There has been much drama this last year, and no one can say otherwise. Even with a new president, mass vaccinations, and a “united” Congress, the pandemic isn’t going away and people are hurting financially.
It’s times like these that my clients inevitably ask me about either taking a second mortgage, getting a Home Equity Line of Credit (HELOC), or a Home Equity Loan.
My advice, in all but gravest of situations, is don’t do it.
For most of us, our home represents the biggest investment we’ll gain, and that investment is one we’re counting on to play the role of life savings. Yes, I know that most of us have retirement accounts and other assets, but the home?
That’s not only where the heart is, it’s where the money really is.
Why would you want to jeopardize it?
Right now, I know many you are shaking your heads and thinking I’ve lost my mind, but just hear me out: If you have truly exhausted all your other options – and I mean All Now, I’ll admit there are some circumstances where you may need to consider stripping away the equity you’ve built into your home, but ONLY after you’ve exhausted all your other options – broken open retirement assets, stripped away any consumer-driven spending, and so on, then MAYBE you should be exploring a HELOC – and I’ll get into my reasons for that in a minute.
The far bigger issue to consider is this: how’d you get here in the first place?
Think about it – we need to solve that problem – and protect you from it happening again – before we worry about your home’s value.
For example, given the time we’re in now, the bank doesn’t want to foreclose (and then become an owner) – it’s terrible press for them, and they inevitably lose money in that deal, just like you.
So let’s back up for a second…
If you’re in dire financial straits, have you picked up the phone and called those creditors? Yes, it hurts to discuss it, and collections people are inevitably heartless and trained to NOT listen to your excuses or reasons, but it’s documentation of your plight.
Years ago, I remember a real estate investor who was in a financial bind and behind on everything – car, house, office rent, health insurance, and so on. Every Tuesday morning, he’d call his creditors and listen to them hound him for money he didn’t have. I well remember seeing him once, soaked in cold sweat, and asking him, “Bob, why do you do this to yourself?”
His answer was simple, “Because they can’t say I didn’t tell them.”
In the end, the deals he was working on paid off, and he could bring everything current and, in most cases, pay the balance off completely.
Was it tough? You bet! I can’t imagine doing that weekly for months (and, by the way, the phone calls from them didn’t stop, either. Many months later, he jokingly recalled, “Once, I got off the phone with the bank that had the house and fourteen minutes later, the fools in the same office called me to ask where their money was. Those weren’t fun times.”)
The idea of communicating with your creditors might seem old-fashioned, but the truth is, it can be a critical way to keep from losing your assets when times are tough.
In the end, you do have to make decisions about pulling equity out of your home while you’re current on the payments, but if you worry about clouds on your financial horizon, let’s discuss all the options on the table instead of simply ripping away your financial toilsome work. It might be the right answer, but it is never the only answer.
Reach out to me and the team and discuss it before you do anything!
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