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If you have a home equity line of credit (HELOC), your credit line isn’t always guaranteed. Sometimes, your bank or lender may freeze your account, stopping all future withdrawals. When this happens, your lender will mail you a HELOC freeze letter.
Why might this happen, and what should you do if a freeze letter arrives at your home? Here’s what you need to know.
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Your lender will regularly review your account and status.
Based on these reviews, it could freeze your HELOC and stop you from making future withdrawals.
It might do this if its review reflects:
If you receive a freeze letter, it should indicate the reason. Call your servicer and talk to a representative if you need more details.
HELOC freeze letters vary by lender, but they all include similar information. If you receive a HELOC freeze letter, expect to see:
If you disagree with the reasons for your HELOC freeze, call the number listed on your freeze letter. Your lender should be able to provide further details regarding the freeze, as well as explain the appeals process.
Your lender can legally freeze or reduce your HELOC up to three days before sending you a written notice. If you experience issues drawing from your HELOC but haven’t received a freeze letter, contact your lender to see if a freeze letter is forthcoming.
While a HELOC freeze prevents you from making additional withdrawals, it doesn’t let you off the hook when making payments. You’re still obligated to repay your HELOC as agreed, even if it’s frozen.
If you stop paying toward your HELOC while it’s frozen, you may have a more challenging time getting the freeze lifted later on. You also risk losing your home—and that’s not a chance worth taking.
The good news is you don’t have to worry about your payments going up. The amount you pay each month won’t change, and you won’t have to pay back more than you withdrew before the freeze.
If your lender sends you a HELOC freeze letter, you can take the following steps:
You can also request reinstatement of your credit line later if conditions change. Just keep in mind: If the freeze is due to a drop in home value, your lender will likely require a new appraisal before it reinstates your line.
HELOC freezes are meant to be temporary, not permanent. When the issue that precipitated the freeze is resolved, your lender is required to reinstate your HELOC. Your lender may lift the freeze automatically, or you might have to request reinstatement in writing.
Your HELOC freeze letter should tell you your lender’s reinstatement procedures. If you’re required to make a written request, here’s how the process usually works:
If your lender agrees to lift the freeze on your HELOC, you can draw against your line of credit just as before. If your lender cannot reinstate your HELOC, it’ll send you a notice listing why.
Don’t despair if your reinstatement request is unsuccessful. You may need to wait out the market or take additional steps to improve your finances. Work with your lender to determine next steps, and try again when ready.
You can freeze or terminate your HELOC yourself. You might need to in certain situations. For instance, you might send your lender one before selling your house. A HELOC is a lien against the property, so you must settle it before transferring the title.
You can get a form authorizing the lender to freeze the account online or from a local branch.
By law, your lender must provide written notice within three days of freezing your HELOC account. This should arrive via mail at the address on the home that secures your HELOC.
The letter should include the reason for the freeze and directions to reinstate your credit line should conditions change.
It should also contain your lender’s contact information in case you have questions or concerns.
Title companies and real estate attorneys often recommend sending a letter to your lender that includes the following information to request a freeze or termination:
You can also request a specific form to do this from your lender. Once it receives your request, your lender should send a letter indicating your line of credit is “suspended,” “frozen,” or “blocked to prevent future advances.”
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