Loans Answers

Consolidating DEBT with a HOME EQUITY LOAN ?

Question: My wife and I bought our first home last June (1998). We had no money to put down so we arranged to finanace 75% of the cost of our home with a traditional loan and the remaining 25% with a 2nd mortgage. Not optimal, but better than renting. Our home is located in Highlands Ranch, CO. The area seems to be appreciating very quickly and there are some smaller homes on our block now going for $165K+.

Here are the figures:

Original Purchase Price: $155,000 1st Mortgage amount owed as of 3/99: $116,300 @ 7.25% for 7 years (with balloon of $106,275) 2nd Mortgage amount owed as of 3/99: $38,363 @ 9.5% for 20 years 1st and 2nd approximate currently owed: $154,663

My wife and I also have the following credit card debts: $11,000 @ 3.9% until 2/00 with an approximate minimum monthly payment of $275 $6,000 @ 13.9% with an approximate minimum monthly payment of $110

We have the following car payments: $17,300 @ 7.75% for 5 years (a little less than 5 remaining) with a monthly payment of $355 $5,800 @ 11.49% for 5 years (4 years remaining) with a monthly payment of $164

OK. Here is the big Question: We have been looking at different options for paying down some of this debt and consolidating. We are COMMITTED to getting rid of our credit cards (we have already cut them up and thrown them out!!!!) We really want to get rid of the credit card balances we are carrying, and possibly one or both of the car payments. Our home is also in serious need of some repairs and upgrades. We have been looking at a few mailers that have come our way that indicate we can borrow up to $32,000 to pay off debt and improve our home. Interest rate is 11.99% for 25 years with a $336/month payment. The flyers claim that no equity is needed for this loan, it is based on our ability to pay and I *do* earn a fairly good living…

What are our best options? Is there anything we can do? We are very cash poor because of all of our bills and really need to do some things with our house and consolidate these higher payments into a lower monthly payment that we can handle…

Any advice on what to do or what not to do? Are there any options for us?

Thanks very much!

Answer: No. no. The 3.9% is a temporary promo rate; after 2/00 it goes up to *whatever*. The debt is not expected to be paid off at that rate by the minimum pmts. (You’ll * never* make any progress just making the minimum.) At least, that’s what it looks like to me.

The original poster is just way overboard on debt. Demonstrating that its NOT a good idea to borrow to the max, just because you can. Now, I KNOW this doesn’t help the original poster, but for the NEXT person facing some decisions:

1) Live in the cheap apt. another year and save up some down pmt. Of course you have got to get a lesser apt. than you can afford, if you max out on rent you can’t save anything.

2) Buy a lesser house, not necessarily the maximum debt that someone is willing to lend you.

3) DON’T BUY TWO CARS WITH LITTLE OR NOTHING DOWN.

For this thread… can you sell the car and drive a used one for a while instead? Don’t take out a 25 yr loan to pay off a car that will last a far shorter period. And I think in the position described, too risky to convert unsecured credit card debt into a home loan of over 100% LTV. Default on the credit cards, you get a bad credit rating. Default on a home eq loan and you lose your home PLUS have a bad credit rating (that then impedes your buying another one, or even ranting many apartments).

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