2nd Mortgage Question
Q: I have a home worth 150K, owe 125K on the home, and have 65K in credit card debt. I have excellent credit (honest) and pull down about 100K in combined salaries. I know a mortgage officer at a local bank who I trust not to screw me. Her solution is to first refinance my house for 135k, pull out 10K and pay off two credit cards leaving the first mortgage payment approximatly the same. Then I would apply for the second mortgage for 55K and pay off the other credit cards. It seems easier just to get the second mortgage for 65K. I am wondering if she isn't selling the first mortgage just to sell a mortgage. Also I am concerned that once I refinance my home, the second loan will be denied because I just got a loan on the home. Is it common to get two loans on a home within a two or three month period for over 100% value of the home? Also I have heard about 125% refinancing and was wondering if there are federal regulations preventing her bank from doing this.
A: > I have a home worth 150K, owe 125K on the home, and have 65K in credit > card debt. Yowza. How MANY credit cards? What's your combined credit card interest per month? What are your card interest rates? How on earth did you rack up so much credit card debt?! (Sorry to be nosey, but, well, you're asking Qs and supplying only some of the data....) I'm mildly curious as to how many kids, if any, y'all have (just because it adds to the overall pictures of expenses). Also, I'm wondering if "worth 150K" means "I paid 150K"...or "the state/county sez it's worth 150K"...or "it was appraised at 150K". These are three VERY different things. What I'm writing below is presuming it actually appraised for 150K *OR* you know enough about property values in your area to know that it WOULD appraise at roughly 150K. If you really have a house worth 200K then get a HEL or HELOC to pay off your card debt...what I write below, though, is presuming that your house is really only worth 150K and thus your borrowing plan would push you way over 100% of the value of your home, which is not a good idea IMHO (but I'm just a two-home-owner, not a banker or accountant or lawyer or money management consultant or...etc.... i.e. my advice is worth what you're paying me > I know a mortgage officer at a local bank who I trust not to screw me. And yet you're questioning her suggestions and intentions. ;-) > Her solution is to first refinance my house for 135k, pull out 10K and > pay off two credit cards leaving the first mortgage payment > approximatly the same. If you're just going to pay off 10K to get rid of two cards, and you pull down $100,000 combined, then you can probably do that anyway in a little while if you're just patient and come up with a budget. Pay minimum (but always more than the INTEREST) on all cards except one; put all extra money towards the card with the highest interest rate. Stop frivolous purchases. And STOP USING ALL CREDIT CARDS! I suspect there's something to be said for, if the balance is low, paying off a card that doesn't have the highest rate first...just so you can get rid of one entire payment a month. Different cards may have different minimum payments, so without knowing the full breakdown of cards/rates/minimums/interest per month, the "pay down highest interest rate card first" plan is only a general recommendation. But everything I've read says that in general, you should always (after stopping USING your cards) pay down the highest interest first, which of course makes sense since that means you'll be paying less in interest more quickly and thus have more to spend to pay off the cards more quickly and thus be able to pay them off more quickly. But really, it's all about a budget & having patience. I imagine it took a while to rack up 65k of debt...well, it'll take a while to pay it off, too. You're not in a rush for any reason you haven't mentioned, right? > I am wondering if she isn't selling the first mortgage just to > sell a mortgage. Well, twice as many closing costs for her bank maybe? I suppose that depends on what the second mortgage really is. E.g. our home equity line had no closing costs, but if we pay it off too soon (in less than...I forget, 1 year? 2?), we get penalties...it basically is almost like paying the closing costs after the fact. (Fortunately, our mortgage broker had promised us NO COSTS for the HEL, so when the paywork went through and wound up having an early termination fee, he wrote us a check for that amount as soon as he verified that he couldn't get it changed. I love him.) > Also I am concerned that once I refinance my home, the second loan will > be denied because I just got a loan on the home. Why would that matter? I'd be more concerned that I was trying to borrow over 100% of the value of the house. I didn't think banks would lend that much, even though they love to lend you more than you can afford (and thus more than they should).... My advice (IANAA ): Make a budget and focus on paying down your credit card debt. Over time you'll find you have more and more extra income to put towards that debt, which in turn will pay it down faster. Be patient and eventually you'll pay it off...or perhaps pay it down enough, and have paid off more on your mortgage, so that you're at the point where a HEL or HELOC to pay off the rest won't push you over the value of your house. .