What was your mortgage situation prior to starting with Replace Your Mortgage?
We had a 30-year mortgage fixed rate mortgage with a low interest rate (around 4 percent) and a starting balance of $220,000.
When we joined RYM we had about $214,000 remaining in principal balance after paying our monthly payment for 4 years.
What is the current status of your HELOC and how many months did it take you to achieve it?
It has been about 2 years since we started RYM.
In that time, we have used capital from our HELOC to invest $50,000 in a real estate deal, $10,000 in starting a new business and weathered two back-to-back financial crises (one involving both legal and medical bills, and the other due to our primary wage-earner’s unexpected job loss).
We currently owe $233,000 on our HELOC, with a ceiling of $269,000 possible on that loan. (The high ceiling was due to real estate appreciation prior to getting the loan.)
We are also carrying an additional $51,300 in temporary 0% APR interest rate credit card debt that we incurred in order to make sure that we still had room for unexpected contingencies in our HELOC loan.
Repayment on this should begin in February or March of 2019. Given how the new business is going, I expect us to be able to bring that all back into the HELOC before jumping to the higher long-term credit card interest rates.
What was your biggest concern when deciding to join RYM?
My biggest concern was the rising interest rate environment and the fact that the loans were variable interest rate loans. It seemed like there was a possibility where interest rates and interest expenses could outpace our ability to increase payments on the loan.
After thinking deeper on this, however, I realized that while this was a true risk factor, there were other risk factors involved in not having access to the capital that was tied up in the house. Because of that, my husband and I decided to go forward with getting the loan, even if we will end up paying more in interest in the short-term.
For us, the flexibility of having access to capital when we might need it to take care of our large family (we have seven children) was more important than the spread in interest rates. After all, that has happened in the last 2 years. I am so VERY glad that we made this choice.
How has using the RYM strategy changed your life?
RYM has provided a huge peace of mind in knowing that at least our near-term financial future is financially secure, even when life took scary and unexpected turns.
It gave us time and a runway to start our own business after my husband lost his well-paying job.
It has significantly decreased financial stress in our lives and has allowed us to handle the emergencies that come up without completely derailing our financial future.
By being able to invest now in our own business, even in tight financial times, it has allowed us to lay the foundation for strong future growth.
I expect, at the end of next year, we will find that we are better setup than ever to tackle the increased debt load that we have had to take on -- and to quickly get back to firmer financial footing.
What advice would you give to a homeowner considering trying the RYM strategy?
When you think about financial risks, do not only think about the risk of rising interest rates. Think about the risk of being unable to access capital if you find yourself suddenly unemployed or in another emergency situation.
Also, think about the ability to use capital to pursue investment opportunities.
Think about and figure out what strategies you are most comfortable with. Do you want to keep a large six-month living expense available? Do you want to aggressively pay down debt? Do you want to invest in high return opportunities?
Also, when looking at investments, keep in mind that investments can fail. At that point, you are on the hook for whatever debt you took on for those investments.
Or investments can simply lock up capital for a very long time. I suggest figuring out what your minimum comfortable emergency runway is and keeping that in your HELOC regardless of what investment opportunities come up.
With hindsight, if I could do anything differently, I would not have made the $50,000 real estate investment that we chose to make, and kept that money in the account as cushion instead. While I don't expect to lose the money that I put into the real estate investment, that capital is now locked up for a long time. In hindsight, it would have been better to keep that as part of our emergency fund.