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08-19-2010, 03:55 PM #1
Home Equity Loan or Refinance or Neither - opinions ?
First off, I'm new here - just found you all on a DR google search. So, hello!
Second, I'd appreciate any input as I have been tossing these ideas about in my head and had a firm decision, til I found Dave's advice.
Okay, the facts first:
Our current mortgage is $82k down from $90 original. 5 years of paying mostly the regular payment, with a couple of years of extra principle payments. Rate is 6.125%.
We have just under $30k of credit card debt. $9k of that is 2 yr old business expenses that is owed to us by our business partner. He is paying it off a little each month. But, I'd like to treat it as my debt, since it is, and since I want to take charge of it in case he cannot pay it. So-so rates on the cards as I try to transfer to take advantage of special offers. Ranging from 0% til next summer to 15% on the smaller balances.
One vehicle is paid off, one vehicle is almost paid off - $590/mo for one more year.
Debt repayment itself is something I can figure on my own as I've been-there-done-that before, unfortunately. But I have a plan in place, have gone back to work part time to earn the money, and can pay off the debt in 12-15 months from the time the bleeding stops (spending greater than cash income), which should be next month.
I have three choices for the debt - refinance our mortgage with other cc debt added in at a lower rate for 15 or 30 years fixed, get a home equity loan, or just leave it as is on the cards with a higher interest rate and pay it off eventually.
Current rates here are in the 3-4% range depending on term (15-30). With the reduction in interest rate, we can roll the $82k at 6.% and the $30k debt into a 15 year mortage instead of the current 30 year... and only increase our monthly payments by $250. 0 points through our credit union, 1 point through our bank, and I've no idea about other closing costs yet.
A home equity loan is running at 5 - 5.5% for 60 months...obviously a bigger monthly payment but separate from the mortgage and paid off sooner. We have plenty of equity as we paid for a big chunk of our home in cash (thank you, DR) and have since doubled the size & upgraded, again all in cash.
Lastly, I could leave the debt on the cards, pay a bit more in interest, and pay it off. The idea I get from DR is that this is the way to go, less for purely cost issues and more for the behaviour issues, if that's the right word.
The intangibles -
I'm a mom and want to be home with my kids ASAP. I'm working part time only until this is resolved. Refinancing would allow me to quit sooner and just let hubby deal with the $250. I would most definitely look for other ways to make money such as house cleaning or babysitting, but without any doubt, my biggest job would be supporting him, being his assistant, which means he'd bring home more $$ each month.
Hubby just started a new job, commission based, which will be paying all our monthly bills and expenses by January at the latest.
Anything else I need to input into this? I'm really tired today so hopefully I've not confused anyone
Thanks so much in advance for any light you can shed / advice you can give!
- 08-19-2010, 04:51 PM #2
well you will be turning a short term unsecured debt into a long term secured debt where you can lose the house. and pay on it for 30 years.08-19-2010, 05:14 PM #3
Don't do a HELOC, no matter how good the rate sounds. For the above mentioned reason by itlw8, don't refi the mtg with cc debt rolled in. You don't want to lose the house. Not to mention, for the HELOC, it's a pretty sure bet you are upside down on your mtg, unless you got a ridiculously low price when you bought 5 years ago. I bought a house around the same time, and it went down in value when we sold it at the beginning of this year.
You can try talking down the interest rate with each company, but if that doesn't work, then just pay them off as quickly as you possibly can.
I can totally relate to you wanting to be home with your kids. I am a SAHM to 4 little ones, and that's the reason I haven't gotten a part-time job to help with our debt snowball. I am looking into ways to help earn some money, but for now, we are very careful with dh's income and do the best we can. If, without refinancing, you can't make ends meet, then you have to keep that part-time job. I hate to say it, because I know how important it is for Mom to be home, but becoming more upside down and wrapped inside your debt is not going to help matters at all.
I hope this helps you make your decision. We will always be here for encouragement or to whip you back into shape, whatever the current situation warrants.Sara
Baby Step 1: DONE!!!
Baby Step 2: $11,610 Chase
Baby Step 3: $22,000 goal (6 months)
Baby Step 4: Invest 15% of income into retirement
Baby Step 5: College funding for 7 kids
Baby Step 6: Pay off mtg
Baby Step 7: Build Wealth and Give!08-19-2010, 05:25 PM #4
My house even with the added debt would be at less than 40% financed (60% equity is available) at current market price, even being very conservative. The issue that caused the debt was a one time deal, closing our business, which has been dealt with.
I guess my question, in a nutshell, is that this seems like a no brainer to me to refinance the house. We may do it anyway, just for the 3.35% rate with 0 points. But I read Dave's advice on his site and it made me pause.
If we rolled in the $30k, we would still pay the additional amount off early but would have the option in a bad economic situation to just pay the $250.08-19-2010, 05:31 PM #5
Thanks for this.
As I said in my first response, this isn't an average situation but I'm having a little trouble seeing the downside so any opposing thoughts help a lot.
Hubby's job will be better soon, or it'll be a different one. It's growing by about 75% per month so January is a conservative goal. My involvement with a PT job is limited to a year at most - that was our agreement. He's a multi-talented little bear and I've no worries that he could just find something different if need be.
We're definitely, most definitely, not upside down on our mortgage by anyone's calcs. We paid $60k down in cash and added 1000 sf of addition. We could take a big hit on selling it and still be ok.
Again, I appreciate it.08-19-2010, 07:48 PM #6
Just wanted to say thanks again and that we've made our decision. Just the act of typing it out here, getting a bit of feedback, and reading more from DR and others including threads here helped tremendously.
After talking with the C.U. again and getting closing cost info, we're going with the 15 year mortgage refinance for sure. Just the refi alone, with no adding the credit card $$ saves us $50,000 over the life of the loan and pays it off 10 years faster and our payment only goes up $50 per month to $580. That's a crazy good ROI %.
And adding the credit card debt to it increases the monthly payment by $220. and results in $7,000 in finance charges if we do not pay anything extra at all and let it ride out the 15 years, which we won't do anyway. That $7k is not terribly far from what we'd pay the cc company on a 3 year payoff schedule but it gives us a tremendous amount of flexibility.
So we've saved a net $43k in interest, increased our mortgage payment by $266/month, and can pay extra on the loan at any time without penalties.
I've resisted this because I hate to go backwards in home equity, but the real fact of the matter is that the equity loss happens at the time of the debt, be it cc debt or other. This way, I can get back to my kids sooner and the debt will be paid off eventually.
Thanks again.08-19-2010, 08:11 PM #7
Welcome Rachel! I'm glad it's all working out for you. That's awesome you can cut that back so much.Debt repayment itself is something I can figure on my own as I've been-there-done-that before, unfortunately.~Russ
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