When Your Home is on the Line

Having determined that a new roof is absolutely necessary... And having chosen the type of roofing materials as well as the contractors to actually install the roofing materials... We were left with only one more decision before fixing our house topping: Where does the money come from?

After two and a half years of repairing the house, remodelling the guts of it, and trying to slowly replace all the stuff that it once contained... Tapping into our paltry savings would probably get us about 2 squares of roof complete. The grant money left doesn't come close to covering the $16,000 bid for roof replacement. We could start selling stuff - but then we'd just have to replace it again.. So that won't work...

One thing we do have is equity. And, as would be the case with anyone not living under a rock for the last 10 years, we have heard an awful lot about Home Equity Loans and Home Equity Lines of Credit. Dave strolled into the credit union recently to ask about the best way to finance our new roof. He left with an application for a Home Equity Line of Credit and a print out from the Federal Reserve Board entitled "When Your Home is on the Line" (all brought to you by the Truth in Lending Act).

Now in my former life I worked for my father and mother at a collection agency. Having grown up in the credit business, I have this almost innate alarm system when it comes to credit risk. Just looking at the HELOC application - I could instantly hear my father's voice saying something along the lines of "Lenders are in the business to make money. Ask yourself 'What's in it for them?' before you sign anything." Another ten minutes and realizing that a HELOC appears on your credit report as a revolving credit account (read: great big almost maxed out credit card) was all it took for us to decide against that route.

The only other alternative vaguely offered by the credit union was the Home Equity Loan - with a higher initial interest rate, set loan amount, and set repayment terms - a real possibility. But as we are quite frankly paranoid about our credit - we were curious as to how such a loan is reported to the credit reporting agencies. The answer? Why it affects your credit in the same way that a second mortgage would. Now of course, this answer was offered in a really happy upbeat sort of 'don't worry about it' tone. I don't share such credit optimism. I've seen lots and lots and lots of credit reports in my life. As a matter of fact, for a while I was the person you called at Dad's office if you disputed an item on your report that we reported or if you needed a letter for the mortgage company stating that you were making regular payments on your previously bad debt. I can tell you this -- a second mortgage does not help your credit rating.
I mean, sure.. it's not as bad as a repo or a collection account.... But it's also not as good as a conventional installment loan or a first mortgage.

And that is why we finally decided on refinancing our home. We'll be consolidating our other loans, taking a cash-out for the roof and a few other repairs... saving money monthly - saving long-term interest (we're refinancing our 30 year mortgage for 15 years, I believe) - and further improving our credit - rather than risking it or actually damaging it.

With impeccable timing as usual, Dave just called with the particulars from the bank - we're approved to go ahead with the refinance. Now we just need to gather paperwork and get the appraisal for equity calculation. The whole process may take as long as two weeks, but we're really excited anyway.

And when I manage to put my real post for the last couple of days up later tonight (hopefully) I think everyone will understand why right now is a really good time to free up some cash-flow around here.... Stay tuned.