George Kamel - The Financial Trend That Could Leave You Houseless

Episode Date: August 18, 2023

There's a disturbing financial trend that is growing, and it could leave people houseless. It's called a Home Equity Line of Credit, also known as a HELOC. Today, we're going to talk about the HELOC-ness monster and why it's not the easy solution for quick cash people are hoping for. Links: Ramsey Real Estate Hub EveryDollar Budget Deal: I love a good deal, when you sign up using this link, I’ll hook you up with a 14-day free trial and $15 off your first year of the premium version of EveryDollar. Learn more about your ad choices. Visit megaphone.fm/adchoices

I weirdly get a lot of questions about my hair care routine. Hair is everything. And I also weirdly get a lot of questions about home equity lines of credit, aka helocks. Coincidence? I think... Yeah, I don't think there's any correlation there, to be honest. Now, at face value, I understand the appeal of a helock, much like the appeal of a good quaff.

If someone has a big expense coming up and they don't have enough savings to cover it, they look at a home equity line of credit or helock to be their Superman and supply them the cash for the job. Hello? I'll be on my way. But is tapping into your home like a piggy bank really the answer to your problems? And could it hurt your finances more than help? And what in the HELOC is even a HELOC? We're going to get into what you need to know about the old Helock Nest Monster.

But before we do, you're going to hit that like, subscribe, and share, and you're going to like it, Mr. You'll eat it and like it! Thank you. All right. First, let's cover our bases. What is a home equity line of credit? Well, it's a type of home equity loan that allows you to borrow cash against the value of your home. So basically, you take money away from the portion of your home you own outright and then be able to use that money, kind of like a credit card. But that's not the only

way a HELOC is similar to a credit card. You see, Helox also use a revolving credit line, which means that as you pay back what you borrowed, the amount you've paid back becomes available again for you to spend. Also, the same way people rationalize having a credit card in case of emergency, they also rationalize taking out a HELOC as some kind of financial parachute for the what-ifs of life in emergency scenarios. But here's the thing. Because He-Logs are a secure debt, they have a lower interest rate than credit cards.

And He-Lockers love that. They love that lowered interest rate almost as much as boomers love saying Chipotle. Stop. It's not Chipotle. It's not Chipotle. It's Chipotle. Chipotle, way is my life?

You know what? It's not even real Mexican food, so who gives a rip? Chipotle is fine. Anywho, what He-lockers are failing to see is that secure debt just means that the lender can use your home as collateral. You catch that? A heloc takes the part of your home that you own and gives it to the bank as collateral.

Meaning if you don't pay back that helic perfectly, your lender can foreclose on you and snatch that charming little breakfast nook right out from under your egg scramble. But you're not thinking about your eggs when helocks look like a good idea in the beginning. You're just thinking, I don't have the cash to buy a bigger home for my growing family. So I'll get a helot to pay for an addition to my current home. Or I want this credit card debt out of my life, understandably. So maybe I can just shuffle it over onto a helock instead. Or I'm convinced I can get rich by opening a Harry Potter-themed food truck called the Chocolate Frog. So I'll get a HELOC to get this business up and running.

Are you getting the idea? Other common reasons people turn to HELOC include things like retirement expenses, vacation, installing a pool, home renovations, paying for college tuition, paying for weddings, using it to start a business, and the list goes on. And I get why it's tempting. Don't. Get me photo. With the cost of living, inflation, your lifestyle, it is hard to keep up financially.

And so using this HELOC feels like. like, you're just borrowing your own monopoly money. Which explains why they're one of the hottest summer trends right up there with Barbie and Pub Subs. If you know, you know. We're eating Publix chicken tender subs for the entire day. So which Pub Sub is gonna get the Pub Dub? Last year, the number of overall helix increased, as did the balance of the loans, which was actually a reversal of a 10-year trend in the opposite direction.

And while it makes sense, given inflation in the crazy real estate market, the problem remains that a he lock is still debt with your home as ransom. So now the lender's like, Pay the payments, man, or the house is ours. And the house is like, Dude, just do whatever he says. I don't want to go down like this. I'm just an innocent house.

And that right there was a scene for my upcoming one-man off-Broadway show called Home is where the He-Lock isn't. If we get enough YouTube comments, maybe we'll take this thing full Broadway, on Broadway. With He-Locks, you still end up paying for the expensive thing you wanted to avoid paying for, plus thousands of extra dollars in interest, while putting your home at risk. And that's not even the worst of it. He-locks come with a whole lot of bogus fees. like transaction fees, which pop up every time you borrow from your HELOC.

Minimum withdrawal fees, aka with a charge when you don't borrow enough money. Inactivity fees. For when you haven't used your HELOC, as often as the bank would like. Early termination fees. From when you want to get rid of your HELOC early. And at this point, it wouldn't shock me if they just threw in an extra one. Maybe a finder's fee. For when you find out that you got screwed by taking out a HELOC.

And to make things even more stressful, your debt could be called in when you don't have the money to pay it off. I mean, you could be slurping up shrimps on your sandals vacation, and boom, you got 30 days to pay this bad. boy off. Oh, and another thing that makes Helox the worst, they have a variable interest rate, meaning your rate can increase in any given month, often linked to the prime rate index, which is what banks charge each other for loans. So while you think a Heloc equals margin and freedom and easy money, it's really more like an 8,000-pound gorilla chilling on your back and combing bugs out of your hair for a little lap of teeth. Don't believe me? Here's one Reddeter's story. Helock loan crushing us. My husband and I decided to put an addition on our house.

We did research on HELOCs and found the monthly payments to be manageable at the time. Since then, the payments have doubled to the point in which we are paying over $1,000 a month on just the loan, and 100% of it goes toward interest. I feel like these payments are eating us alive. This is a dark situation. So what do I tell people to do with HELOCs? Pay them off. No more shortcuts, no more transferring debt around, get aggressive, increase your income, decrease your expenses,

and aggressively attack that HELOC until it is out of your life forever. and never do it again. So listen, if you're still wondering if HELOC is the answer to your cash flow problem, let me spell it out as clearly as possible as to why it's not the stress-free solution you're desperate for. Number one, Helox put your home at risk. Just because Helox seem like a no-brainer doesn't mean they don't carry serious consequences. If you default or misstep in any way, the bank could take your home.

Let me ask you this. Is the West Dome-Ratan bedroom set really worth losing the entire house for? No. Absolutely not. Number two, Helox don't really create cash flow. Plain and simple, a HELOC is debt, and debt doesn't make anything flow but a salty stream of tears. The best way to actually create cash flow is to pay off all of your debt, increase your income, and find margin in your budget. And over time, with a little thing called delayed gratification and some savings muscle, you can afford the home improvements, the college tuition, the kid's wedding, or just decide to lower your expectations and not spend six figures on any of that stuff.

The truth is, HELOC's key people broke by making them think they've solved the problem when all they did is move debt from one pile to another. And taking on debt of any kind robs you a financial piece. When you lay your head on your pillow at night, what would you rather be thinking about? Planning a toga party in your paid-for kitchen? You know what we got to do? Toga party. Or making inflated payments on your marble countertops for the next 30 years. And listen, I know that saving up and paying cash for these big expenses takes a little more time and a lot more discipline, but it is way more peaceful and way smarter in the long run. So bottom line, tapping into your home equity is not the move. And taking out more debt to pay off debt, It sounds insane because it is insane.

So avoid Helox like dysentery on the Oregon Trail. You know what happened to those people. They played the game. Now if you want to learn about how to do homeownership the right way, check out the Ramsey Real Estate Hub. It is filled with tools and articles that steer you away from traps that make your home a burden and help you make decisions that keep it a blessing. I'll link that below if you want to check it out.

And if you want to keep this Toga party going, Drop a comment with your take on Helox or any other real estate questions you might have. And make sure to share this video with your friend, who's currently measuring their lawn dimensions for an in-ground pool. Don't do it. It's a trap. Thank you guys for watching. We'll see you next time.