Tuesday, December 13, 2011

is going into debt to fund your home remodel still fashionable?

It’s time to pay up or shut up. We need money to fund the bathroom project. Years ago, during one of the many refinance cycles, as interest rates continued to drop; we did some extra paperwork and took out a home equity line of credit on our house. This big tempting line of credit sits in a bank account that I don’t go into that often. It is where I keep ATM cash and my son’s savings account. I go into this account enough to have always been aware it was there.

This morning I called the number listed at the bottom of the screen with only one question on my mind, “How do I get this money?” I really didn’t have the foggiest idea. A nice lady named Peggy, with an older sounding voice, came on the phone and thanked me several times for being a BIG-BANK customer and began asking me questions. Within minutes I learned BIG-BANK would transfer any amount of money from the home equity line into a checking account. How much did I need? Did I think we would need more to cover remodel overages? Do we have credit card debt or car payments we needed to consolidate, up to the full amount of the home equity line? Could we use a credit card to access the remainder of the home equity line, to pull out cash anytime, anywhere?

Peggy made it sound so easy. I could hear the call of the sirens. I was thinking new bedroom furniture would be perfect in the adjacent master suite (the old would look so shabby next to such a spiffy bathroom). 

We would need money for the new LED TV facing our bed. 

And, I need to pay for the pretty soaking tub up front, because the Modern Bathroom store, doesn't do business with contractors.

Frankly, she had my attention. "Tell me more," I whispered. Peggy asked the time frame for which we needed the money. “Only Three years,” I declared! Peggy said, "Of course,sweetie," and let me know that we “qualified” for a fixed rate loan for 4.25%, and would only be required to make interest only payments  (a paltry sum), and then the balance would roll back into the home equity loan at variable interest rates at the end of three years.

Within minutes she had executed the transfer of a substantial amount of cash that is now sitting in my checking account, with a $20,000 cushion over the amount we need. And, we won’t actually have a remodel bill for over a month. And, small fact, it is ten days before Christmas. This is a really dangerous situation. 

If it was that easy for us, what was it like during the crazy times five to ten years ago when banks were giving out money to people who could only afford the interest payments at best? Was this how people ended up using debt to pay for ridiculous things, like wigs and psychics, according to a Yahoo Finance story from Oct-2010, You Went Into Debt For That!?! Good Examples of Bad Charging. Peggy finished off the call by letting me know she would be sending a form that we had to sign to complete the deal. And she double checked that I really knew what I was doing by turning down the credit card which can be used at any ATMs to get cash against the home equity line. Oh, she was good.

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