Is it a good idea to take a Home Equity Line of Credit (HELOC) as a safety net in case you need emergency cash?

Now that refinance business has dropped off a cliff due to the higher interest rates, lenders are soliciting homeowners to open a HELOC.

A home equity loan is a second mortgage that is secured in second position behind your main mortgage. If you were to default on your mortgage causing the home to be foreclosed and sold at auction, the main lender would be paid first. Then if there was enough money from the sale, the second mortgage holder (the lender who did the HELOC) would get paid.

Because it is riskier to take second position, any second mortgage has a higher interest rate. Because most people don’t like high rates, the HELOC is set on an adjustable rate mortgage. You set the loan for the maximum amount of cash you might want, then you are given checks for withdrawing money as desired.

An adjustable rate mortgage (ARM) begins at a lower rate than a fixed rate mortgage, but later it can go quickly and significantly higher.

How much higher? That depends on the terms, which you need to be aware of before signing. Here are questions to ask:

1. What is the start rate?
2. When will the interest rate be first adjusted and how often after?
3. What is the index? (This is what the rate is based off of.)
4. What is the margin? (The index + the margin = your new rate when it adjusts.)
5. What is the lifetime cap? (The max rate it can go up to.)
6. Is there a prepayment penalty? If so, what are the terms?

Those are six essential components you should understand before signing.

Here’s an inside tip: The lender makes a bigger profit by giving you a bigger margin. Most borrowers don’t pay attention to the margin and many loan officers don’t bring it up if you don’t ask. The margin is negotiable on some second mortgages, and it is a crucial part of the loan. Some banks have the margin set in stone so there is no negotiation, but you need to understand what it is and how it works.

Lifetime cap: It’s not unusual to see a very high rate such as 19%. If you have cash out and the rate goes that high, how will you handle the payment? If you do not pay your HELOC, they can foreclose on your house even if your main mortgage is paid 100% on time.

Prepayment Penalty: This is a big “gotcha” in California. In Washington state, a prepayment penalty on a second mortgage is illegal. If your HELOC will have a prepay penalty, then ask, “What is the worst case scenario?” Loan officers are famous for minimizing the affect of a ppp, saying “it will never happen to you,” “it’s not a stopper,” and other nonsense.

WHO SHOULD GET A HELOC?

In my opinion, only people who have had top tier credit scores for at least three to five years should get a HELOC. Why?

Because in my 22 years of working in the mortgage industry and in doing loans in 25 states for all types of credit profiles, it is my experience that only people who are fiscally conservative will handle a HELOC in a manner that does not work against them.

For many people, having a HELOC is like an alcoholic having a bottle of vodka in the house. They can’t resist using it for something they would like to have but cannot afford. They don’t have the patience to save cash, so they go into debt for a non-essential big ticket item.

If you maintain excellent credit and have a low debt-to-income ratio and want to take a HELOC, then ask the six questions above, then you will have the information to make an excellent choice. Best sources for a HELOC are midsize local banks and some credit unions. Personally, I like Banner Bank for HELOCs.

If you missed the information last week about medical debt being removed from credit reports, scroll down and read that article. Today, let’s talk about RIP Medical Debt, a charity organization.

So far, 3,619,950 individuals and families have had their medical bills paid for, adding up to $6,748,483,828 in debt PAID OFF by RIP Medical Debt.

RIP Medical Debt buys portfolios of debt from hospitals and other secondary sources, then they select the ones who are in the most dire need, and pay off the debt for them. In addition, they remove the debt from their credit reports. This is in compliance with all federal and state laws. This does not create “taxable income” for the person, so there is no Form 1099-C with the IRS.

Their criteria for selection looks like this:

• The recipient must earn less than 2x the federal poverty level. (The income amount varies by state and family size. You can Google search your state.)
• The medical debt is at least 5 percent of the family’s annual income.

You do not apply for this relief yourself, but it might be possible for you to ask your hospital if they are familiar with RIP Medical Debt, or if they might get it touch. https://ripmedicaldebt.org/hospitals/

If you don’t qualify for RIP Medical Debt help, here are some tips about handling medical bills:

1. Never pay with a credit card UNLESS you can afford to pay off the credit card bill when the statement arrives. Use your credit card as a convenience, not as a tool to go into debt hell that might lead to eventual bankruptcy.
2. Ask the hospital for financial assistance. You can do this even if your stay was a year ago.
3. When you apply for assistance, let them know about other large bills you have. That is an important factor in receiving help. You might qualify even if you have a good income due to debt-to-income ratio.
4. If you cannot get financial assistance, ask for a payment plan.
5. Don’t stop taking the medications you need or getting the medical care you need if you cannot afford payment. Your health, your staying alive is more important than money. “People over money” always!

For more information about RIP Medical Debt and/or to make a donation to this charity, see here.

I would never expect my dentist to charge me illegally, but that is exactly what happened.

This goes to show why it is imperative to read every type of bill, in detail. I will explain what happened in hope that my experience might help save someone else money.

CONTRACT BETWEEN INSURANCE COMPANY AND DENTIST

The dentist has a contract with “approved” insurance companies, in my case, Delta Dental Insurance.

The dentist sends the bill to the insurance company. The insurance company has a limit for the max they will pay for each given procedure.

In my case, Delta Dental Insurance pays 100% for preventive care, such as teeth cleaning.

After receiving payment from Delta, my dentist sent me a bill for $60. Why? Because that was above what Delta was willing to cover. But wait!

I called Delta Insurance and learned that their contract DOES NOT ALLOW the dentist to charge the patient more! So their bill for $60 was illegal, according to their contract.

Delta Insurance offered to call the dentist for me and inform them they could not bill me for $60. The dentist’s employee told Delta the $60 was a “balance forward.” But that was FALSE.

At the top of my bill it said: Balance Forward $0. Plus, if I had owed money, they would have been asking me for payment.

So then I called the dentist to get that false and illegal $60 bill removed. She said, “I will remove the $60 but you still owe $10.”

“What is the $10 for?” I asked.

“A PPE fee. That is for extra Covid precautions.”

“You mean I have to pay for your Covid masks?” I asked, incredulously. “That was not on my previous bill.”

“Yes,” she said. Now I was even more annoyed! Why were they adding a new fee? Like a junk fee?!!

I called Delta Insurance again. The insurance agent laughed and said, “They are not allowed to charge you any PPE fees for Covid-related expenses. At the beginning of Covid, I sent out a memo telling them how to handle PPE fees.”

Now I called the dentist again. This time I said, “Who is the top person in charge of billing?” She gave me the name April. “I want an appointment with April,” I said. “I am coming in to straighten out my bill, because it is a mess.”

Two days later, I went to my appointment with April. Guess what happened?

April started off my saying, “Let me first apologize to you.” She said she reviewed my bills going back to 2019 when they went on a “new billing system.” Then she handed me this check for $209.70.

They had been illegally sending me a bill for the difference between what the insurance company allowed (and paid) and what they wanted to charge (over-charge). Not knowing it was illegal, I had always paid it.

But because of that stupid $10 PPE fee and my insistence on speaking with the person in charge, I received a nice refund check.

I wonder how many other dental patients are owed a refund but who will never receive it, because they don’t question their bill or call the insurance company and ask.

Quick Tip #5 Include documentation.

One of the most effective things you can do is to include some type of enclosure with your dispute letter.

It can be a snippet, a screenshot, or a scanned/print out, or even a photocopy made from the library’s photocopy machine.

Including documentation to back up your dispute is powerfully persuasive and will help you get results with your first request.

For example:

• If your name or address is incorrect, include a copy of your photo ID or rent agreement or a billing statement to document your personal identifier.

• If you are disputing a late payment, include a copy of the cancelled check or a copy the bank statement showing the withdrawal to prove that you did make the payment on time.

• If you don’t recognize an account as being yours, then include a snippet or screenshot of that account (as it shows on the credit report). Write: “I don’t recognize this account as belonging to me. DELETE”
  (I am aware this does not constitute hard proof of anything, but the credit pros are having more success by including a copy of the account rather than just typing the name and number in the letter.)

Always keep your original document!!! Send only copies.

Remember, anything that is not factual, correct, verifiable and verified, and fair must be deleted. Always follow the law and be truthful in your letters.

Next post, I will tell you how I saw a $10 junk fee on my bill, disputed it, and ended up getting a refund check for $209.70. You are welcome to subscribe. I post about once a week, twice at the most.

Quick Tip #4: Use a proper salutation (A salutation is a greeting. It comes from the word salute.)

The worst ever salutation is “Dear Sir or Madam.” What could be more offensive than someone saying to you, “I have no idea who you are or what kind of person you are but either way, I am too lazy or don’t care enough to find out”?

Dear Sir or Madam is just not cool anymore. Not in this century.

If you are writing to a particular creditor, then find out the person’s name who is handling your account, and address them by their name. You could write: Dear Mrs. Warren, Dear Ms. Warren, or Dear Carolyn Warren: If using both the first and last name, that is formal, so you should follow it with a colon : rather than a comma. This is useful if you have the person’s name but do not know their gender. You can write, “Dear Casey Johnson:” for example. Never write “Dear Mr. or Ms. Johnson” because that is inappropriate and offensive.

If you are writing to the credit bureau and have no way of know which representative will open your letter, then still do not write “Sir or Madam.” Never write “I don’t know your sex” as a greeting. Instead,, use their title. “Dear Experian Representative:” is proper. Because you don’t have a name, use the colon ; rather than a comma at the end.

The greeting is the first impression. Don’t blow it by starting off with something that offends the reader.

If you have a good idea to add, please let me know. You can click on Comment and I will see it soon.

Quick Tip #3: Skip the legalese.

Are you an attorney? No? Then don’t use legal jargon.

Do you write to your grandma using expressions like “pursuant to,” “furnisher of the disputed accounts,” or “aforementioned item to be deleted”? Of course not. No regular person would.

Do NOT write a paragraph like this one below:

 “according to Section 609 of the FCRA, to request a proper investigation into these inaccuracies. In particular, I am referencing Section 609 (c) (B) (iii), which lists “the right of a consumer to dispute information in the file of the consumer” under the “model summary of the rights of consumers.”

Why? Because you are not an attorney and you don’t talk that way. It is OBVIOUSLY a form you got somewhere. Or else you hired someone to write a letter for you and they used legalese.

Either way, the letter containing legalese is not a genuine, sincere letter written by you, the everyday person who has an error on their credit report.

More and more, as credit repair becomes popular, the legalese form letters are being rejected by the credit bureaus. The scales are tipping in favor of DIY credit repair and with Repair Your Credit Like the Pros, you have the steps to do it yourself. The book also includes letters and instructions for writing successful letters.

Remember, anything that is not factual, correct, verifiable and verified, and fair must be deleted. Always follow the law and be truthful in your letters.

For Tip #1 scroll down to the previous post.

Quick Tip #2: For the account you wish to dispute, check the spelling of your name and address before sending the dispute letter.

Many people have a typo, misspelling, or nickname on their account. Or, it could be missing your surname, Sr., Jr. III. Look at the actual account by viewing a recent statement to see if your name is incorrect. If so, call (or write) and get your name fixed first. That way, you do not have an incorrect name tying an account to you.

Additionally, check your credit report and send in a letter to have your name corrected with Experian, TransUnion, and/or Equifax first. You do not want an incorrect name in your personal identifier.

An incorrect name opens you up to possible merged credit with a different individual. (Not an uncommon error on the part of the credit bureaus.)

The same goes for your address. I cannot go into very much detail here on this sensitive topic, so for more information see Repair Your Credit Like the Pros, including a letter template you can use.

You can use one letter to correct both name and address. Include two pieces of identification to authenticate your letter, such as a driver’s license, state issued ID, rent or mortgage statement, another billing statement, such as an electric bill.

Remember, anything that is not factual, correct, verifiable and verified, and fair must be deleted. Always follow the law and be truthful in your letters.

I am beginning a short series of quick tips for writing dispute letters to the credit bureaus. To receive all five tips, please subscribe.

Quick Tip #1: When disputing an account that you are demanding to be deleted, include only ONE reason in your letter.

Do not write two reasons why the account should be deleted, such as “this is not my account” and “the balance showing is false.” If it’s not your account, then why are you bringing up the balance?

If it is not your account it must be deleted from your report. End of story.

By adding another reason, you convolute the situation and reduce your chances of success.

If you include both of your reasons for deletion and the credit bureau does not delete per your request, now you don’t have a new reason for writing in again.

The letters in Repair Your Credit Like the Pros state only one reason per letter, and that is very purposeful.

Remember, anything that is not factual, correct, verifiable and verified, and fair must be deleted. Always follow the law and be truthful in your letters.