I did not qualify for a traditional mortgage when I bought this house 7 years ago so I got a HELOC (home equity line of credit) instead. I did need some money but it was easy to dump lots of expenses in to the HELOC because of the low interest rates. Big bills on the credit card were dumped on the HELOC. The HELOC has grown for 5 of those 7 years since I moved in to this house.
Interest rates have been very low these last few years but for the first time my HELOC interest rate (4%) is higher than some of the mortgage rates my favourite bank is offering.
The HELOC interest rate could continue to rise but I could lock in an interest rate on a mortgage of 3.04% with a 2 year amortization and be debt free in 2 years.
The HELOC is very easy for me. In the months that I had no money to make a payment all I had to do was pay the interest. If I commit to a mortgage $396.25 would be taken automatically from my account twice per month. I would be stuck with this payment whether I had the money available or not.
The mortgage guarantees a low interest rate that will not rise.
The HELOC allows me to skip payments if emergencies happen. As long as I pay the monthly interest I do not have to commit more funds each month. I have only myself to rely on and generate income.
The HELOC interest rate could increase at any time and then much more of my hard earned money would be going to interest instead of principle.
I can pay extra money to the HELOC at any time but I am limited to 1 yearly extra payment equal to 15% of the original principle. I would take out a mortgage of $20,000 so I could make 1 yearly payment of an amount up to $3,000.
Everything about the mortgage seems to be the make it the better choice except for 1 BIG thing. I am afraid of not being able to always make my mortgage payments.
I will have to think about taking a chance. Take a chance that I can make each and every mortgage payment. Take a chance that emergencies won’t happen that force me to rely on the HELOC.
Take A Chance Abba 1977
https://www.youtube.com/watch?v=-crgQGdpZR0
January No Spend Update.
The plan was to slash expenses in January but every time I watch this Abba video all I want to do is buy boots like Anni-Frid (the brunette) wears.
Most of the money is gone. $40.00 dollars was spent between yesterday and today. Today was some real and much needed groceries but yesterday money was wasted on chinese food after a long stressful day at work. Now there is only $29.00 left for the month and I need milk for tea. Good thing there is still lots of toilet tissue.
I really wouldn’t stick with a “favourite” bank. I would look for the lowest possible rate anywhere and seize it. A percent is a percent is a percent, regardless of the bank; they certainly don’t care about consumers (as much as they hope their commercials will fool you), so I don’t think people should feel any loyalty towards them.
My bank will match the rates of other banks. I have been through this with them before. All I have to do is present something with a written rate on it. All the banks post their rates on line so I just have to print something off to get my bank to match.
How secure are your hours at work? I seem to remember you expressing some uncertainty.
It is a tough decision, you make good arguments for both sides. However, realistically it is not a lot of money you are talking about. 1 or 2 % difference on 20K is not as big a deal as if it were on 200k.
What about paying your HELOC like it was the mortgage for a few months to see how that translates into your world.
Another issue that I can see would be that if you had a month where you couldn’t pay the mortgage and they take the payment anyway (which they would do), where would the shortage in you budget come from then? Would you end up using your credit cards to buy groceries or gas at a much higher interest rate?
How much is peace of mind worth to you? I read somewhere you have insurance on one or some of your accounts, could you count the extra interest as insurance?
I think the hours at work may be cut and they are frozen for sure. The mortgage seems like a monster crossed with a brick wall -big, scary and too solid to knock down. The HELOC is easy and agreeable but the interest rates make it unpredictable. This money stuff is all wrapped up in emotion and it makes it hard to make a decision.