Owners who borrowed on equity face jolt

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Owners who borrowed on equity face jolt

During the housing bubble, people didn’t just live in their homes — they used them as their personal ATMs.

Exploding real estate values gave millions of Americans the motivation to borrow against their home. They would take out home equity lines of credit, or HELOCs, meaning they could get cash for their equity.

Between 2004 and 2007, more than 325,000 San Diegans took out home equity lines of credit, totaling around $40 billion, real estate tracker DataQuick reports. Borrowers make interest-only payments on the loan for 10 years. After that, the line of credit converts to a mortgage and must be paid back — typically at a higher interest rate. Had home values kept rising, paying back the loans might have been easy, through a refinance or another line of credit. Today, however, many who bought during the housing bubble are just glad their homes have regained their original value, which plummeted during the Great Recession. Their equity disappeared, but the lines of credit remained. Now the bills from that first wave of HELOCs, taken out in 2004, are coming due. Homeowners must start paying on both interest and principal on the outstanding balance, and often at higher interest rates of 5 or 6 percent……….

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