Paycheck Chronicles

Home Equity Loan: Gone


This is an exciting day in my financial life - our home equity loan is GONE.  Paid in full.  Zeroed out.  Whatever you want to call it, it's excellent.

As you may have read, my primary 2009 financial goal was to pay off all non-mortgage debt.  I did that about mid-year and then talked to my husband about what we should tackle next.  There were three primary options:  1) increase contributions to his TSP (Thrift Savings Account), 2) beef up our emergency fund, or 3) accelerate the payment of our home equity loan.  These were all good options.  Due to his deployment in a tax-free combat zone, contributions to TSP would be tax-exempt forever, vs. regular TSP contributions which are tax-deferred.  It is never a bad idea to have a bigger emergency fund.  And while our equity loan wasn't the highest interest rate of our payments, it was the second largest payment (after our mortgage).  We had purposely gotten a very short loan, to force ourselves to pay it quickly, which resulted in a huge minimum monthly payment.  Knocking out that loan, which also had a fairly low balance, would free up about $1000 in our monthly budget.  That is a lot of freedom!

Once we decided on that priority, I figured out a plan.  Since it is always a good idea to live on one income, I decided that I would stop depositing my paychecks in our joint account but rather put them directly to the home equity loan.  That was in October.  A few quick calculations showed that if we kept making our regular payment, plus put my paychecks towards the principal, it would be paid off by the end of February.  I was so excited!  In addition, I put any "extra" money towards the loan as well:  our USAA Subscriber Savings Account check, a rebate here or there, things like that.

A few weeks ago, the balance fell to the point that we could pay it in full using only half of our emergency fund.  I usually argue against using emergency funds to pay off debt but in this case it seemed smart.  (Or so I tell myself.)  By continuing to make the same payments to our emergency fund, it will be back to its usual level by the end of February.  We are basically buying the excitement and satisfaction of having the loan paid off (and saving about $100 in interest) by decreasing our emergency fund for a month and a half.   I am absolutely fine with that!

With no small amount of glee, I transferred the remaining principal balance two weeks ago.  I knew that there would be a little bit of remaining interest due and I figured that I would just transfer that over once it was calculated and posted.  The next morning, I logged on to my bank account and eagerly looked for that zero balance.   Nothing.  The next day, nothing.  I was getting a little concerned and planned to call when I got a letter from the bank.  It seems that you are supposed to follow the actual procedures for paying off loans, including requesting a payoff amount and letting them know that it is your intention to pay the loan in full.  And there are costs involved - the lender has to file a release with your local government, letting them know that the lien has been paid in full.  So there was my money, sitting in "suspense"  (which is where mortgage money goes when it is unclear what it is supposed to be doing.)  So aggrevating.  And I got the letter late on Saturday of a three day weekend.

On Tuesday morning, I called the mortgage servicing department and got the whole thing properly organized.  It took until last night to clear through the system but this morning's screen shows the happy balance:  0.  I feel great that we have accomplished this goal, and this will give us a lot more flexibility each month.  The loan wasn't a bad idea in the first place as it allowed us to knock out a truly awful and non-functional kitchen and replace it with a useful and pleasant family hub.  Over these few years, however, that huge payment had become a drag on our other financial plans.  Time to regroup and figure out what's next!

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