Your HELOC bank is the carrier of your home equity line of credit. A HELOC is a credit line based on the amount of equity you have built in your home. Your bank may reduce or cancel your HELOC at any time after notifying you in writing of its intentions.
Why a Bank May Cancel a HELOC
If the average home value in your area is declining, your bank may cancel your HELOC to avoid incurring a loss. Because your credit line is based on your home’s value, your lender may not be able to recover the amount you owe on a line of credit through foreclosure if you fail to pay. By canceling your ability to charge purchases using your home’s equity as security, the bank protects itself from losing money due to the lower value of your home.
Banks May Freeze a HELOC with a Balance
If you currently carry a balance on your HELOC, your bank will not cancel your line of credit outright. Instead, it will “freeze” your ability to make new purchases. You must continue making payments on your credit balance until your debt has been paid in full. At this point, the bank may either reinstate your HELOC or cancel it altogether.