Sunday, September 20, 2009


I'd always heard that Home Equity Loans (HEL) were just missing the last "L" in their name. And that's truly how I've turned to feel about mine.

I need to remember the good things about this HELOC. It was only because we had LOTS of untapped equity in the old house that we were able to tap this to buy our new home. A whole different story about how we found and ended up buying the house we now live in, but it never would have been possible if the HELOC had not already been set up on the prior residence. Also, it's a superb minus 0.5%. So for the past few months it's been at 2.75% interest only. Good things, right?

So why is this loan my scary one? What if interest rates skyrocket before I get the first mortgage on this property paid off? I really cannot afford for the rental property NOT to cash flow every month. The budget is way too tight to be pumping more money into it. Also, because this property is no longer our residence, the interest on this loan is mostly non-deductible. By following the interest tracing rules, I will be able to deduct a small portion of the interest. And that's no big deal when interest is at 2.75%, but what if interest rates go back to where they were in the early 80's? Anyone else remember 13% and 14% on mortgages? Personally, I think it might be on our horizon given the actions of the Federal Government in recent months.

Am I just borrowing trouble? Maybe or maybe not. I have been able to knock about $10K off this balance with some distributions from my mother-in-law's estate. She passed away this spring. And my husband had committed a portion of his inheritance to pay towards this loan when we made the decision to max it out and buy our new home.

Thirty days ago, the principal balance was $92,711.42. We have since paid $3,000.00 (from funds received from my mother-in-law's estate), $9.00 survey income from Opinion Outpost, and a monthly interest payment. The principal balance today is $89,702.42.

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