Jeramie Posted June 15, 2005 Report Share Posted June 15, 2005 What do you all think about Equity Loans? We have some credit card dept, those things are evil. We actually havent used them in years but we have some debt from when we first got married and were poor as dirt. My wife also needed stuff to start a new job and it hit us at a bad time too. We have roughly $33,000 in equity of our home. We wont need nearly that much to pay off the abyss that is the credit card debt. We could lock in 6.5% or 5.9% if we only go 10 years (instead of 15). If we do this we can have the cards payed off in roughly two years (with realitive ease) versus paying on them until dooms day. This is a no closing cost loan, fixed rate, and no penality for early pay off. It sounds like a great idea to me and will reduce our payment to 1/4 of what it is now. Has anyone else done this and what do you think? We have a fresh appraisal of our house and our Credit Score is 700 (just a few points below actually) so the Mortgage company said they could literally close next week. We are talking instant freedom...... Or is this a wolf in sheeps clothing? Thanks in advance..... Quote Link to comment Share on other sites More sharing options...
AaronS Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? I'm sure there are members here that know a lot more about this than I, but my opinion is that it's a good idea. Besides the advantage of paying off the credit card debt more quickly, you should find out if home equity loans are tax deductible like mortgages. I'm not sure without asking a banker. Quote Link to comment Share on other sites More sharing options...
Guest andymansavage Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? That's the way to do it! Quote Link to comment Share on other sites More sharing options...
Newarcher Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? IMHO, never pay off unsecured debt by changing it into secured debt. I am not willing to potentially lose my home because of credit card debt that is converted to a mortgage. You would be better off to apply for a card that has an introductory rate of 0.9% or something similar for the first year and transfer the balances on all cards to it. When its introductory period lapses (actually at least two weeks before), transfer the balances remaining to the next card for its intro period. Be sure to close the first when you open the second. That way you keep your interest low and avoid making unsecured debt secured. Most people who do equity loans celebrate their financial freedom by promtly running up the balances on the credit cards back up and end up with a home equity loan and just as much credit card debt. They too said "ahhh, nahhhh I wouldn't do THAT". It could work if you were to be disciplined enough to never use the cards again. But what happens if a car breaks down or some other unexpected debt happens along? I wouldn't do it unless: --I could guarantee I wouldn't run the cards back up --I had a job that I knew couldn't go away --I had enough emergency funds to pay at least 6 months of my bills. I haven't been there myself but good luck with your decision. If you do go for it, consult your tax attorney because the interest COULD be deductible. I think you would be better off to stem the flow of incoming charges and make a plan to pay off the cards in say 2-5 years. If the payment to do so would make things tight, then the second mortgage might also. Do an amortization schedule showing the interest you would pay by transferring between credit cards like I mentioned and paying off over 2-5 years versus paying the smaller payment over 10 or 15 years. Could be an eye opener. I myself wouldn't dance with the devil no matter how short his skirt was. New Quote Link to comment Share on other sites More sharing options...
MCH Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? I echo what the two before me mentioned. Also, a little advice. Shop around. For instance, we have mortgage companies in the area that tout "no closing costs" but you will still run into various fees that they charge. We have one bank in the area that is offering home loans with no fees at all. I guess they just need to up their real estate lending department?? I'm assuming your mortgage is with another bank otherwise you would not be getting a home equity loan. Have you looked into a change in terms on your original mortgage?? If you have any questions feel free to PM me. I generate Real Estate Loans for a living... I understand what Newarcher is saying with secured and unsecured. But if you're current mortgage is 600 a month for 20 years it would be worth it to me to extend the term or add $50 a month in order to get out from under credit card debt. Quote Link to comment Share on other sites More sharing options...
Newarcher Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? Keep in mind...... No one who experienced complete and total disaster in their lives...financial, etc..... ever said "Hey all y'all watch this....it's gonna be a train wreck!". It never happens when you are prepared and ready for it to. New Quote Link to comment Share on other sites More sharing options...
NS whitetail Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? I think that it is a good idea ------- just as long as the credit cards are cut up and no more issued. Like you said, you can pay everything in one payment all together or pay till dooms day on the credit cards. It's your choice -- good luck with whatever you choose Quote Link to comment Share on other sites More sharing options...
Jeramie Posted June 15, 2005 Author Report Share Posted June 15, 2005 Re: Equity Loan? We have already cut up the cards. We honestly have used them in quite some time. Money is freeing up everyday and we arent strapped to the point that I couldnt make the payment. Im just sending in money hand over fist and seeing, literally, nothing in return. Thats the main reason for my interest. I could double up on the payments but like a green monster they still wouldnt show leaps and bounds with 18% interst. Sure that handles the principal but thats it. You may pay them off earlier but youre still stuck with the large payment every month. You make some great points New, I could chip them away slowly but I work all of our financial situations pretty fast track. If we decide to do this they will be payed off VERY soon. Otherwise I will have to play the switch job for 2-3 times the length. The second mortgage is roughly $150 (or somewhere therein). I can swing that as a payment right now. The bonus is I will lose the payment on the Cards. My wifes Xterra payes off the first of next year and that payment will be added to payoff too. Thats another $400+ a month. Quote Link to comment Share on other sites More sharing options...
preacherman Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? it makes sense to pay them off in a few years instead of a bunch of years! If I had a home with equity...........then I would indeed do it! Quote Link to comment Share on other sites More sharing options...
dogdoc Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? I agree with MCH--he's the expert here! Get those CC paid off--deduct the interest of the equity loan---makes sense to me! todd Quote Link to comment Share on other sites More sharing options...
Rhino Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? Credit card debt is a household killer. It's not tax deductable and it's the highest interest you'll pay on anything. You could be paying them off for a long time and the vast majority of the $ paid will be interest. If I were in your shoes I'd sure do it. The interest on your home equity loan is tax deductable. The only credit cards I have are a Visa ATM card and an Amex card. The Amex card gets paid off in full every month and I only use it for business expenses. With the Visa ATM card, if you don't have the money in your account you don't use it. You will need at least one credit card. If you ever travel anywhere and need to rent a car you have to have a credit card. They won't allow you to rent a car without one. I found that out the hard way right after I went through a credit card cutting up ceremony about 18 years ago and went on a trip with cash and cashier's checks. Quote Link to comment Share on other sites More sharing options...
MCH Posted June 15, 2005 Report Share Posted June 15, 2005 Re: Equity Loan? Credit cards are a necessary evil. Jeramie, I'll PM you with some specifics later when I get some more time. For now, contact a few more lenders and have them give you some quotes. Sometimes it's feasible to sacrifice closing costs for a few tenths off an interest rate, so don't make your decision based on fees alone. Quote Link to comment Share on other sites More sharing options...
bulldawg Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? We just did an equity loan. When I take out that kind of loan, I get an open end loan. They give me checks to use against the equity, if I need extra cash for tires, etc., and i can lock it at any time if i choose to. Mine was no fees, no payments for 6 months. But, I will pay the interest for the 6 months so that doesn't build up. Quote Link to comment Share on other sites More sharing options...
wtnhunt Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Getting out from under the cards would be a good move. I would do it if I was you. Like others said shop for rates. Quote Link to comment Share on other sites More sharing options...
David_218 Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Now, I might not be the right person to answer your question on "Equity Loans" as I have never been in debt. However I think they are a very bad idea unless you have more than 33% "Equity" in your home. Better would be to have 100% Equity. I know mortage & equity rates are very low currently, but one could loose their home if something unforseen happen like an Illness or job layoff. We are living in very uncertain times, regardless what the "So called" experts say. My suggestion is to find a part time job and hold a garage sale to come up with the credit card balance. After you pay off your balance, TEAR UP THAT CREDIT CARD!! Quote Link to comment Share on other sites More sharing options...
Newarcher Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Jeramie, The cards are cut up, that's a great start. Yes, the payment would be $150 but for how long? 10 years or 15? You really need to do the amortization schedule and take a look at it, it isn't the deal you think it is. Flip the balances onto intro rate credit cards and aggressively pay them down by cutting back everything you don't need. You will pay less interest as a percentage (probably) than you would on the home equity loan and there is NO RISK OF LOSING YOUR HOME. When your wife's Xterra pays off, add that to your payment each month--it would go directly towards principal. PAY CLOSE ATTENTION HERE: The reason to want to pay off the credit cards is to get rid of the high interest debt. If you do what I said and flip the intro rates on the credit cards, you accomplish that. By doing the home equity loan, all you are doing is shifting the debt from unsecured to secured debt. You still would owe the same amount and the intrest rate would be higher than the intro rates on the cards. Plus you will now have your home on the line. Not in 1 million years would I gamble my home on the fact that I will not lose my job or get some sort of sickness in the ten or fifteen years that the loan will be outstanding. Interest rates will only rise so it isn't even like you could refinance a couple years down the road to eliminate the second without taking a huge hit in the higher interest rate. It sounds like you had you mind made up before asking the question that you intended to do it. It probably will not result in catastrophy but it could. One last thing to think about here. There is much more talk lately about a housing bubble due to high home prices. Real estate tends to run in cycles like everything else. So let's suppose real estate values take a huge hit and we slide into another recession. You have $50K in equity and take out a $30K equity loan...then the market collapses and your remaining $20K in equity turns into a -$10K in reverse equity. Then something happens that necessitates you selling your home. Whatcha gonna do then? Good luck buddy. I hate to see anyone make a potential mistake when there are other avenues that will accomplish the same thing. New Quote Link to comment Share on other sites More sharing options...
Newarcher Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Jeramie, One more thing about real estate values. Keep in mind that when doing an appraisal for an equity loan or a refinance, the appraisers typically are much much more generous than need be. Your home will appraise for more than you generally can sell it for. So all that equity you think you have may be paper only. 10 to 15 years is a lifetime when you consider being tied up in a loan that could reduce your ability to sell your home and have a downpayment for another home. JMHO, that is all I will say. New Quote Link to comment Share on other sites More sharing options...
Jeramie Posted June 16, 2005 Author Report Share Posted June 16, 2005 Re: Equity Loan? [ QUOTE ] It sounds like you had you mind made up before asking the question that you intended to do it. It probably will not result in catastrophy but it could. [/ QUOTE ] Dont think im not taking what youre saying into consideration. Im listening. Im just looking at what im paying in interest versus what I could be saving. If I did get a card payed off by using anothers low interest it would be a Long process and I would still have to pay in high interest with the other cards. Say I Tranfer balance from one card and attack the balance. I would only have a fraction of the amount to pay into the card and it would take a while to pay off the balance before I could move forward. By putting my eggs in one basket (yeah, I know the parable) I can eliminate the high interest all together. I actually got some return calls yesterday. Im looking at 5.75% fixed for 10 years or 6.5% for 15. If I wanted to attack it in 5-years im looking at 5.5% fixed. Those rates include NO closing or money and the bank will literally pay off everything withing 7-10 days. My very next CC payments will go to the bank and already I would be one step ahead of the Credit Cards. Im banking on my mortgage,that is roughly $200 less then what I thought it was going to be. As far as my job, ive been doing this for 9+ years and I know everyone in the industry in this area. I know there is the dreaded "What If" but I cant live by that. I literally have some open invitations with Engineers, Building Companies, Architects, and suppliers. I also have a local fab shop that wants to go into business with me. They have more work then they can handle and could double to tripple their work load if they had an office manager. I can find work (thank you god). Illness would be the only concern and im not going to speak that. Ive always lived my life moving forward and god has blessed us each step of the way. Again, Im hearing what youre saying. I havent 100% made my decision. Im just truly weighing this out and so far the lower interest is winning.... Quote Link to comment Share on other sites More sharing options...
snapper Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? First thing...its great to get out from under those cc debts. Credit cards aren't evil (so to speak), just don't charge more than you can afford to pay each month. The other idea of transfering the balances to other cards with lower rates...isn't really a bad idea, just keep in mind your credit report is based on all opened and closed accounts...the more you have...the lower your score, the banks view you as a more of a risk with alot of accounts in a short amount of time. Your on your way to getting out of debt...may not be easy...but your doing something about it. Good luck! Quote Link to comment Share on other sites More sharing options...
Orion_70 Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Jeremy, I'm a mortgage broker, you need any advice or rates, let me know. You're better off getting a heloc and deducting the interest than paying it on credit cards. Just don't go charging up more, I've seen it time and time again. In my line I do as much financial conseling as anything else. Quote Link to comment Share on other sites More sharing options...
Newarcher Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Jeramie, Run the numbers on an amortization schedule using 2.9 or 3.9 % interest rates versus a loan of 5.5% or higher for 5, 10, or 15 years. I understand what you are saying about getting out from under the debt sooner but you really aren't buddy. I guess my point is this: say you owe $30,000 in credit card bills. If you transfer between credit cards and pay it off in five years at say 2.9 or 3.9% rates, aren't you better off than if you pay a lower payment for 10 or 15 years? You will ultimately pay a lot more interest going the home equity loan way than you will by keeping with low interest credit cards. Plus you will have NO payment sooner by paying down the credit cards. I understand why you want to eliminate the credit card bills but am not sure you are really understanding why you want to do it. Getting rid of the 18% is the goal. You cannot, through any means, eliminate the debt. See what I am saying here? The debt is still there but just spread out over 10 or 15 years which will seem like a LIFETIME once you get a couple months in. Make sense? I too hate the credit cards and sleep better knowing they are paid off but if it is just moved to another type of loan, that isn't much help...right? Good luck, it does sound like you have good job prospects to that is a big plus if you forge ahead. New Quote Link to comment Share on other sites More sharing options...
Newarcher Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Okay, lets put it in perspective here to help you make your decision...if my math is correct: Credit cards: $30,000 in debts 12 Payments at $150 57 Payments at $550 interest rate of 2.9% total pricipal repaid: $30,000 total interest paid: $ 2,925 total payments: $32,925 no interest deduction Payoff date: March 2010 Home equity (assume the 10 year loan): $30,000 in debts 120 Payments at $325.58 interest rate of 5.5% total pricipal repaid: $30,000 total interest paid: $ 9,069 total payments: $39,069 interest deduction benefit: $254 (assuming 28% tax bracket) interest deduction benefit per year: $25.40 payoff date: June 2015 See, no deal. Plus you have the added inflexibility of having the 51 additional payments spread out over 51 months. And the additional equity considerations. It may still be worth it to sleep better at night. But to me, shifting the debt from my left hand to my right hand and adding additional interest on top of it isn't going to make me sleep better at night. Good luck buddy. I hate to see it weighing on you so hard. New Quote Link to comment Share on other sites More sharing options...
MCH Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? Jeramie, PM me the specifics on your current mortgage. ie, current principal, int rate, term, etc. I will run some numbers for you. Quote Link to comment Share on other sites More sharing options...
Tominator Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? It's a great idea if you do it once. Personally I think too many people use it as an escape, and an excuse to build up more debt. My wife and I were in the same boat as you Jeramie, and we also used the equity loan to improve our home, and pay for some graduate courses. We still owe quite a bit on it, but it's like paying ourselves and the interest is deductible. Quote Link to comment Share on other sites More sharing options...
bulldawg Posted June 16, 2005 Report Share Posted June 16, 2005 Re: Equity Loan? A thing to remember here, is that credit card interest is figured different from regular bank loan interest. And, you can pay off the 2nd mortgage sooner too, if you choose. Tax deductible to boot, and it's a no-brainer. Quote Link to comment Share on other sites More sharing options...
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