Q: That represents a substantial savings in monthly payments, but I'm wondering how much additional risk the home equity loan represents in our case. I can see that if we wholly owned our home, the home equity loan would represent clear additional risk, as if we defaulted we'd be forced to sell the home to pay off the remaining loan debt. However, since we still owe around $240,000 on the mortgage, if for some reason we lost our ability to pay, wouldn't we be forced (by the mortgager) to sell the home anyway? If this is true, does the HE loan represent any additional risk?
A: I think you need to take a realistic examination at what your future holds as far as income goes. Are you sure that this income downturn is temporary? Or are you in an industry that has gone overseas or has totally evaporated? Unless you are pretty sure that your income will pick back up, adding yet another payment to the mix is a dumb idea. The real answer would be to either increase income or reduce expenses. As far as doing a home equity loan to reduce your monthly payments on existing debt, I am still a little iffy on that. It is never a good idea to convert a short term debt into a long term debt, and it is never a good idea to put your family home in risk. When you are having financial problems, you don't need to be driving a luxury car. Sell that puppy, and buy something that you can pay cash for. If things get better, then you can buy another luxury car when you can pay cash for it later on. To buy some time, call all of your credit card companies and look for low fee/low rate balance transfers. If you can get a 0% or a 2.9% for your credit card debt, then do it--it makes little sense to put up your house if you can do it with a balance transfer. If your income downturn is a long term situation, then I'd suggest selling the house and moving somewhere more sensible. You have the potential to make a $150,000 profit on a $30,000 investment, which is making 5 times your money. I'd take that deal any day of the week. Selling your house will clear up your mortgage debt, eliminate your monthly $2000 hit, and get rid of the pool loan. Combine that with selling the luxury car and paying off your credit cards, you could live somewhere in the country in a brand new home that is fully paid for and still have cash in the bank.
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