How and Why Banks Will Freeze Your HELOC?


hey what’s going on! In this video we’re
gonna talk about how and why your bank could potentially freeze your home
equity line of credit and how to prevent it from happening hey which one everyone
this is Sam qua where the father’s real estate investor and in this video we’re
gonna talk about how and why your bank could potentially freeze your he lock
your home equity line of credit now before we talk about this topic be sure
to hit the subscribe button as well as hit the bell icon so that you guys get
notified for our future videos now what does it mean for your bank to freeze
your he lock whether it could because different potential outcomes as well as
the meaning of this the first potential outcome is that your bank could freeze
your key lock close it off so that you could no longer draw the money out of
your home equity line of credit essentially you’re a home every line of
credit is gonna turn into you in another mortgage so what this happens you can no
longer draw the money out the money’s trapped in it won’t make my line of
credit and you’re sort of forced to pay it off just like a mortgage now I now
turn ative method or a way that your bank could potentially freeze your HELOC
and this is probably the worst one is they be called and don’t do now this
term basically means that they’re gonna go and take all the balance that you
have your home every line of credit and tell you to pay it off completely with
cash now if you don’t the banker potentially foreclose on you which means
they could potentially lose your home now we don’t want this to happen it’s
the worst case scenario this didn’t happen during the 2008 recession now in
2008 recession during the real estate boom and crash what happened was there
were two different types of people one Google people had their key lock frozen
or called do just like the example that I explained out to you guys
the second group got to keep their he lock and you have to wonder why did I
get to keep the he lock whereas the first group lost their he lock or they
had their he lock frozen so the reason being is
if you are in default there’s many ways you can get into fall in terms of your
key lock one of the main ways in getting default during the recession is that you
are underwater if you owe more than what your home is worth so I’m gonna
illustrate this point on the board just in case you guys don’t understand what
it means to be underwater so let’s say you have your home here okay a beautiful
hole okay it’s I’m gonna draw like that there we go let’s say this home is worth
two hundred and fifty thousand dollars okay I’m just pointing out to the
national average figure as far as home value let’s say you own okay Oh hundred
thousand dollars on the mortgage so this is your mortgage on a abbreviate just
put more than a G and let’s say whether you use a strategy you don’t let’s say
you went out and got a home equity line of credit for let’s just call it eighty
thousand dollars this is your HELOC amount now one thing I want to clarify
is that your he lock is works very similar to a credit card so if you end
up getting an eighty thousand dollar limit he lock and if you don’t use any
of it it’s almost like this key lock doesn’t exist but if you used your if
you lock the moment that you charged money on your he lock account you have a
balance so very again very similar to a credit card and how it functions
if you pull and draw all eighty thousand dollars on that $8,000 gillip which
basically you’re a hundred percent tapped out that means you do have a
effective balance of eight thousand dollars in his he long now what happens
is this is we’re gonna call the second position okay and what happens typically
during a recession during a major recession is that the whole value okay
tends to drop because of different economic pressures a situation so let’s
say the new home value after the recession happens the new home value is
one hundred and seventy five thousand dollars and this is a
you home value okay now here is where the problem lies you see that you got a
hundred thousand dollars of original mortgage okay let’s pretend that we
didn’t pay any of it off okay we have our mortgage balance that’s the same and
we are a hundred percent tapped out on the hillock we’re using the entire
mounting HELOC okay for whatever reason now the the typical sin of misusing the
HELOC is to go buy a new car or to go buy a new boat or to go buy a vacation
home which doesn’t generate income that is a pretty typical sin as to using the
HELOC for the wrong reason here in the coop brothers what we believe as a
philosophy for the HELOC is you should be using it for a to pay off your
mortgage or any other debt that you have and be to acquire income producing
assets okay there’s a key difference between an asset and a liability a
liability sucks away money from you and it costs money in the long run an asset
generates income it generates opportunities it generates revenue for
you so that you can be more wealthier and you have more cash flow so here in
the quad brothers we believe that you should be using the HELOC not to incur
debt to go buy some stupid things but to acquire assets that’s gonna generate
income for you now that’s you the scenario here so you owe $180,000 Oh in
total is $180,000 okay ya see that but your home value is hundred seventy five
thousand dollars so there’s a little bit of a problem here where the bank says
well hold on you owe more you have more debt okay out yet more outstanding
outstanding debt than what your home value is this is a a case example of the
HELOC either being frozen or they may call it to you or the banks are nice to
you they may just say hey you know what I get that you know we’re having a
recession you know it’s a it’s a challenging time you don’t have to pay
all eighty thousand dollars but we want you to do is at least pay off $15,000 or
a HELOC so that you know we’re somewhat even we’re gonna be at $165,000 owed on
the balance now $180,000 now in some cases the banks may
say you know what we’re not gonna give you the c-loc anymore
this hillock is no longer a HELOC oh there goes the markers this HELOC is now
a home equity loan which home equity loan guys is not the same thing as a
home equity line of credit on a home equity loan
yeah it’s closed off it’s closed ended you have to pay back that amount just
like a mortgage okay so they would stop you from drawing more
money because if your home values worth $175,000 the bank doesn’t want you to go
back and draw the the $80,000 even if you decide to pay off that $80,000 okay
even if the balance is zero on your home equity line of credit most likely what’s
gonna happen is you’re gonna either a lower than limit on the on the home
equity line of credit or just completely closed it off and cancel it okay just
take the way hate the way the ability for you to borrow because they don’t
want they don’t want you to incur more debt on this on this property now worst
case scenario they may just say hey we want all that eight thousand eighty
thousand dollars today if you don’t do it we’re gonna foreclose that’s when
people get in trouble so in this strategy in our home equity line of
credit strategy debt-free acceleration strategy the reason why we’re trying to
prevent this you know we want to prevent this obviously because we don’t want you
to lose your home the way that we’re preventing this from happening using the
debt free acceleration strategy is that we’re taking down not only that amount
buy all of our income right we’re lowering the balance with all of our
income but we’re also at the same time we’re not incurring quote-unquote more
debt and here’s what I mean we’re not gonna it we’re not incurring more debt
what we’re doing is we’re going from our mortgage amount let’s say in our
mortgage rhythm again hundred thousand dollars and we have this HELOC limit of
$80,000 now let’s say we didn’t spend any other money on our HELOC and no
buying boats no buying cars no going out there and spending on Vegas that bad
don’t do it what we’re doing is we’re taking this balance of $100,000
that we see here on the left and transferring that balance $80,000
portion now we were left with only $20,000 portion on the original mortgage
so we’re basically transferring debt and I know there’s a lot of people that says
well Sam that’s basically like Peter Payne you know borrowing from Peter to
pay Paul well not quite you know the way that I
argue on this strategy is the way that Paul charges interest is different from
Peter okay if if he’ll the he’ll the way that he laps charges interest is
completely different from how the mortgage charges the interest if you go
back and look at our other video how to pay off your mortgage in five to seven
years we make a perfect clear example of of what I mean by that but in this
scenario all we’re doing is transferring one debt to another into a more
efficient instrument to pay off our debt so basically in this scenario we still
owe $100,000 if you didn’t incur more debt we didn’t get more debt we still
have a hundred thousand dollars in debt but what we did is we transferred eighty
thousand dollars with that debt into a more efficient and an effective
instrument for us to be able to pay off our debt so here’s how we prevent this
calamity of our ghilaf becoming frozen is as long as you’re within the the
balance of your home value as long as you’re not borrowing like crazy
you’re good you’re gonna be in the safe zone you’re gonna be in the Green Zone
that’s actually what happened in 2008 there were group of people that got to
keep their HELOC because first of all they they play smart they played safe
they didn’t borrow a hundred percent of the HELOC they went to most likely
bought less than thirty or forty percent of the HELOC staying in the safe zone
and next thing is they made sure that their LTV loan to value the amount of
debt they they have in compared to their home value was less than seventy-five
percent that’s usually the safe zone that I like to tell people so stay
within the balance of 75% LTV loan to value or less and don’t go and jack up
the key lock and a hundred percent in fact I can give you a really bad example
it should be it should be more like forty thousand or thirty thousand
dollars of the eighty thousand dollar limit but just give me
illustration of the fact that we didn’t incur more debt we just went from one
debt and transferred into another vehicle cool so the way to prevent this
is again just kind of give you guys a recap summary is a don’t jack up your
HELOC amounts 100% B don’t go and borrow more than 75 percent loan to value
because we don’t want to do that and make sure that even if there was a big
or major recession our whole our outstanding debt will be far less than
what our home value would be even if the recession happens so I hope this video
helps you guys and illustrate what could potentially happen why and how the bank
could freeze your HELOC and one thing that I suggest you guys do is read up on
your home equity line of credit disclosures in your disclosures in the
packet that you got from your banks and lending institution it’s gonna tell you
what constitute as a default what constitutes for you know for the
freezing of the HELOC you got to read your disclosures and disclaimers sure to
read what your bank has written down so guys I hope this video helps understand
this process better how wide the bank would freeze your HELOC as well as how
to prevent it because we don’t want you to lose your home we certainly don’t
want you to get into a foreclosure so again if you guys want to learn more
about the strategy along with all the real estate investing videos be sure to
hit the subscribe button and hit the bell icon so that you guys get notified
for future video now the next video you guys should watch in case you didn’t is
how to create passive income using home equity line of credit
remember how we talked about using the key lock to buy and acquire
income-producing asset well this video is gonna explain exactly how we would go
about using a key lock to acquire more income producing assets so go and watch
that video right here it’s gonna be it’s gonna pop up right there and click on
that video and I’ll see you in that video

7 thoughts on “How and Why Banks Will Freeze Your HELOC?

  • Does business lines of credit also get shut down when the market crashes? Because if they don’t than us better to use a business line of credit or bruisness credit card to acquire properties when the market crashes. What do you think?

    Thanks!

  • I said 80k just as he went to write it…(we are soooo, intuned) I wonder if he is reading my mind as i thinking I'm gonna BAiL on this loan before the BaNK gets their money BaCK?🙄😏 "….the SuCKeRs.."

  • So are you suggesting we don't take out a HELOC now? We were looking to refinance our loan but a HELOC looks like a better product for us.

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