Q: My home has no mortgage on it, but I do have a home equity line of credit. What would happen to the HELOC if we were to put the house into a trust?
A: A home equity line of credit is a type of mortgage. Most people don't realize this. A HELOC, unlike a traditional mortgage, is a revolving loan, meaning that you can borrow, pay back and borrow the money again for a set period of time, usually 10 years.
A debit card and a stack of checks come with this loan to help you spend the money. A HELOC can be very attractive due to the much-lower interest rates and higher limits available compared with a normal credit card.
The downsides: It's a mortgage that can be foreclosed if you stop paying, and after the initial term runs out, you will have to pay back all of the outstanding money – with amortized interest within a shorter period than a traditional mortgage.
A HELOC, like most other mortgages, usually has a clause making you immediately pay back the entire loan if you transfer the property to another person or company. This is the reason why you need to pay off your mortgage when you sell your home instead of just letting the buyer assume the payments. Fortunately, deeding your home to a typical revocable or living trust set up for estate-planning purposes does not trigger this due-on-sale clause. But it's still a good idea to call your lender and confirm this.
ABOUT THE WRITER
Gary M. Singer is a Florida attorney and board-certified as an expert in real estate law by the Florida Bar. He is the chairperson of the Real Estate Section of the Broward County Bar Association and is an adjunct professor for the Nova Southeastern University Paralegal Studies program. Send him questions online at http://sunsent.nl/mR20t7 or follow him on Twitter @GarySingerLaw.
The information and materials in this column are provided for general informational purposes only and are not intended to be legal advice. No attorney-client relationship is formed. Nothing in this column is intended to substitute for the advice of an attorney, especially an attorney licensed in your jurisdiction.
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