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My craziest mortgage

February 3rd, 2016 at 05:45 pm

Did I ever mention the craziest mortgage I ever had? I had a home equity line of credit as our first mortgage back in 2003. It was literally a free standing check book where we had to pay maybe $100/month just the interest on the balance of our HELOC. We owed at the time I think $130k and by paying it off with snowflakes by the time we sold in 2005 it was down to $120k. We used the flexible payments and low interest, the interest on the HELOC was floating and changed monthly. This allowed us to pay as much as we could on good months, and draw on the home equity on bad months.

Looking back I cannot believe the bank let us do this with no assets and no savings. All they had was the home. Insanity. Of course this in turn allowed us to gain equity and turn it into 20% on our next home. But it was a lot of risk and a lot of discipline to pay down our debt instead of taking advantage of spending the excess.

I say this because I was chatting with a realtor recently when I mentioned bubble and froth, he said that don't worry as long as you have a job you'll get approved with good credit. I said it was a bit overextending if we went any higher and his response, most people have no trouble refinancing and affording payments since rates are so low and the houses are appreciating 15% year over year. Um okay.

I said great thanks. I decided I'm getting more nervous buying a house and putting my neck on the chopping blog.

5 Responses to “My craziest mortgage”

  1. MonkeyMama Says:

    I know multiple people who paid $100k-ish for their homes in California (older than us, so able to buy in the 90s) and borrowed all the equity by the peak in 2005. So like $300k or so borrowed above the $100k price they paid for their homes. Just, insanity. (From my perspective, we'd be debt free if we could have paid so little for a house. What a wasted blessing). It seems like basic common sense to me, but I know how unique it is to be in a situation like you were and to not go hog wild. So, good for you!

    Just don't do anything stupid. I think that you are wary at all is 99% of the battle.

  2. Kiki Says:

    When I bought last year one of the options that the mortgage broker gave to me was a 10 and one arm mortgage I couldn't believe that after all the issues from 2007 forward that those mortgages are still available. I said no thank you I will only take a conventional which is what I selected but she was really really urging me to take a mortgage where my payments would only be about $900 a month considering the interest is more than $900 a month I would've been upside down had ever gone to sell the house for something else. It was absolutely ridiculous and I can't believe, after seeing theThe big short that's out in theaters right now, that anyone would take those mortgages. It means that they truly cannot afford to be in a house yet.

  3. VS_ozgirl Says:

    They will try anything to get a sale, and nothing is too expensive, there's always an argument they will bring out as to why it's ok to spend more. However you and many educated people on this site can equally match that argument with why it's ok to spend less. When B and I were given approval for our loan many years ago because I had a good job and no debt (B had a good job and a car loan) we were allowed to borrow up to $380k. I was 23, he was 25! Fifteen years ago borrowing $380k would have been equivalent to borrowing $600k now. We decided that we would buy the house that suited us as cheaply as possible (we paid $152k).

    Stick to your guns, you didn't get to where you are now by over-extending, fall back on the financial knowledge you've spent years accumulating.

  4. creditcardfree Says:

    Interesting. Any idea how you are leaning now on type of mortgage? Do you want a home where you only put 20% down or a less expensive home so your downpayment covers a larger percentage of the home's value?

  5. livingalmostlarge Says:

    Haven't yet decided but we're not putting down more than 20%. We are investing the rest and paying off the mortgage on likely an ARM. We're comfortable with a 5 or 7 year arm. We'll keep refinancing along the way and probably just end up paying it off shorter. Plan is to be clear of a mortgage by 50, not paid but have enough in investments that we could if we wanted to.

    This is not what I would recommend for most people and very risky probably for most, but I think we're honestly in a small % of people who are very fiscally (as are those on this site) responsible and can honestly say we have a general budget and stick to it. Also we dictate what we can afford over the bank always. I have a generalized plan of our spending and saving for the next 10 years and I think that only putting down 20% is fine.

    The target may move a bit and be 55 but our goal is financial independence as soon as possible. And mortgaging any house we buy is essential to free up the most cash flow. The house we are buying is our house for probably 20 years. Once the kids are gone we will probably downsize and buy or something smaller.

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