought the supplies already and now need to simply install the items. But it's been nice to know the money is there and I do find the sequence of events very peculiar indeed...

2 comments:

Jennifer said...

This bank stuff is all worrisome. We have a HELOC, not for any home improvement. It's what we bought the house with (was our "other" 10% down to make a 20% downpayment). We've been paying it down as fast as we can, as it matures in 8 months or so. Good luck with yours.

fred@opc said...

Thanks for linking back to the article. It definitely is troublesome that banks are doing this, and very haphazardly. It promted us to call our mortgage lender and ensure we were "ok" ...

I think it might be wise to look at what cash you're going to need for the next 12 months and take out a fixed rate loan on the money. Even if the bank freezes the line, in almost all cases they can't accelerate your payment schedule (nor would they want to). We considered that but I'm beginning to feel better about the market now that 30 year interest rates have plummetted in the last few days.

Good luck!