HELOC - 2 years later

I would love to be debt free, but when I start ranking loans this is one that hasn't hurt too badly over the past couple of years.

This is a home equity loan on our old home....a condo that is now a rental property. On a chance visit to the bank back in January of 2008, somehow they sold me on increasing a $25K line of credit to $100K. Back then, I had no debt other than the small mortgage on the condo. We tapped into the $25K for my husband's business off and on, but we were nowhere near maxing it out.

Four months later, hindsight showed that was the only way we ever would have gotten the house we now live in. I still don't think I've ever told you the whole story about how we found ourselves buying a foreclosure house that had the floor plan of our dreams in one of the top school districts in the nation (and absolutely the best schools in our state). Not to mention it is in a subdivision where my favorite cousin and her family live. It was one of those things where every star had to line up in the sky, one of those things I prayed and prayed and prayed about. But I had to tap the entire $100K for it to happen. Did you know that in Tennessee you have to bring CASH (i.e. Cashier's Checks) to the courthouse steps even before you know what your final bid is going to be??? Let me tell you....for everything to come together like it did....it was one of those things you just had to stand back and know that HE definitely had His hand in this one.

In August, 2009 the balance was $92,711.42. In 2009 my husband received some money from his mother's estate, and we were able to put down about $20,000 on this loan during the year.

This loan has an enviable rate (prime minus a half percent so currently 2.75%). At the time I was very nervous about the variable rate on this loan. Everyone kept talking about coming inflation and rising interest rates. Turns out so far that hasn't happened, but I was nervous enough to take an offer to convert a portion ($73,000) of the balance to a 15 year fixed rate of 4.99%. So yeah, I'm paying more in interest than I could have been, but honestly knowing it is a fixed rate does let me sleep better every night. You must not forget.....I AM old enough to remember double digit interest rates in the early 80's. And the thought of paying 15% on this much of a balance was very nerve-wracking.

Once I finish borrowing out the amount of the assessments over the next couple of months, I'll probably be right back up there near the $72K mark. But for today, the balance is $68,689.11. And the balance on that fixed portion is down to $67,314.11. The other $1,375.00 is at the 2.75% variable rate.

HELOC & Chase Card #2 updates - August 2010

HELOC -
$280.16 paid. New balance = $71,095.60


Chase Card #2 -
$20.17 paid. New Balance = $2,531.02

HELOC Update - July '10

Time for some positive news around here!

No extra payments, but it is progress! For any new readers, this one was converted to a fixed 4.99% interest rate over 15 years. It is secured by the rental property and the monthly rent income is covering 100% of the payment.

$ 278.95 paid. New balance = $71,375.76


Since I'm always looking for reasons to celebrate, this brings the total debt below the $340K mark! WooHoo! Bring out the party hats!!!

HELOC Update - June '10

This loan is making consistent progress. I have been so blessed with such good tenants for this property. We sign a lease with the new tenants next week. And they are siblings of one that is moving out, so I'm not quite as leary as I would be with brand new people I didn't have any "history" on. The good news is that they have agreed to an 18-month lease!! I offered them $25 less per month if they would sign for 18 months...and that's what they wanted anyway!

June statement shows $277.90 paid. New balance = $71,654.71

HELOC May '10 Update & Weekend Plans

The best thing about this loan is that rent from the tenants is totally covering the payment (plus more)!

$276.68 paid. New balance = $71,932.61


I am trying to pull myself out of the funk I've been in this month, and I know that keeping busy and seeing results will do for my psyche than anything. We have commitments through Saturday for my daughter's dance recital and for my god daughter's high school graduation, but Sunday and Monday??? I'll be finding the wood that I know is under my desk somewhere. The papers have piled up, the checkbooks need balancing, and the shredder needs a workout. If I can gain control of this desk by Monday, I know I can start June off on a much better note!

HELOC Update - April '10

Even though I raised my interest rate with the refinance of this balance, I am so happy that I was able to do this. I love that fear of rising interest rates isn't consuming my every thought anymore. I love that the property is cash flowing --- even adding a little extra to my bottom line every month. I'm not paying any extra towards this balance right now, but that's okay. In due time, I will.

$275.52 paid down. New balance = $72,209.29

I've never been a fan of Debt Consolidation

Maybe I've listened to Dave Ramsey for too long, but I'm not a big believer in debt consolidation. In most cases, it's done to make things easier on the cash flow without really solving the problem that caused the mess ---- which is spending money I don't have.

However, I'm reconsidering my stance on this for Chase Card #2. It is carrying an 11.99% interest rate which is variable and will go up whenever the Fed decides it's time to raise rates. I've made some progress on this card balance since I started the blog, much in part to that $500 gift card I received for refinancing the HELOC. But it pains my heart to know that I'm paying almost 12% interest when I could be paying my bank 2.75% which is the rate on any new credit advances I have available through the HELOC right now. When I refinanced $73,000 of the HELOC to a fixed rate, that left $27,000 of available credit that is charged prime minus 0.50% if I choose to tap that credit.

Facts:

• HELOC is secured by the rental property, not my residence.

• HELOC interest rate is prime minus 0.50% (variable)
• Chase #2 interest is prime plus 8.74% (variable)
• Chase #1 interest is 6.99% fixed.
• Capital One interest rate is 4.99% fixed.
• Bank Credit Card interest rate is prime plus 2.90% (variable)

See how that sticks out like a sore thumb!! It's my oldest account on my credit report---probably more than 15 years old. And yet, it has the worst rate and Chase refuses to discuss lowering it.

Mathematically, I know it's the right move. I'm just not sure I'll be as inclined to find those extra payments if the pain (high interest) is gone! Of course, that could free me up to focus on Chase #1 - the card with the highest balance and the next highest rate.

I'm SERIOUSLY considering taking an advance on the HELOC and paying off Chase #2. The due date of my next payment is the 23rd, so I'd love to hear any input you have.

And on a personal note, I own a few shares of JPMorganChase. But I own more shares and have more invested in the stock of the bank that holds the HELOC. From a shareholder perspective, I'd rather have my money go to the bottom line of the HELOC bank. Silly, I know but I can't help bringing in that analysis to my decision.

HELOC Update - March '10

I was able to add $14.50 of snowflakes from two survey companies to the payment on this loan. Total paid in principal was $288.75 and the new balance is $72,484.81.

Middle of the Night Rambling

This single-parenting stuff is exhausting! I can't imagine having more than 2 kids and trying to get everything done. I laid down with the kids tonight and probably fell asleep before they did! Then I woke up at 12:30 (thinking it was already morning) panicked that I had only gotten the kitchen halfway clean, lunches were not packed, and the trash bin hadn't been rolled out to the street! Now at 2A, I've been paying bills online and I'm wide awake.

So I thought I'd indulge myself and post a couple of updates. I love seeing if those little tickers will move ever so slightly.

I earned a $100 cash back reward on one of my credit cards last month. Following my crazy ADD tendencies, I decided to send $20 to 5 different loans. I have always had a hard time focusing on one goal. I feel like the other goals are being neglected, so when circumstances allow I'll hit as many of them as I can. Maybe it's not ADD, maybe it's from multi-tasking for so many years. That's what women do best, right? LOL

Anyway, the Kroger credit card balance got an extra $20 thrown at it this month bringing the balance down to $630.93.




And the HELOC got it's first monthly amortized payment plus an extra $20. Total applied to principal was $293.37 and the new balance is $72,773.56.




Now I feel better! I'm not sure if the little icons moved or not, but progress is progress. And for some reason it's more real if I can see the numbers here...which is why I started this blog.

Thanks for your prayers. We're surprisingly okay. I'm taking it one day at a time knowing that I am powerless over the addiction and the addicted. And that I must do what I can to care for myself and my children and leave the rest in God's hands.

HELOC Update - Jan '10

The first regularly amortized payment since refinancing this loan is not due until February. But I did make some small progress according to the billing statement received today. Principal paid = $100.00. New balance = $73,066.93.




The best news is that also in the mail today was the snowflake associated with this refinance. The $500 VISA gift card. It might take me a bit to translate this gift card into payments on my credit cards. I'll be using it to pay for expenses already in the monthly budget, and then sending the amount out of my budget to a credit card bill.

HELOC Update - Dec. '09

Since I refinanced the HELOC at the end of November, there is a month's delay before I'll be billed for the new payment. I did throw an extra $17 toward the principal though, so the HELOC balance is down to $73,166.93.

Rental Property Refinanced!

Remember when I talked about combining the loans on the rental property into one?

With the offer from my HELOC lender, I was able to accomplish the very same result without all the hassle of going through a refi.

I didn't have to worry about the stricter lending guidelines for investment property. I didn't have to prove that the property is producing monthly income. I didn't have to accept a higher interest rate that most investment properties come with. And the setup fee for the loan conversion was only $100 instead of $2-3K that would have been inevitable with a traditional refinance.

The major bulk of my mother-in-law's estate was distributed in mid-November. My husband and I agreed that we would use $38,739.46 of his distribution to pay down on the rental property loans.

So we used the $38,739.46 by sending $26,133.27 to pay off the First Mortgage and sent $12,606.19 to the HELOC.

Let me tell you, when I call Bank of America to check the balance, that was the sweetest automated message I ever heard when the computer said, "Your loan has been paid in full." Look at this pretty ticker now! *BIG SMILE*






And here is what the HELOC looks like after adding the $100 fee:




Then I had the HELOC lender convert $73,000 of the balance to a 4.99% fixed rate amortized over 180 months. The monthly payment will be approximately $577.00. The other option was to set it up on a 10 yr. loan with a payment of $773.92. My intention is to make monthly payments of $774 based on the 10-year amortization. The property will cash flow with the $774 payment assuming the only other expenses I have each month are association dues, insurance and real estate taxes. But I like the flexibility of having a lower payment if there are months that I am between tenants, have major repairs, etc.

I'm still not sure what direction we'll go in with this property. Depending on what our current tenants decide to do at the end of their lease and depending on real estate market recovery, we might decide to put it back up for sale. If we do, we haven't invested much into getting these new loan terms put in place.

If we keep it and are able to pay it off in 10 years, it would be a nice little source of college funding when my 2nd grader is looking at college tuition in the year 2020.

Either way, I am so happy with this loan. If I have to be in debt, at least I now know that the interest rate is fixed and the payment is affordable. Oh! and don't forget the $500 Visa gift card reward the HELOC lender is giving me in a month or two!

HELOC Update - November '09

The November statement shows that we were able to pay down another $1000.00 from my MIL's estate and $6.30 of online survey income from Opinion Outpost. New balance = $85,690.12.

I've already initiated the process of converting a portion of this loan to a fixed rate. Hopefully, the paperwork will be signed soon. And my worries of that adjustable rate will be gone.

HELP!!!! It's Decision Time!

I know I've already expressed my fear at the thought of interest rates rising. Last month, I even blogged about developing a plan to convert the HELOC to a fixed-rate for my peace of mind in case the finance gurus predicting inflation and high interest rates are right. Even if we don't see double-digit rates again, it seems kind of silly for a rational, otherwise logical-thinking person to hope that interest rates would remain at historic lows for any extended length of time.

So now that an answer has seemingly dropped in my lap, why does it scare me so much?

And yes, I'm talking about the HELOC. That $86K balance on the line of credit tied to our rental property. The one with that enviable rate of prime minus one-half (currently 2.75%).

My late MIL's home is set for closing at the end of next week, and I think with our proceeds (after splitting with all the other siblings) we'll be able to knock the balance on this one down to the $45,000 range...which is less than half of where it started. I want to jump for joy since that will actually pull the property into a positive cash flow situation. Even letting me build up a little more savings for the inevitable repairs and maintenance all properties have.

So wouldn't you know it? My HELOC lender sends out this offer to convert all OR part of your LOC balance to a fixed 4.99% rate amortized up to 15 years. No hassle, no re-applications, no appraisals, just a $100 set-up fee. I called the toll-free number today, and they said I would just need to stop by the local bank branch to sign an authorization. And, as part of this special offer, they're even going to throw in a $500 Visa Gift Card if I do this before the end of November!

But arrrgh...that means I have to pay 2.24% more in interest each month plus the principal portion since it will be on a 15-year amortization. I know (or at least I think) it's the right thing to do, but it means my payment will actually go up $150-160 from what I've been paying these past few months instead of being cut in half. That means I'll need to continue to fund this property each month until the first mortgage is paid off in exactly 46 more payments.

Does this sound like the perfect answer to my dilemma? As I've typed this out, I think maybe it is (and oh my, someday I'll have to tell you about all the coincidences that led us to our current home---definitely a God-thing). The offer arrives within the same time frame that the balance is reduced using the money from the sale of MIL's home (fingers crossed for getting everyone to the closing table). There are no significant closing costs so it wouldn't feel like I wasted money refinancing it if we decided to sell the property when our tenants' lease runs out. When and if interest rates start rising, I KNOW I'd sleep better with the assurance of a fixed payment that is actually paying off principal too!

I'd love to hear your opinions. Is this the right thing to do?

HELOC Update October '09

Ahhh...the dreaded HELOC! The good news is that we were able to apply another $3,000 out of a distribution from my mother-in-law's estate. I also paid an extra $6 from online survey income. Actually it was supposed to be $5, but I hit the wrong key when I was making the online transfer. I'm thankful it was just a $1 mistake and that my flying fingers didn't try to add a bunch of zero's on the end. LOL

That brings the principal balance down to $86,696.42! WooHoo! This baby is going down! I just wish we could get a buyer for my mother-in-law's home so we could pay it down even further and I could formulate my long-term plan for dealing with this loan.

Where to send the Snowflakes?

Another survey check from Opinion Outpost came in the mail today! Only $6.30, but every little bit helps. I'll deposit it in my bank account tomorrow and immediately transfer it to the HELOC balance. Some might question why I'm sending extra payments to the HELOC since I'm only paying 2.75% interest on the balance. I'll be the first to admit that sometimes my thinking borders on crazy, but if worse came to worse....I'm more interested in protecting a property that I've owned for almost 19 years than I am worried about whether the credit card companies get their money.

Don't get me wrong...I fully intend to pay back every dollar of my past. I'm just playing the pessimist and thinking worse case scenario. And given today's economic environment and this administration that keeps spending even more freely than I have, worse case scenarios are not that hard to come up with!!

Trying to develop a plan

After reading Liz Weston's article last week, I posted my blurb about inflation fears on Twitter. Liz actually tweeted me back suggesting that I might want to think about trying to get fixed rates on some of these loans. Then she blogged about getting a fixed rate.

That got me thinking....

We are expecting to get another $30-40K out of my husband's inheritance depending on when and how much his mother's home sells for. As soon as those dollars have been paid to the HELOC balance, I would like to start investigating a refinance of the mortgages on the rental property. I can't remember all the "rules" for mortgages on non-owner occupied properties, but I should have more than 40% equity. I know the rate will be higher than an owner occupied mortgage, but I don't know how much higher I should expect. Does anyone have any advice or insight on getting a mortgage for a rental property? In the meantime, I'll keep plugging away on these debts to make sure my credit score is worthy of a refinance when the time is right.

The HELOC

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 rate....prime 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.