Tuesday, May 10, 2011

No Plan

Neighbours of ours got talked into converting their mortgage into a line of credit. I'm not sure it was such a great move for them.

The reason being, they are both spenders and in the short 2 months since it was set up, they have managed to max it out.

When it was set up, they asked for some extra money in order to pay back debts owed to other creditors as well as a bit of leeway "just in case". There hasn't been an emergency but the credit room is now gone.

The worrisome thing is their focus has been completely on the minimum payment being so much smaller than their previous mortgage as the only thing required is the interest portion only.

If you pay it, it makes you feel like a responsible person. When in reality, you'll never pay it off and that is what I think banks are hoping for.

There is some peace associated with a mortgage payment plan. When it is done, it is done. All you have to do is pay it when you're supposed to, just follow the plan.


  1. This is why I hesitate to go this route. Though we aren't big spenders, and are pretty disciplined, making larger payments each month, on a bi-weekly accelerated plan etc., I just worry that the temptation would be never to pay the sucker off, especially if the going got tough. The reasons banks offer this option, and make it sound like it will save you money, is that it makes them more money in the long run!

  2. Hi psychsarah;

    I too worry about myself on this one. When I bought my car, I did open up a new HELOC (to make getting the bank draft and various stock sale timing easier) and they gave me way too much -- the equivalent to how much equity we have in our home.

    I've since paid my portion off and I'm bugging D to get going on his. It's amazing to see it just sitting there.