Tattoo the end of the draw period on the back of your hand. I obviously didn’t. The ten years of the draw period flew by. I had always planned to consolidate my first loan and the HELOC into one reasonable payment. Someday. Someday showed up with a sickle and a mask in the middle of a rough patch with a payment that was triple. Pretending it isn’t coming doesn’t make it go away.
Size matters. Ten years ago when I did my last HELOC, I ended up financing up to 95% of the value of my home. That was pre-real estate crash time and fund anything without an appraisal. It was a lot of money and although I did use some of it to put down payments on three other properties and do some renovations on my own home, I still wonder where a good portion of the money I borrowed went. Scary right? If I ever take the HELOC plunge again, it will be for a renovation of my home and it will be a much more conservative amount. Putting the money back into the investment makes sense and staying within a reasonable range of what the house is worth is also a no-brainer.
Property values are like the boyfriends I had in my early twenties. They come and go. My grandfather always told me property is the best thing to investment in because people always need a place to live. Even with all my financial drama, I still believe in that whole heartedly. What my grandfather never said to do was treat the investment like an endless ATM machine. Because real estate goes up and down. If you don’t borrow against your investment, you almost always come out ahead. But when you keep sucking the equity out of your property, at some point, you are going to hit a speed bump. There was a time I was almost $75,000 underwater on my house. Luckily when the payment tripled, I was back on top of the equity side. If I had not been, there would have been no options to refinance and pure and simple, I WOULD HAVE LOST MY HOME. Which of course is the most important lesson. When you borrow against your home, you can lose your home. As hard as the experience was, I hope I have the memory of the stress with me forever. Sometimes that is the only way you learn!