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#1
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2nd Mortgage question
I have a home worth 150K, owe 125K on the home, and have 65K in credit
card debt. I have excellent credit (honest) and pull down about 100K in combined salaries. I know a mortgage officer at a local bank who I trust not to screw me. Her solution is to first refinance my house for 135k, pull out 10K and pay off two credit cards leaving the first mortgage payment approximatly the same. Then I would apply for the second mortgage for 55K and pay off the other credit cards. It seems easier just to get the second mortgage for 65K. I am wondering if she isn't selling the first mortgage just to sell a mortgage. Also I am concerned that once I refinance my home, the second loan will be denied because I just got a loan on the home. Is it common to get two loans on a home within a two or three month period for over 100% value of the home? Also I have heard about 125% refinancing and was wondering if there are federal regulations preventing her bank from doing this. |
#2
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In article .com,
" wrote: I have a home worth 150K, owe 125K on the home, and have 65K in credit card debt. Yowza. How MANY credit cards? What's your combined credit card interest per month? What are your card interest rates? How on earth did you rack up so much credit card debt?! (Sorry to be nosey, but, well, you're asking Qs and supplying only some of the data....) I'm mildly curious as to how many kids, if any, y'all have (just because it adds to the overall pictures of expenses). Also, I'm wondering if "worth 150K" means "I paid 150K"...or "the state/county sez it's worth 150K"...or "it was appraised at 150K". These are three VERY different things. What I'm writing below is presuming it actually appraised for 150K *OR* you know enough about property values in your area to know that it WOULD appraise at roughly 150K. If you really have a house worth 200K then get a HEL or HELOC to pay off your card debt...what I write below, though, is presuming that your house is really only worth 150K and thus your borrowing plan would push you way over 100% of the value of your home, which is not a good idea IMHO (but I'm just a two-home-owner, not a banker or accountant or lawyer or money management consultant or...etc.... i.e. my advice is worth what you're paying me ;-). I know a mortgage officer at a local bank who I trust not to screw me. And yet you're questioning her suggestions and intentions. ;-) Her solution is to first refinance my house for 135k, pull out 10K and pay off two credit cards leaving the first mortgage payment approximatly the same. If you're just going to pay off 10K to get rid of two cards, and you pull down $100,000 combined, then you can probably do that anyway in a little while if you're just patient and come up with a budget. Pay minimum (but always more than the INTEREST) on all cards except one; put all extra money towards the card with the highest interest rate. Stop frivolous purchases. And STOP USING ALL CREDIT CARDS! I suspect there's something to be said for, if the balance is low, paying off a card that doesn't have the highest rate first...just so you can get rid of one entire payment a month. Different cards may have different minimum payments, so without knowing the full breakdown of cards/rates/minimums/interest per month, the "pay down highest interest rate card first" plan is only a general recommendation. But everything I've read says that in general, you should always (after stopping USING your cards) pay down the highest interest first, which of course makes sense since that means you'll be paying less in interest more quickly and thus have more to spend to pay off the cards more quickly and thus be able to pay them off more quickly. But really, it's all about a budget & having patience. :-) I imagine it took a while to rack up 65k of debt...well, it'll take a while to pay it off, too. You're not in a rush for any reason you haven't mentioned, right? :-) I am wondering if she isn't selling the first mortgage just to sell a mortgage. Well, twice as many closing costs for her bank maybe? ;-) I suppose that depends on what the second mortgage really is. E.g. our home equity line had no closing costs, but if we pay it off too soon (in less than...I forget, 1 year? 2?), we get penalties...it basically is almost like paying the closing costs after the fact. (Fortunately, our mortgage broker had promised us NO COSTS for the HEL, so when the paywork went through and wound up having an early termination fee, he wrote us a check for that amount as soon as he verified that he couldn't get it changed. I love him.) Also I am concerned that once I refinance my home, the second loan will be denied because I just got a loan on the home. Why would that matter? I'd be more concerned that I was trying to borrow over 100% of the value of the house. I didn't think banks would lend that much, even though they love to lend you more than you can afford (and thus more than they should).... My advice (IANAA *): Make a budget and focus on paying down your credit card debt. Over time you'll find you have more and more extra income to put towards that debt, which in turn will pay it down faster. Be patient and eventually you'll pay it off...or perhaps pay it down enough, and have paid off more on your mortgage, so that you're at the point where a HEL or HELOC to pay off the rest won't push you over the value of your house. * I Am Not An Accountant. ;-) Cheers, Kendall -- Kendall P. Bullen http://www.his.com/~kendall/ kendall@---^^^^^^^ Never e-mail me copies of Usenet postings, please. I do read the groups to which I post! |
#3
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" wrote:
I have a home worth 150K, owe 125K on the home, and have 65K in credit card debt. I have excellent credit (honest) and pull down about 100K in combined salaries. I know a mortgage officer at a local bank who I trust not to screw me. Her solution is to first refinance my house for 135k, pull out 10K and pay off two credit cards leaving the first mortgage payment approximatly the same. Then I would apply for the second mortgage for 55K and pay off the other credit cards. It seems easier just to get the second mortgage for 65K. I am wondering if she isn't selling the first mortgage just to sell a mortgage. Also I am concerned that once I refinance my home, the second loan will be denied because I just got a loan on the home. Is it common to get two loans on a home within a two or three month period for over 100% value of the home? Also I have heard about 125% refinancing and was wondering if there are federal regulations preventing her bank from doing this. Sounds a mite fishy. With closing costs, PMI, etc., I have a hard time believing that it makes financial sense. However, since I don't know your whole financial picture, I can't run the numbers. Just for giggles, is your credit good enough that you still get those low-interest teaser offers from other credit card companies? I'd think rolling your existing CC debt onto those would give you less interest expense than the tax-adjusted rate you'd get on a mortgage (especially a 2nd mortgage). You'd have to pay it off faster than a mortgage, but that's a good thing. Really. With 100K in salary, and only 125K of mortgage debt, you should have plenty of free cash flow, unless there's other aspects of your financial situation you haven't mentioned. Now, 65K of CC debt usually means that either (1) You had some serious medical bills (2) You financed a pretty nice college education on a CC, or (3) You're used to living beyond your means. If (3), then you really need to chop the plastic, put together a real budget, and get used to paying cash for things until you get the debt paid off -- some folks just have a hard time not treating plastic as "free money", and cash seems a lot more "real". |
#4
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One key question here is what is the interest rate on the existing 125K
mortgage and what kind is it, ie fixed, term, etc. Unless it's enough above current rates or you want to switch from adjusted to fixed, etc, then it doesn't make sense to refinance which will result in closing costs. Also, when people do this they typically wind up taking what's left of a 30 yr mortgage and extending it out another 30 yrs. That means you pay even more interest in the end. If the rate/terms on the existing mortgage are ok, I'd just shop for a good 2nd mortgage deal. With a house worth $150K and an existing $125K mortgage, I don't see how you're going to pull out anywhere near $65K more in any case. And I'd make sure to start getting rid of those credit cards! |
#5
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You will not get two mortgages totalling 190 K on a house worth 150k.
It won't happen, so plan accordingly. --James-- |
#6
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You can do 125% financing, which based on your info would get you some
money to pay off the cards, but you'll pay closing costs and a higher interest rate. IF your mortgage interest rate is relatively low already I would not mess with it. I (and I've been in a similar situation) would move credit card debt to low/zero interest cards if as the other responder stated, you still get those offers. Whether you can get low cost credit cards or not, the key is to bring down your d@mn expenses, a LOT, for 2-3 years, til you pay this stuff off. Took me that long and I did by (a) stopping buying things and (b) driving the same car for 6 years. It can be done, good luck ! |
#7
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Thank you for your kind words and not being judgemental. I'm glad you
made it through to the other side. |
#8
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Thank you for replying to my question. A long history of making bad
decisions has led me here so I am looking at ways to fix it. |
#9
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Thanks for your response. I have to get a tighter belt is all.
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#11
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In article .com,
" wrote: Thank you for replying to my question. A long history of making bad decisions has led me here so I am looking at ways to fix it. Yeah, I'm afraid you have to tough it out for a while probably...but the good news is that with self control, you can get there! My other half went on a monetary 'diet' where he had a fixed amount direct deposited into a separate account that I paid his bills out of (I used the plan I described before, of paying minimum/interest on most cards & then extra towards the highest interest card) and he also put a big chunk of each income tax return towards his bills (not as much as I'd like, but more than he'd've liked). He got debt-free just before we bought a new house (just in time!). Kendall -- Kendall P. Bullen http://www.his.com/~kendall/ kendall@---^^^^^^^ Never e-mail me copies of Usenet postings, please. I do read the groups to which I post! |
#12
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In article .com,
" wrote: Thank you for replying to my question. A long history of making bad decisions has led me here so I am looking at ways to fix it. That would be my #1 reason to not get any home equity loans. Leave things the way they are. I am afraid that if you bail yourself out here, you will simply make more bad decisions and end up in more credit card debt. And that will happen after you have used up all your home equity. It never makes sense to put your home at risk for the pizza and shoes you bought last week. -john- -- ================================================== ==================== John A. Weeks III 952-432-2708 Newave Communications http://www.johnweeks.com ================================================== ==================== |
#13
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" wrote:
Thanks for your response. I have to get a tighter belt is all. Well, yeah, but might as well keep it as loose as possible :-) . If you can't roll the debt onto teaser-rate cards, there are usually other ways of financing unsecured debt that charge less than a CC (depends on the CC of course, but if you have any charging over 10%, it's time to look into other options.) I just don't think paying out the a$$ (closing costs, etc.) for the privilege of paying off the debt over 15 / 30 years makes a lot of sense, financially. |
#14
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On 2 Jun 2005 17:29:11 -0700, someone wrote:
Thank you for replying to my question. A long history of making bad decisions has led me here so I am looking at ways to fix it. The one thing I have to say about this, is that at least right now your home looks pretty secure, with a reasonable LTV. If you take the big mortgage to pay off the CC's, then your house is in danger if anything turns sour. I expect you know that many people who borrow on their house to pay of Credit Cards, just end up running the CC's back up within a couple of years. Then they are double screwed. Personally, I don't think you have enough house, compared to the size of your CC debt, to really do this. You have decent income so pull back on lifestyle and concentrate on paying off the CC's, that's my opinion. Reply to NG only - this e.mail address goes to a kill file. |
#15
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On Thu, 02 Jun 2005 09:02:37 -0400, someone wrote:
Yowza. How MANY credit cards? ... How on earth did you rack up so much credit card debt?! Kel, Its not that hard and doesn't take that many cards. Some of mine have credit limits in the $30,000 range. If I used ours to their existing limits, it would come to WAY over $100k. I have long had a practice of using big chunks at a time, for investment related purposes, or sometimes for a very major purchase. Then they are paid off quickly. I do not think I have EVER made only a minimum payment. For "regular" purchases - going out to dinner, pair of shoes, etc., we usually pay off the entire bill each time it comes in, or if we've bought a lot, then over maybe 2 months and don't charge much if anything the 2nd month until its paid off. I mostly use the CC so as not to have to carry cash, and secondarily I suppose I have several thousand in free "float" all the time. But yes, I've had that much CC debt (for short periods), and my average income is the ballpark with OP's. Its all how you use it. Reply to NG only - this e.mail address goes to a kill file. |
#16
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#17
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" don't quite understand that argument. How is the house more in
danger if LTV is higher? " He'll get the higher LTV by refinancing and getting a substantially larger mortgage. That typically means larger loan payments. In his case, he's talking about going from a $125K mortgage to a $190K mortgage. Hence it's easier to fall behind at which point, the house is in danger. |
#18
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#19
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On Sat, 04 Jun 2005 11:04:30 -0700, someone wrote:
He'll get the higher LTV by refinancing and getting a substantially larger mortgage. That typically means larger loan payments. In his case, he's talking about going from a $125K mortgage to a $190K mortgage. Hence it's easier to fall behind at which point, the house is in danger. But he will reduce his CC payments, so his *total* fixed monthly expense will go down (assuming he can get better rate on mortgage then on CC, which is a safe assumption). You are ignoring WHAT he can CHOOSE to fall behind on. If things get tight and he doesn't pay his credit cards so that e can keep up his house payments, they will do what, cancel his cards? It would be a long long time if ever before his CC companies can take his house. But if he does the huge re-fi, the CCs are paid off and now the only thing he has is the big nortgage, nothing to slough off, and the mortgage company goes aftr your house directly and immediately and can get too. But yeah, another significant thing that others mentioned, which technically I didn't mention as a separate consideration (ah the pedanty of the internet) is that if he over-finances, he "can't afford to sell" and so can't voluntarily downsize and protect the only equity he has (or have it available as cash to live on) if he foresees trouble before he has to start skipping payments. Reply to NG only - this e.mail address goes to a kill file. |
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