Can You Pay Less if You Have a Line of Credit & Your House Depreciates?

Your mortgage company isn't going to reduce the monthly payments on your home equity line of credit simply because the house has depreciated in value. More likely, the bank will close or reduce your credit line to protect its interests. You incurred monthly payments on the line of credit by making charges or withdrawals on the account. Although the house has lost value, you're sill responsible for payment according to the original terms. An exception could be made if you are behind on your payments and facing foreclosure.

Housing Busts

Homes purchased at inflated prices can easily lose a third or even half their value if the economy declines. A severe recession coupled with a housing bust can result in properties being worth less than the balances owed on mortgages.

Upside Down

Houses in this position are considered to be "upside down" on the mortgage, making them difficult or impossible to sell. Many homeowners who are upside down on their mortgages contributed to the problem by paying too much for the house, putting down only a minimum down payment and later taking out a home equity loan that erased some of the equity.

Bank's Reaction

As property values decline, mortgage companies are forced to protect themselves by shutting off home equity lines to prevent further spending against a property that may already be upside down. A property owner looking for lower payments must seek refinancing or a loan modification,. A loan modification can lead to just one mortgage and lower overall monthly payments. However, loan modification is generally available only to people who are facing foreclosure. People who want their payments on a credit line reduced simply because the house has lost value will be turned down.

Asking For Help

A nonprofit credit counselor certified by the U.S. Department of Housing and Urban Development can discuss options if you are seeking to reduce the payments on your home equity credit line. However, your choices may be limited unless you can qualify for loan modification because of foreclosure issues. A standard refinancing may be impossible if the house has lost significant value and completely out of the question if the house is now worth less than what is owed on the first mortgage, let alone the second. A housing counselor can sort through your situation and offer advice. Find a housing counselor in your area by visiting the HUD website.