I originally bought my duplex on an ARM with no money down. Knowing that rates would eventually go up, after a year I had enough equity to refinance for a reasonable rate — I got a 30 year fixed mortgage for 80% of the value of the house, and a home equity line of credit (HELOC) for the rest of what I owed on the original mortgage (about $20,000). I got a 6% rate on the fixed mortgage, and started out at 4% on the HELOC, with very low payments.
However, short term rates quickly started to jump upwards, and within 9 months or so I found my HELOC rate pushing 9% — my monthly payments had doubled, and I wasn’t even paying off any of the balance on the HELOC (!) I looked into refinancing everything (again), but long-term rates weren’t really good enough to justify that, given the expense of closing costs, etc. I also looked into refinancing the HELOC to a fixed rate Home Equity Loan or similar, but still, rates weren’t going to get much better — I would just be guaranteed that they wouldn’t continue to climb.
So, given this dilemma, for a couple of months I simply did nothing.
Then, one day when I was paying my credit card bill online, I had an idea…. a complicated idea, but ultimately a good one.