Understand your HELOC freeze or reduction

You got a home equity line of credit (HELOC) years ago to pay off some high interest debt or do a home renovation. You've enjoyed the flexibility of this popular loan and your line of credit has given you peace of mind for emergencies. You've also had your HELOC for several years without issue and have made regular, timely payments. Unfortunately, you've just been informed of a home equity line freeze or reduction, which means you have less borrowing power and the loan is being reduced or discontinued. Panic sets in.

Before you make a move, here's what you need to know when your line of credit comes to a halt or reduction:

A HELOC freeze means that, beginning at the time of you are notified, your line of credit has come to a halt. You can no longer draw funds as your borrowing power has diminished. While not as drastic, a HELOC reduction occurs when there is a lowering of the credit limit on your home equity line and you don't have as much to spend.

There are a number of reasons either of these changes in borrowing status can occur, and they are typically decided on a case-by-case basis. Some of the most common reasons for an adjustment are:

The amount of your HELOC is directly related to the appraised value of your home at the time you are approved for the loan. If the market has taken a downturn and the value of your house has diminished, your equity is affected as well. When this happens, your lender can enforce a HELOC reduction so that your borrowing limit is based on just the equity that remains. If you are in a situation of negative equity, you will see an a HELOC freeze. After all, It is not in the best interest for the borrower or the financial institution if you owe more on your line of credit than your house is worth. For peace of mind, experts recommend having a contingency plan in place, in the event that the market takes a nosedive and you can't take out as much money as you need.

Your lender will do periodic reviews of your home equity line(s) and will continuously evaluate your ability to make payments. If your financial circumstances change and your lender has cause to reasonably believe that you will not be able to continue to make payments as you have in the past, a home equity line freeze is often instated.

Even if you have maintained a solid payment record with your lender, a change in your credit rating can still be enough of a reason for a HELOC freeze or reduction. Your credit rating reflects how big of a risk you are as a borrower. If your risk level changes, so can the amount of money available to you.

You have options to reinstate your HELOC if you are informed of a home equity line freeze or reduction. First, make sure that even during the freeze you continue to meet the payment conditions of your loan. While you can't draw on the line during this time, you're still expected to pay back what you have already borrowed. And most importantly, pay the loan on time — just because your credit’s been stopped or reduced, your payments will still be the same. Don’t make a bad situation worse. 

Second, investigate the reason for the freeze or reduction and make an appeal if you feel the information is incorrect or if your status changes again. It is always smart to talk to your lender directly about the reasons behind changes on your account and keep the lines of communication open.

Whether you are a current HELOC customer with questions about your account or you’re interested in applying for a new line of credit with Citizens, we can help. You can start the home equity line of credit application process by answering a few questions online, and a Home Loan Advisor will contact you by the end of the next business day to complete your application and walk you through the next steps. Not only that, you can apply in only minutes with our award-winning Citizens FastLine^® experience and be approved in as little as two weeks. And with the Citizens HELOC, there are no application fees, closing costs or points.

Wherever you are on your financial adventure, Citizens is here to help you navigate along the way.

Learn more about HELOCs

*Best HELOC from a bank award, Bankrate, 2023