A Personal Look at Home Equity
A Personal Look at Home Equity
When my sister Dawn had Betsy, her only child, Dawn and her husband Stan realized they were looking at a lifestyle change. They would need to stop traveling around the country with the service organization they'd been volunteering with, and get paying jobs instead. They came back to our home town where Stan took a teaching job and Dawn picked up a little part-time work at a natural foods store.
Betsy grew up showing customers where to find the soy milk, explaining how it was different from rice milk, and detailing which might be better for you depending on any number of factors. Even as Betsy became a teenager, she and her parents never moved out of their first little apartment.
That's probably why Betsy calls me her "rich aunt. " I wouldn't call myself rich, but I know my house seems huge to her. For her 13th birthday, I threw her a party and insisted that she invite all her friends. As she stood with Dawn and me in front of a big table full of presents, she looked out over the thirty or so faces smiling in anticipation at her and I could almost see the realization striking her: her friends would not have fit into her parents' apartment.
Betsy and I have only grown closer as she's gotten older, which is how I knew she had something on her mind when she came to me in February of her senior year of high school. I poured her a soda and sat down next to her, waiting for her to begin.
"It's actually good news," Betsy said, and she proceeded to tell me that she'd been accepted to her first-choice college. I was thrilled for her, especially since it was the school I'd always wanted to go to. But before we could celebrate, Betsy confessed she hadn't even told her parents yet. She knew they couldn't afford college tuition payments at the out-of-state college.
I didn't know what to say to Betsy. I found myself thinking back to her 13th birthday party and how easy it had been for me to make her dreams come true at that time. All I'd needed was a big house.
"Betsy," I began suddenly, "send in your registration. There's plenty of money to send you to college!" I told her that her grandparents had started a college fund for her before they died, and it had been growing through the years. When I mentioned how much money was in it, her jaw dropped. After we'd celebrated for a few minutes, she jumped up to go home and tell her parents the great news.
I made an appointment right away with my friend Martin, who is a loan officer. I told Martin that I needed a home equity loan. Martin coached me on the difference between a home equity loan and a home equity line of credit, or HELOC. Martin explained how the two operated and how each reflected on my credit report. While the loan was a one-time cash disbursement, the line of credit could be drawn on again and again. We talked about the pros and cons of a fixed rate versus an adjustable rate. Martin recommended a fixed rate, since it was not much higher than the adjustable rate and would guarantee that my payments would never go up as long as I had the loan. Next, I had to choose between a regular or an interest-only loan. Since I could afford to make the regular payment and wanted to start building back my equity as soon as possible, Martin advised me to opt for the regular payments.
I ended up with a 30-year, fixed-rate home equity loan that allowed me to pull nearly $120,000 of the equity out of my home. I closed on the loan a few weeks later, and took the check straight to the bank and set up a college fund for Betsy.
Perhaps it was wrong of me to be dishonest with Betsy and Dawn about where the money came from, but I knew that neither of them would have been comfortable accepting the help if they'd known it was coming from me.
Betsy still visits me whenever she comes home from school. Even now that she's getting to see more of the world, she still says my house is one of her favorite places to be. Since I never had any children of my own, I'm glad this house and I have been able to give so much to Betsy over the years. When she was thirteen, the house let me give her the space to celebrate the next step in her life. Now, six years later, thanks to a home equity loan, it's allowing me to give her that space again: the space to celebrate, the space to grow, the space for Betsy to succeed.