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: I think it means their interest rate will be 3.9% until 2/00.

IMHO, the last thing you should do is borrow more money. The only benefit of a home equity loan would be a lower interest rate, which it doesn’t look like you’re getting, or tax-deductible interest, which you probably won’t qualify for with a no-equity “home equity” loan. I’d concentrate on paying off the credit cards one of those mortgages. And the next time someone sends you an offer of “easy money,” cut it up just like you cut up those credit cards.

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Filed under: Home Equity Loan