We are keeping our variable interest rate on our Heloc.

The Mrs. and i have made a decision on our HELOC dilemma! We have decided to stick with option #1 - to continue going with the variable rate with no locks. Your comments definitely helped us put things in perspective, and we feel the odds are in our favor :) And with the other week's news about the Fed leaving the rates unchanged, i'm thinking we're on the right path.

The worst that can happen is it starts to go up over time, but even so history shows the prime rate hasn't gone above 10% in 25 years...and if disaster does strike, raising it above this threshold, we'd hopefully be long gone with the loan anyways, or at least re-financed by then.

And if we're all wrong? well.....let's just say i'll be concocting some pretty colorful posts! That is, after i wipe up all the tears from my keyboard.

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Is it time to lock in our Home Equity Line rate? I'm Stuck!

*Update: We've decided to go w/ option #1 :)

Similar to my car dilemna, now going on 4 months w/out a decision, it's enough to drive a person crazy.

Do you lock in a rate now and hope you caught it on the rise, or do you wait it out a bit and save more money each month?

The funny part is that Mrs. Budgetsaresexy and I JUST had our first talk about this last Saturday, and we told ourselves that we'd lock in the next time it goes up...thinking we'd have at least a couple months before thinking about it again. Ooops. So I now bring this dilemma to you guys for help :)

Here are the details on our current loan:

• This is our "2nd Mortgage"
• It's a maxed out Home Equity Line of Credit (HELOC)
• It's an interest-only loan
• The rate is variable
• The current rate is 4.55% (Prime - .45%)
• The current balance is $62,602.23.

So basically, our current rate is lower than ANY OF OUR OTHER LOANS. It beats out our 1st mortgage, our car loan, and all credit cards. Sexy, ain't it? Of course though, that's only how it works out today.

There's a load of variables to consider here, not to mention hefty pros and cons, and we def. want to stay with USAA for a number of reasons. Here are the 2 options we're considering

Option #1 - Keep the loan as-is. Rate at 4.55%

• This rate can change at any time, depending on the Fed.
• We have 172 months to pay back this loan...8 months have already passed ;)
• This means monthly payments of roughly $230.
• PRO: Since we budget for $540 here, we save $300 every month!!! (our original amount when we purchased last year was $540, before re-financing and the fed lowering rates)
• PRO: Our emergency fund and house savings account gets padded each month with this $300!
• CON: We have no control since it's variable - The rate is associated with the WSJ Prime Rate, so it's all in the hands of the Fed. And considering it's been cut heavily over the past 10 months, I'm starting to believe the hype that it will start going back up.
• CON (in theory): It's interest-only - we are only paying off interest each month, adding nothing to the principal. I say in theory because the average home owner will not add extra to pay off the principal. We usually pay portions off sporadically, rather than a set amount each month. Our initial HELOC was $72k, so we've knocked it down by $10k already, even though we have an interest-only loan. Granted, most of this $10k was on accident.

We've been with option #1 from day one of buying our house, making it even harder to switch out as we're so used to it. It's so freakin' nice having that $300 cushion to play with :) BUT, we also know that we'll eventually need to lock in a rate as the tides WILL turn...it's just a matter of when.

It also gets a bit tricky because the rate above moves with the WSJ Prime Rate plus or minus the lender's points, while the rate to lock it in moves with the 182 T-bill (3 year ones I believe) plus or minus the lender's points. So it's like you have to judge two different trends.

Option #2 - Lock in a rate now at 7.72%.

• The interest rate will stay exactly the same now, as it will in 10 years.
• The HELOC would essentially convert into a Home Equity Loan (read about the difference)
• The loan will ammortize over 180 months
• The monthly payment would be around $588 (i used this simple loan calculator)
• PRO: We would now be paying both interest, AND principal. The main portion of course going to interest, but it's now all built in and mandatory - similar to a normal loan.
• PRO: No more worrying/thinking about interest rates adjusting, as it won't matter here.
• CON: The monthly price tag drastically goes up! no more padding any of our accounts :(
• CON: We'd now need to re-budget for an extra $45 a month, which is quite different than having an extra $200 to play with!

This lock in rate changes every month with USAA, on the 3rd Tuesday of the each month, so we have a few weeks to decide. It's important to note though that over the past 3 months it's gone from a steady 6.75% (from as long as I can remember) to 7.18% last month, and now to 7.72% this month.

As i mentioned, we're eventually going to have to lock in a good rate before everything goes up, but is that time now? According to that graph up at the top, taken from BankRate.com, i'm thinking option #2 is looking like the best bet here. What would YOU do?

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Emergency Funds are not Fun...but they're important!

It seems like every time I get close to reaching my goal of 5k, something happens and I get thrown back a bit. This time around my emergency fund got frozen* inside my HELOC, basically leaving me with zero now.

Since it was used to pay part of the 2nd mortgage (the heloc), it's not like i really "lost" the money, but I still can't tap it in case of an emergency. In reality, an emergency wiped out my emergency fund!

There IS a lesson to be learned here: Emergency Funds should be totally liquid, and accessible 24/7!

Lucky for me i'm a pretty positive guy, so as frustrating as it is, at least i am learning something :) There's also something to be said from starting with a clean slate. Before this happened, I had accumulated $4,800, but slowly kept chipping away at it until it reached around $3,000. Then I had my "aha!" moment and started adding back to it. At this point, however, I kept thinking i was down 2k and couldn't feel content until i was back at 5k. Thus, every time i added $ into it I couldn't feel at all happy about it as I was just making up for it.

This time around, however, I will leave it alone 100% and watch it grow. So each time I add a little into it, I'll be proud every time knowing that i'm that much closer to reaching my goal. Now I'll be saving up, instead of catching up.

• This year's goal: To reach $5,250 (yahoo!) I'm fairly confident i can make this happen.
  
• My ultimate goal: To reach $10,500, which is what i'd need to survive for 3 months. (scary huh? I am working on lowering this, believe me.)

You can track my progress on the status bars to the right which i update monthly. Let's hope i keep pumping it up and reach my goal! Lord knows it won't be easy...

---
*To read more on our heloc freezing up, read my operation heloc: the bad :( posting.
*To read more on why helocs freeze up to begin with, as well as some awesome commentary from users and how it affected them, read this article from The North County Times.

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Federal Reserve cuts another quarter point.

Wow... so now my HELOC will be down from 4.80% to 4.55% ... Can it get any crazier?
From MSNBC (can you tell i read this a lot?):

"The central bank is walking a tightrope, trying to jump-start economic growth while also confronting the risk that if it overdoes the credit easing it could make inflation worse down the road."

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What the ... My c/c rate is lower than my mortgage!

MapGirl put out an interesting post yesterday about crazy interest rates these days, and it got me thinking. I, myself, have been coming across some pretty interesting things lately! Just take a look at our current interest rates:

• 1st Mortgage - fixed: 6.875%
• 2nd Mortgage (HELOC) - variable: 4.80%
• Credit Cards - variable: 5.25%

Can you believe that?! My credit card rates are LOWER than our 1st mortgage! haha...and it's not even by a little right now, it's by a whole point and a half. I get that our HELOC and c/c's are based on the prime rate, but my goodness it's pretty funny to look at.

Now, if i had the balls like some of you have, i'd take out a chunk of the credit card and throw it against our 1st mortgage! we'd save some pretty pennies for sure, but the whole thing scares me :) As soon as those rates start hiking back up, we'll have to knock away that credit card debt...and fast! We can't "lock in a rate" there like we can for our HELOC.

Speaking of which, although our $62k in our HELOC is variable right now, we always have the option of "locking in" a rate for a portion, or all, of the balance. While i don't think it's a good time right now, it's def. something for us to consider as the economy starts picking up. I'll be sure to keep you posted (pun intended).

In a perfect world though, we'd like to correct these #'s by refinancing our 1st mortgage. Bankrate is currently showing a national average of 5.79% for a 30 year fixed, which would save us a hefty $245 per month! BUT, there are a few hurdles we'd have to jump through:

1. We'd have to get it at "interest-only" - Currently this allows us to have a lower payment each month, while still giving us the ability to pay extra towards the principal. (It's not good for everyone, but for us it works.)
2. Our house would have to appraise within 10k of our purchase price - And since our HELOC was recently frozen :(, i'm gonna guess this is a long shot.
3. We'd have to pay closing costs and probably a point or so if i had to guess. - In the long run this would work to our benefit, but w/ Mrs. Budgetsaresexy soon to be in graduate school, we don't want to be shelling out much...esp if we might sell/rent out in the near future.

So, this leaves us back to square one :) But i'm not complaining! In fact, i hope the Prime keeps going lower to be honest. Selfishly, it effects us much more positively than does saving/bond/etc rates. On the other hand that would mean the economy isn't doing all that great....and that's plain scary!

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Fed move + the Dow= ON FIRE!

What a day for the consumer: The Fed cut rates by 3/4 a point, AND the Dow is up 400 pts!

(FOUR HUNDRED)

That's what i'm talking about :) This is huge for us as it'll drop our variable HELOC rate by .75%! Of course, this news isn't the best for those high-yield saving accts, but currently that doesn't apply to us.

A good 8 months ago we were paying 9% on our home equity line (our 2nd mortgage). But after all the fed cuts and refinancin' we did, it'll now be at an astonishing. 4.8%! Freakin' unbelievable. Of course, most of this is purely luck and timing, but hey i'll take that.

For those of you checking around for a decent loan or mortgage out there, i'd say it's not a bad time to pick one up these days ... And for all you investors out there. HOLLER!

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Operation HELOC: the bad :(

We really got F'd on this one the other day! Seriously, it was going sooooo well. I really thought we fenagled ourselves a great deal. I mean, it still IS a great deal in that we are saving roughly $200 a month currently, BUT here is where they got us (and i didn't even see it coming!):

THEY FROZE OUR HELOC ACCOUNT!!!!

You might be saying to yourself, so what? You're still saving $200 a month. This is true, and i'm thankful for that. BUT consider what this now means:

1) It was frozen because the market values of the houses in our neighborhood have now gone down! And the bad part is i don't know by how much (according to my bank of course) as I have to await some elusive letter in the mail stating the amount. ARRGHHHH.
2) We have now lost access to our entire Checking and Savings account! Remember, we put 9k into it to save the additional interest each month with the belief we could take it out anytime we wanted...and this was working fine until now. Imagine your accounts having a $0.00 balance starting right now. Scary, eh?

So, did "Operation HELOC Savings" work? YES. It saved us $$$. BUT it also F'd us in the fact we "lost" all our savings and checkings, and we NOW have refigure out how to move on securely going forward, as well as start building the aforementioned accounts back up ... all the while paying our bill and mortgages at the same time.

On a good note, we (or really I), learned a big lesson here: Spend more time reading what I'm signing as there ARE loopholes for both parties. Seriously, i didn't see this one coming!

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Operation HELOC: the good :)

Yayyy, this is the HAPPY part!

So, "Operation Heloc" was put into place by my fiancée and i to save more money on our interest payments. Being brand spankin' new about houses, mortgages, etc, we really didn't know what we were getting into. We trusted our financial guy though (w/ Weichert Financial), and this is what we got:

1st Mortgage: 30 year fixed @ 6.875% - interest only, fixed rate.
2nd Mortgage: HELOC (home equity line of credit) @ 9%*- interest only, variable rate.

At first this didn't mean anything to us. After a cple months, however, it occured to me that 9% is pretty high considering the both of us have Excellent credit scores. I know it's a 2nd mortgage, but still. I started reading all the blogs out there and MAN there was a lot of info (Thanks guys!). The one that really caught my attention was a post from The Simple Dollar on Money-Merge accounts. After hours and hours of further research, it occured to me that we could (and did) do the following:

a) Refinance for a lower rate - We did this 3 months later and got it down to Prime - .45%!!! (at the time i believe it was 8.25%) knocking it down a good 1.2%!, and it only cost us $42 :)
b) We then took out most of our savings and checking $, about 9k, and "paid off" part of the Heloc. This was done by basically using the HELOC as a "checking" account. We xferred all our savings in it, deposited all my paychecks, and then wrote checks out of it to pay the bills. Wierd/COOL/neat? Yeppers. This in effect saved us even more in finance $.

So, overall the plan worked PERFECTLY! We saved a total of $72.00 each month just by doing the above. Since then, the rates have also been going down, so we are now set at a little over $200 savings EACH MONTH!

All in all i'm am happy with our decisions, and we have saved a total of $1,492.40 over the course of 6 months. I will, however, lock in a portion (if not all) of it when I feel the rates are at the lowest points.

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