What Not to Do When Refinancing

In 2003, we closed on a house in the inland empire in Southern Califo
ia. We were at the end of phase 1 in a multiple phase new home site. We knew something interesting was happening in the market as we were gaining equity while the house was being built. In the short period that it took to build our home, it had gained about $40k in equity. It continued to gain as the other phases were built.

In 2005, we refinanced to fix some things up and add some decorative items to the living room. We also used it to pay off existing debt. This is a good way to go as long as the payments are comfortable. After paying off debt, you have to make sure that you remember how you got into debt. That memory should remind you not to get into any more debt. Normally, the reason that the refinance is comfortable is because you are paying a lot less monthly towards your new loan opposed to what you were paying on the debt that was consolidated. This worked well for us for a while. The cars were paid off. Most of our other debt was paid off too.

In 2006, I let myself think that we needed a better family vehicle. With that, I traded in our current van for a newer, more modern van with more features. As nice as this sounds, we went from no car payment to car payment. This was not a good choice. Along with a new car payment, we still had to make payments on the debt that was consolidated. We went from quite comfortable to not so comfortable in just a few months.

The equity on the house continued to grow. There was nothing in my mind that ever thought of it all crashing down and being upside down. In 2008, that is where we were. We had a nice house in a good neighborhood that dropped about $250k in value ove
ight. We had debt that was fairly high. It went from you could not leave Califo
ia because you could not afford to come back to there are a lot of inexpensive homes to choose from.
I can only blame the whole ordeal on myself. It was a good learning lesson. If you stay focused and keep the spirit, you can recover from anything. It is not that we had a smooth recovery. Six years later we are still growing and learning from the experience.

With a few of the moves that followed afterwards, we settled in a family comfort zone. We landed in Northern Califo
ia. We actually had never been here for more than a day before we moved. We had no idea what it was going to be like.

As we settled up north, the whole family was pretty happy. The kids enjoyed their schools. We stayed in a location that was close to work. Long commutes do take a toll on everyone. Working 10 hours and driving for 4 hours is not a fun day.

We also had a good community and were enjoying our new church family. Do I still feel the sting from those high equity years? I most certainly do. The learning lessons will live on. We now try to keep our debt as close to zero as possible.