Profile picture for dmccoig82

Should I use my homes equity to consolidate my bills?

I have a home that I purchased in March of 09 with equity in it. Right now, I have about 30k in credit card and loan debt that is at about a 20% interest rate. The bank says that they should be able to appraise my home for 108k and refi my mortgage at about 2% lowerr than my current rate and be able to reduce my debts by about 20k. In turn this drives my mortgage up about $90 a month. Is this a good option?
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November 17 2010 - Berea
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Answers (6)

There has been alot of good advice given to you but there are also mixed resutls.  My advice is to contact a financial advisor and take their advice. Good Luck
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November 18 2010
I didn't know, how much is your mortgage balance.
Assume your old balance is $100K at 6.5% for 30 years, the monthly payment is $632.
the other debts are $30K at 20% for 60 months, the monthly payment is $795.
You cash out refinancing $130K at 4.5% for 30 years term, the new payment is $659 a month.
If you pay $659 + $795 = $1454 a month in 60 months then $659 a month thereafter, your mortgage life is 184 months (15 and half years)
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November 17 2010
Profile picture for the_country_hick
Credit card debt is unsecured. They do not have a right to any specific thing you own.

A mortgage is secured debt. They can take your house if you do not pay.

I would NOT do the refinance as it could jeopardize my ownership of my house sometime.

I WOULD talk to a bank (credit union etc.) about refinancing my other debt and getting a lower interest rate. If possible you save money and do not put your house at risk.
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November 17 2010
You are in better shape if you cash out refinancing, your mortgage life is shorter if you keep pay the old mortgage payment + the credit card payment for the new mortgage, that is to say if your credit card payment is 60 months then keep pay that extra for 60 months into the new mortgage - $90.
I just cash out refinance my home to pay-off the car, and I keep pay same amount of the car payments into the new mortgage. 
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November 17 2010
Profile picture for wetdawgs
"some would say that you are financing your consumer debt over 30 years'. 

This is exactly what you are proposing.   Many people in the housing run up ended up in serious financial trouble because they refinanced with money out again and again to cover their new cars, their pizza, their trips to Europe etc.   Financing a car with a 30 year loan horrifies me.  A pizza even more so.   How many cars are you going to have during this period?   Do you want to still be paying on your car of today when you are two or three (or more) cars removed?    Or even medical bills.

The only way I can see doing this scenario to get advantage of the low interest rates is to pay off 20 k consumer loan portion extraordinarily quickly.


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November 17 2010
dmccoig82,

It is tough to find a drawback to consolidation scenarios that appear to be this clear cut and offer this kind of benefit (reduce mortgage rate, eliminate high-interest rate debt, etc.).  Some would suggest that you're now financing your consumer debt over 30 years and that if you default on it you'll risk your home, etc.  However, assuming you can do this refinance and the math makes sense and that you're a responsible borrower, I would, in your shoes, make it happen.

Good luck!

 
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November 17 2010
 
Related Questions
Should I use my homes equity to consolidate my bills?
Profile picture for Kerry Cybulski
Latest answer by Kerry Cybulski
November 18 2010 | 6 answers
  • Asked by dmccoig82
  • In Refinance
  • November 17 2010
Mortgage Rates
 
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