Do lenders ever call on HELOC early for full payment

Los Angeles County, California
Creative Real Estate Financing
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Do lenders ever call on HELOC early for full payment

Paul Dario Jr
Member since 2020 · 35 posts · 12 votes

Hey all. I've secured a HELOC in order to finance my backyard ADU build. Already have plans drawn and getting ready to submit for permitting. But I'm getting a bit of cold feet regarding the HELOC. Assuming I draw $100k from the HELOC, is it ever likely that the bank/credit union would call on that HELOC to be paid in full after I've drawn off of it? The only thing that's of lingering concern is whether or not the credit union can call on full payment of the HELOC balance after I've drawn on it. Is that a possibility? Wasn't sure if that's a practice of lending institutions. Thanks for the input.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Quote from @Jeff Copeland:

I had Suntrust "freeze" a HELOC when the market crashed in 2008-2009.

I could keep the existing debt (and continue to pay it of course), but they would not allow any more draws. Of course, this was driven more by a decline in property values than anything else. 

Whether your lender has the right to call the note due in full would be dictated by the mortgage and note you signed with the lender. There is commonly a due on sale clause, but otherwise I think it would be extremely rare for them to call it due for some other reason. 


 during the GFC this happened by the thousands if not hundreds of thousands.. Even my personal banker got his frozen.. there is a big misconception with many on this site that HELOCs are like fixed term loans they simply are not.. and NO ONE reads the fine print.. 

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  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    4y

    I don't think it is a typical practice of lending institutions to call back any loan. Do they have the right to if you break loan conditions? YES, but as long as you follow the rules of the loan and keep current on your payments I don't think it is an issue you have to worry about. By nature a HELOC is meant to be short term so best practice is to only use the money SHORT TERM and in a way that will make you more money so you can pay off the bank in the necessary time frame. @Paul Dario Jr

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  • Michael Zeng
    Member since 2022 · 16 posts · 6 votes
    4y

    Second what Matthew says. It's extremely important that your plan to pay it off fits the HELOC repayment timeline.

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  • Paul Dario Jr
    OP
    Member since 2020 · 35 posts · 12 votes
    4y

    Thanks @Matthew Crivelli and @Michael Zeng

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  • Paul Dario Jr
    OP
    Member since 2020 · 35 posts · 12 votes
    4y

    @Matthew Crivelli, what would be a good strategy for early payoff of the HELOC if I don't want to touch my primary home mortgage? I have a good rate on the primary home's mortgage that I'd rather not mess with. Thanks.

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  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    4y

    My concern is not the HELOC being called but the lack of leverage in this approach. This will negatively affect the ROI especially if the ADU adds less value than it cost to add (a common occupancy).

    If I used HELOC as down payment at 80% LTV, that leverage would permit the money Togo 5 times further. This results in the ROI from appreciation being 5 times higher than the unleveraged investment.

    My next concern was communicated by a couple posts without explaining the reasoning. Virtually all HELOC are variable rate loans. This has a risk at any time but the risk is increased when rates are very likely to continue to rise.

    I only use asset backed money for expected short term because of those two items (unleveraged and variable rate).  

    Good luck

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  • Brian Blosser
    Real Estate Agent · Burbank, CA · Member since 2021 · 38 posts · 26 votes
    4y
    Quote from @Paul Dario Jr:

    @Matthew Crivelli, what would be a good strategy for early payoff of the HELOC if I don't want to touch my primary home mortgage? I have a good rate on the primary home's mortgage that I'd rather not mess with. Thanks.


    You could take whatever cash flow you have from the ADU and put it toward the HELOC to help pay it off early.

    In regards to your original question, just stay within the terms of the loan and you should be fine. Banks aren't in the business of owning real estate, they would rather not deal with repossessing a property and selling it if they don't have to.

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  • Paul Dario Jr
    OP
    Member since 2020 · 35 posts · 12 votes
    4y

    Thanks for the input @Brian Blosser.

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  • Michael King
    Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
    4y

    I think a HELOC is cheap money. I have a commercial HELOC against one of my rentals to the tune of $100K. Yes the interest is variable, and yes it just went up to 5.5%...but that interest is treated as mortgage interest against that property, so a tax advantage for me, even though you I use the HELOC to pay for anything. I would not mess with your home mortgage if you are happy with the rate.

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  • Paul Dario Jr
    OP
    Member since 2020 · 35 posts · 12 votes
    4y

    @Michael King, so are you not concerned about the points Dan Heuschele made above regarding 1. Lack of leverage and 2. the risk of a variable rate HELOC?

    I have been a bit concerned about the HELOC being variable in the midst of rising interest rates.

    I'm also wondering if using a HELOC to pay for the ADU will keep the HELOC funds tied up in the ADU and hinder me from purchasing other investments in the near future.


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  • Michael King
    Rental Property Investor · Navarre, FL · Member since 2019 · 913 posts · 640 votes
    4y

    @Paul Dario Jr yes the variable interest rate is a disadvantage for sure, but if you can swallow a 5.5% interest, or wherever it lands, you can have convenience of availability if not already maxxed out. 

    As far as hindering my future investments, no it doesn't - in my case. It is a loan on a paid for property, so it seems to be treated as a mortgage on it when taking into consideration assets and liabilities for subsequent investments. 

    For me, it was always about having access to a big chunk of change available. I just used it to partially pay for solar panels at my home....and it is treated as a mortgage at my rental property. I could have paid cash, but want the cash ready to go, and I'm okay with a tax incentive on the HELOC.

    I hope this helps you.

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  • Paul Dario Jr
    OP
    Member since 2020 · 35 posts · 12 votes
    4y

    Thanks for the additional input @Michael King.

    1Reply
  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Matthew Crivelli:

    I don't think it is a typical practice of lending institutions to call back any loan. Do they have the right to if you break loan conditions? YES, but as long as you follow the rules of the loan and keep current on your payments I don't think it is an issue you have to worry about. By nature a HELOC is meant to be short term so best practice is to only use the money SHORT TERM and in a way that will make you more money so you can pay off the bank in the necessary time frame. @Paul Dario Jr


    they absolutely have the right to call the heloc due and payable happened by the thousands during the GFC.. read the fine print in your loan docs ( which no one ever does)  

    now reality is they can and do freeze them without advance notice you only find out it was froze when U go to draw on it.

    the events that would freeze them are if the bank feels the values in your property have fallen to the point that their security is in jeopardy . And or other standard events of default  like non payment of property taxs'  let insurance lapse and waste.

    So calling it all due instead of just freezing it is more like the event of a water landing. pretty rare but it they have the right. And most folks are not aware and they dont address it up front and have that condition altered or removed.

    when i had my big lending lines back in the day we did this.. most lending lines can be frozen and called.. this is why you see lenders all of a sudden pulling out of the market the LOC's have been frozen or called..  we negotiated in our LOC docs that if they were going to freeze them we had then 3 full years to retire them.. this saved our bacon in the GFC where others got hammered and were forced to liquidate at even bigger loss's than we took.
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  • Jeff CopelandBusiness Member
    Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
    4y

    I had Suntrust "freeze" a HELOC when the market crashed in 2008-2009.

    I could keep the existing debt (and continue to pay it of course), but they would not allow any more draws. Of course, this was driven more by a decline in property values than anything else. 

    Whether your lender has the right to call the note due in full would be dictated by the mortgage and note you signed with the lender. There is commonly a due on sale clause, but otherwise I think it would be extremely rare for them to call it due for some other reason. 

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    4y
    Quote from @Jeff Copeland:

    I had Suntrust "freeze" a HELOC when the market crashed in 2008-2009.

    I could keep the existing debt (and continue to pay it of course), but they would not allow any more draws. Of course, this was driven more by a decline in property values than anything else. 

    Whether your lender has the right to call the note due in full would be dictated by the mortgage and note you signed with the lender. There is commonly a due on sale clause, but otherwise I think it would be extremely rare for them to call it due for some other reason. 


     during the GFC this happened by the thousands if not hundreds of thousands.. Even my personal banker got his frozen.. there is a big misconception with many on this site that HELOCs are like fixed term loans they simply are not.. and NO ONE reads the fine print.. 

    Podcast Guest on Show #222
    JLH Capital Partners51 Review
    WebsiteView Page
    2Reply
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