I think we are doing the right thing....

iVillage Member
Registered: 04-09-2003
I think we are doing the right thing....
2
Tue, 04-05-2005 - 3:04pm

Hi everyone,

I have posted here once or twice before, but I have a question for anyone who has taken out home equity loans to pay off bills. We had our house appraised last week, and we have more than enough equity to pay off our credit card debt. Heres a little background on DH and myself. We are 36,500 in credit card debt. We have had most of this debt for the last 10-15 years. When we lived in California 10-15 years ago, we always used our charge cards. We did this for 5 years in the tune of 43,000 (weve paid off very little in the last 10 years due to daily compounding interest). Since we left Cali, (10 years ago), we never use our charge cards. All of this debt is trully from over 10 years ago, but here we are still paying it, over $800 a month in minimum payments. We talked to the bank who gave us our 1st mortgage, and they said we qualify for enough to pay off our credit cards. Our credit card bills will go from $800 a month, down to $313 a month with the second mortgage. We have no other bills. I have read and heard that a second mortgage is usually not the way to go to be debt free, because people tend to use credit cards again. Although, we haven't used credit cards for over 10 years so I don't forsee us getting into that sitaution. And our second mortgage is tax deductible. Also, houses around are area are expected to keep going up due to the lack of inventory, so really we will keep building equity from our 1st mortgage. If anyone has done a home equity loan, please share your experience with us. Thanks

Julia

Julia

Proud Mommy of Macey and Reece

iVillage Member
Registered: 08-20-2004
Tue, 04-05-2005 - 5:17pm

I think its a good idea for you to do this, but

1. don't pay the 313, pay like 550, its still less
than you were paying, and you have extra money too.

2. do not under any circumstances use your CCs without
paying off the entire balance each month.

If possible, after paying a couple years on the 2nd, and your
house appreciates a lot, go ahead and sell. The profits will
be tax free, and you'll be out of debt totally.

iVillage Member
Registered: 03-26-2003
Wed, 04-06-2005 - 12:33am

We actually sign tomorrow for ours. I consulted our original mortgage broker about it, and she basically said a home equity loan is a very smart move, because I will transfer the debt to a lower interest rate, and even that interest will be tax-deductible. Refinancing our first mortgage was not feasible because rates have gone up since we bought our house.

For people who cannot stop using charge cards, home equity loans are probably not a good choice, the reason being that if you can't afford the payments on the home equity loan (which is a second mortgage) then the home is at risk. But if you (like me) are really not going to charge on cards again, it's a better way to pay off the debt we already owe. And since the minimum payments are low, if we have a really tight month (financial emergency) we can pay the minimum of $150, whereas our minimum payments with our credit cards are about $250.

I did not max out the equity in my home and have worked out a 3-year repayment plan (using the quicken debt calculator) paying FAR more than the minimum, so we will pay off the loan quicker than we would be able to if it stayed on the credit cards. We have two cards, at 15.9% and 11.9%, and our home equity loan is 8%. We also have a "wish list" of home improvements that we will only start after we have paid off the home equity loan, and then we will save for those projects and pay in cash.