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Refinance or equity loan? Pros and Cons?

Just divorced and need to remove my husband's name from the mortgage. 
House appraised: $195,000
Remaining loan amount: $89,000
Credit card debt: $30,000
House payment: $758/mo at 5.0%  loan rate

Options:  $500 fee to complete liability name change, and take out an equity credit line for $30,000 to pay off credit cards (at 5.0% variable interest rate, +$450/mo for 6.5 years to pay off this debt).   Keep original loan at 5%.

Or...30 year fixed rate at $5.1% interest rate, take out $120,000 loan, pay off credit card debt, and increase house payment to $980/month.  Refinance fee $1700. 

What are the pros and cons?
  • December 18 2010 - Kansas City
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Answers (2)

On the surface, it seems like your trade-off is one of risk in rates on the CC v. fees, but I think that misses the fact that your mortgage (75% of your debt) gets significantly deferred into the future.   

CC option:  you skip $1200 in fees now, plus avoid the nominal increase in rate on the whole $120k, but that's a whopping $120/year.    Risk is if margin on CC or Prime goes up.  If your income is relatively fixed, but inflation/Prime is not, the CC option is even worse.     

If you can afford $980 + 450 monthly, why not get a 15 year at a better rate than the 30 and pay that same $1430 each month.  You could pay off both amounts in 8-9 years. 

Please ask me to clarify if I'm missing something. 

My $.02,
  • December 20 2010
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Good morning.
Credit scores - time you intend to remain in the home would be important factors to know to give you proper advice.

More than willing to work up a spreadsheet for comparisons to give you a better idea which would be best for your situation.

On the surface though - having a home equity line of credit greater than 30% of the total amount owed give me pause to consider just the one loan.

Harry Newell

  • December 20 2010
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