The HELOC: Friend or Foe?
To borrow from the rock classic, "There's something happening here. What it is ain't exactly clear..."
What's happening is that we are getting numerous calls from past customers wanting us to list their home for sale because they are transfering or they are outgrowing their current home, etc. "Super!" we say, "let's schedule a time to meet... but, first, let me ask you a question. Have you refinanced your home since your purchased or have you taken out a HELOC on it?"
We dread the answer because, more often than not, they say "Yes, is that a problem?"
"Is that a problem?" All too often the answer is "Yes, it just might be a big problem!" And here's why....
Typically, the customer purchased the home 3 to 5 years ago (sometimes longer, but that is the average). The market was HOT-HOT-HOT back then and homes were appreciating rapidly. "But, that's a good thing" you say. Sure - that's great! So what's the problem?
The problem is that while the market was appreciating, mortgage brokers were soliciting business like there would be no tomorrow (but there is always a tomorrow). They were pushing HELOCS in a big way with the sales pitch of "pay off your high interest credit card debt and car loans with our low interest, tax deductible Home Equity Line of Credit."
They then proceed to lend you money on what's commonly called a 'desk top appraisal.' Without going into all the details, suffice it to say that the amount they said your home appraised for was more than likely much higher than it should have.... but the unsuspecting home owner is psyched to hear that the home he just recently purchased is already worth much more than he paid. So he takes out the loan and pays off all those other debts.
What he failed to realize, however, is that he now owes more for his home than the home is actually worth. He wants to sell it but he simply can't do it now. Oh, how we wish he'd have called us before doing anything with his home or mortgage! It just doesn't pay to mortgage your home to the hilt! Build equity and hold onto that equity... don't cash it out for your toys!
It is so frustrating... We tell people that we are here for them for any and every real estate related question but they don't call for some reason. Maybe if we charged extra for our knowledge, after the sale, people would call... I just don't know. I do know that we consider our customers as our friends. And we hate seeing our friends lose money and incur unnecessary stress in their lives.
The thing is, we are more than happy and willing to share our knowledge with you long after the sale is complete. We are daily students of the real estate industry. There is no way in the world that the casual observer could pick up the knowledge needed to maintain their most valuable investment by simply watching HGTV and reading pop-culture real estate articles.
Before you make any move regarding real estate, PLEASE CALL US FIRST. We just may save you a lot of money and even more heartache and stress!