The Money Mustache Community
Around the Internet => Antimustachian Wall of Shame and Comedy => Topic started by: Heckler on June 10, 2015, 09:05:53 AM
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Wow.
http://www.cbc.ca/news/business/the-national-lust-for-home-equity-lines-of-credit-should-we-worry-1.3106533
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We have a personal LOC with a $25k limit (I ,think?) that's been at $-0.04 for the past 18 years, only going positive a couple times to spread out car insurance payments at a lower rate than the insurance co was charging.
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Whole-lee-cow. Let me sum up the highlights:
$78,000 wedding
$13,000 for random vacation shopping
$100,000 for a home-renovation for a 5,000 ft2 home
$30,000 for solar (ok, I *might* understand this one... if there's a decent ROI)
all told, over $370k in debt from these HELOC loans. And they're not even done, wanting to install a $40k glass railing, and the couple isn't anywhere near done.
I see another article in the future - "Couple struggling with bankruptcy under $500k worth of loans - "we just never thought the credit-stream would end!"
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Haha, I was just coming to post this one too. I think my favourite quote had to be:
But the place is still largely unfurnished and he's yearning to install a $40,000 glass railing for the staircase.
"Without the glass railing, the look of my stairs is not doing it justice," he says.
That actually made me double check the URL to make sure that I wasn't on The Onion.
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My HELOC is a ridiculous $280,000. The balance is $0.
The only reason I got one was because the interest rate was lower than my existing mortgage and car loan. I used it to pay both off, and then made payments on that instead. I've never considered it to be a "cash machine", it was simply a way to save on interest. Now that I'm debt free, I have no use for it.
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Haha, I was just coming to post this one too. I think my favourite quote had to be:
But the place is still largely unfurnished and he's yearning to install a $40,000 glass railing for the staircase.
"Without the glass railing, the look of my stairs is not doing it justice," he says.
That actually made me double check the URL to make sure that I wasn't on The Onion.
+1. I had that line in queue to copypasta as well.
Serious wutdafuq situation. Those payments will get uncomfortable when interest rates go up.
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I don't have a HELOC. I have a savings account.
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Pretty sure all the engineers here are shaking their heads in shame. The $7000 Chanel bag says it all.
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My non-HE LOC is $30K. Balance is $0. It's part of my EF.
Saw that article on the CBC website this AM. So funny! So sad!
The real trouble with those folks is that if a $40K glass railing seems like a good idea at this point nothing will ever satisfy them.
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Can you open a HELOC and not use it?
I don't like to keep all this cash in a bank.
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Can you open a HELOC and not use it?
I don't like to keep all this cash in a bank.
Yes. I've had a HELOC for three years and I've yet to use it.
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We have a personal LOC with a $25k limit (I ,think?) that's been at $-0.04 for the past 18 years, only going positive a couple times to spread out car insurance payments at a lower rate than the insurance co was charging.
That's what our limit is. We're using part of it now for a home renovation that we can't fully DIY, but there have been years that it has sat at or near 0.
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Can you open a HELOC and not use it?
I don't like to keep all this cash in a bank.
You can open a regular LOC (or, as above, non-HE LOC), and not use it too. Did that for real estate.
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A guy I work with has a maxed out $450K HELOC plus $50K remaining on his mortgage. The bank offered to roll a portion of it into a mortgage at a very attractive rate. He dismissed it stating that he could only afford the interest-only payments. Yikes!
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Anyone think these people will ever pay it back?
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yes. when the bank repos the home.
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Anyone think these people will ever pay it back?
My Co-Worker (the one with the maxed out LOC of $450K) plans on paying off his mortgage first (another 2-3 years) then he will start paying it down. He optimistically estimates he'll be debt free in 20 years (~ age 67).
Worst case scenario for him is that Canadian housing deflates and the banks forces him to sell his house and his boat. He might survive it.
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@power
Sad to say, but I think the housing crash and bank foreclosure example you described would be the BEST case situation for them(not so for the bank), not the worst.
20 years to get back to 0? Unreal.
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---It is like 2009 never happened. -
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@power
Sad to say, but I think the housing crash and bank foreclosure example you described would be the BEST case situation for them(not so for the bank), not the worst.
20 years to get back to 0? Unreal.
Well we are in Canada, so its not quite as simple to walk away from a mortgage / house. Im not clear on all the details, but i believe the bank can ganish wages / etc. It's like child support if you end up in the red after selling your assets. It's not as easy to declare and start fresh.
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Interesting regarding a harder fresh start in Canada. Sounds a lot like education debt in the U.S. I would think that this system as a whole would make people think twice before spending so much.
Do you find that is the case as a whole?
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Interesting regarding a harder fresh start in Canada. Sounds a lot like education debt in the U.S. I would think that this system as a whole would make people think twice before spending so much.
Do you find that is the case as a whole?
Not really in our circles, but Canada as a whole is pickled with debt.
Here is Garth on (most of Canada's) full recourse mortgages:http://www.greaterfool.ca/2014/06/30/mortgage-prison/
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I love how there he subtly blames the bank for this:
"We are addicted for sure. Who wouldn't be addicted to something so easy [to get]?" says 35-year-old Ali about the free-flowing lines of credit that have enabled him to splurge on the finer things in life.
"It's easy, accessible cash at a very cheap price. The banks make it so easy for you to obtain it," says the software engineer.
One of the craziest things I've seen here. (And who pays $6,000 for souvenir scrolls? Seriously?)
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I love how there he subtly blames the bank for this:
"We are addicted for sure. Who wouldn't be addicted to something so easy [to get]?" says 35-year-old Ali about the free-flowing lines of credit that have enabled him to splurge on the finer things in life.
"It's easy, accessible cash at a very cheap price. The banks make it so easy for you to obtain it," says the software engineer.
One of the craziest things I've seen here. (And who pays $6,000 for souvenir scrolls? Seriously?)
I'll tell you who pays $6000 for souvenir papyrus scrolls. Easy marks. When I was traveling in Egypt, the driver told me he would take me to the "papyrus museum" and "alabaster museum." The "scam joint museum" is more like it. They give the drivers kickbacks to deliver you to them. I told the driver that his tip depended on him NOT taking me to the museums.
Those scrolls were probably worth $20 apiece, if that.
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@power
Sad to say, but I think the housing crash and bank foreclosure example you described would be the BEST case situation for them(not so for the bank), not the worst.
20 years to get back to 0? Unreal.
Well we are in Canada, so its not quite as simple to walk away from a mortgage / house. Im not clear on all the details, but i believe the bank can ganish wages / etc. It's like child support if you end up in the red after selling your assets. It's not as easy to declare and start fresh.
It depends on the state whether this is true in the US or not.
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@power
Sad to say, but I think the housing crash and bank foreclosure example you described would be the BEST case situation for them(not so for the bank), not the worst.
20 years to get back to 0? Unreal.
Well we are in Canada, so its not quite as simple to walk away from a mortgage / house. Im not clear on all the details, but i believe the bank can ganish wages / etc. It's like child support if you end up in the red after selling your assets. It's not as easy to declare and start fresh.
It depends on the state whether this is true in the US or not.
I've learned that's true in Canada too. All but Saskatchewan and Alberta are full-recourse Provinces.
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This reminds me of a conversation I had with a women when I worked in banking.
Customer: I have a 50,000 line of credit. I keep paying $200/month towards it, and this statement says I owe $51,000! How?
Me: Well it looks like you selected the interest only payment option[not even bringing up the fact she missed a couple payments.]
Customer: I have been paying on this thing for 10 years[actually 8]! How do I owe more than I started with[she is just NOW realizing the balance didn't go down over 8 years].
Me: Well the interest is about $198 a month so if you are only paying $200 you aren't paying against the balance, just the interest. If you wanted to pay it down over 10 years the payment would be around $500 a month.
Customer: I can't afford that!!!
Me: [having looked at more numbers] You aren't going to like this, but I want to make sure you are aware well in advance. In 2 years the repayment period starts and your payment will probably go up to around $330 regardless.*
Customer: [It was scary.]
*That is how a lot of HELOCs work. You get 10 years where you can draw against it, and then a repayment period of either 10 or 20 years starts. Most people just refinance into a new one if they plan to keep using it, but it gives the bank a chance to review the situation every decade instead of giving you a loan for infinity.
This is actually starting to be a problem now. There are a few articles on it. A lot of people who got HELOCs in 2005/2006 are about to enter the repayment period. Those HELOCs were issued at the peak of the housing market and some of these people are 'still' underwater so the refinances aren't going through so the people are seeing their monthly bills shoot up hundreds of dollars.
http://blogs.wsj.com/totalreturn/2015/06/08/if-your-heloc-payment-is-about-to-jump/
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Our limit is something like 90k. We have a roughly $27k balance, down from $60 in 2 years!, which we ran up to pay down our mortgage. We borrowed from family to pay off the bank mortgage, so now we have a mortgage with family at a slightly lower rate, since we couldn't re-fi down due to not currently living in it. Anyway, did didn't want to sell equities in order to come up with the full amount, so that left us a bit short and we made up the 60k difference with the HELOC.
I believe the rate is 2.6%. I'd never pay it off were it not for the fact that it is adjustable. Limited to 1% increase per year, so I'm not too worried, especially since it should be gone in 2 more years, or less.
While we are technically paying more per month than before our family refi because of the large amounts I'm dumping on the HELOC, we are so much better off. Lower rate and slightly shorter term. (We shaved a few years off what would have been the pay off date when we refi-ed. When dealing with family, you can do things like select an 18 year pay off, because that's a number you are all happy with.)
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We have 2 HELOCs- one on our residence for $32k and one on a rental for $34k. We took advantage of a promotion where the bank PAID us $1,000 for each line we set up. It didn't quite cover the set up costs mind you (appraisal and lawyer) but just about.
We're leveraging it to take advantage of the gap between Can/Aus interest rates as we have rentals in both countries. We currently owe about $43k between them but I expect that will move toward $60k soon.
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I set up a $250,000 HELOC last year to clear out my savings account to finish paying off the house. It was based on the very first MMM article I read on springy debt! I've never used it, but the interest rate was the best at that amount, so that's what I took. A HELOC is actually fantastic as an emergency savings account, and no cost when you're not using it. Indeed, it really confused the bank people when they asked what I needed the HELOC for and I told them nothing. I fully expected never to use it, but just in case of emergency, I wanted to set it up.
That said, a HELOC is not good for the financially undisciplined. I have it at the same bank as my checking account, and it's just a drop-down menu online to transfer money. When I set it up, I joked that I could click on a link and transfer a quarter million dollars to buy a Ferrari, no questions asked. Of course I'm not going to, but it made me realize why they can be such a problem for lots of people given how easy it is to get money once it's set up!
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Well in the major cities if Canada, it pretty much didn't... prices were just stagnant, nothing dropped. Even now the market is just insane in Toronto area, Vancouver, Calgary, etc.
---It is like 2009 never happened. -
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And I thought this would be a post about getting a HELOC as an emergency fund and never using it. (best time to get a loan is when you don't need it).
I'm considering this strategy. One never knows -- my wife and I could both be in a disabling car wreck this week and the income stream would be cut. The HELOC would give us a cushion to survive and regroup without having to fire sale the house.
But a HELOC for a 40K railing!?? WTF? Wouldn't it be cheaper and easier to just become a crack addict?
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But a HELOC for a 40K railing!?? WTF? Wouldn't it be cheaper and easier to just become a crack addict?
But Bob, they are yearning for it. I mean, the look of the stairs is simply not doing their home justice.
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I have a HELOC with a 100k limit, but I use it as a 2nd mortgage as leverage
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But a HELOC for a 40K railing!?? WTF? Wouldn't it be cheaper and easier to just become a crack addict?
But Bob, they are yearning for it. I mean, the look of the stairs is simply not doing their home justice.
My bad --- I didn't realize the current railing was distracting. Well in that case ---------
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Anyone think these people will ever pay it back?
...Canadian housing deflates and the banks forces him to sell his house and his boat. He might survive it.
his boat
his boat
his boat
After enough time in the AMWOSAC, these things are no longer surprising... but they're still disappointing. *facepalm*
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Anyone think these people will ever pay it back?
...Canadian housing deflates and the banks forces him to sell his house and his boat. He might survive it.
his boat
his boat
his boat
After enough time in the AMWOSAC, these things are no longer surprising... but they're still disappointing. *facepalm*
The boat was $200K (HELOC financed). He also has a $60K truck (HELOC financed) to tow it twice a year. He'll have to sell that too. He will probably have to give up the new compact car (HELOC financed) after discovering that commuting in the truck was too expensive.
He is basically the AMWOSAC archetype. He really deserves a post of his own.