About 20 years ago I was very foolish with finances.  I borrowed money against my home using a Home Equity Line of Credit (HELOC) and invested a large amount with the friend of a friend of a family member and lost most of it.  I have made more mistakes since then, too many to list here.

What I didn't fully realize when I opened the HELOC is what things could look like at the end of the loan.  With a normal mortgage you know how much you have to pay each month, and if you start to get behind or can't make the payment, you realize right away you have to make a change. But with a HELOC, you can use the whole amount and only pay interest while the loan is open, and then suddenly at the end of the term the whole thing becomes due, possibly $100,000 or more!

This term for this HELOC was 20 years, and it's very hard when you open it to know where you will be 20 years later!  Who has the discipline and foresight to realize 10 years before the loan is due that you have to start paying it off now? I certainly did not.

I had a time period without regular income, and I got way behind in my finances.  Recently (with regular income) I have been doing much, much better and have paid a lot of debts, but I don't have the money to pay this HELOC.  My credit score is low, and I have not been able to qualify for regular financing.

I was considering a hard money loan, but I calculated what it will cost me long term to go that route, and it is potentially more than $500,000.  With my low credit score, I am not able to qualify for regular financing, so a hard money loan seems to be almost my only option with regular lenders.  Here are potential costs if I choose that option:

• There will be about $5,000 in closing costs to get the first (hard money) loan, and when I do this loan, I will lose my current 1st mortgage (financed at 4.125%) and start paying 12% on that whole amount.

• I will pay approximately $54,000 in interest as I pay this 12% loan for 2 years while I work on getting my credit score better and work to show sufficient income on 2 tax returns.

• I might have to pay $8,000 (or more!) in closing costs when I refinance again, because the hard money loan must be paid off completely or refinanced in 2 years.

• I am about halfway through my first mortgage right now, and I expect to finish paying it in about 10 years, so if I don’t have to refinance that loan, it would be all paid around 2035. If I get the hard money loan, I will need to start over with a new 30-year loan or some other type of loan, and it would be at a higher loan amount, maybe $225,000.

• So instead of paying my current payment for 10 years, I would need to make a much higher payment for 32 years. That's a big difference!

• My current 1st mortgage is at 4.125%.  There is no guarantee what the interest rates will be when I need to refinance in 2 years.

• The total cost of this option (paying a higher amount for 32 years) could be between $500,000 and 1 million dollars.

• The final result: In 2 years of the hard money option I will have paid almost what I need right now to completely pay off the HELOC, but at the end of those 2 years I will not have paid off anything.  The HELOC amount will not be paid (since I'll be paying only interest), and my balances will go up instead of down.

The hard money loan option seems like a horrible waste of money. So, what do you think I should do?

If you can give anything to help me save my house and financial future, I will be grateful.

May you be blessed!