Would a home equity loan work for me?

Deal Score0

Here is my situation:

-owe $ 9900 to citifinancial @ 28.9% interest (student loan & personal loan)— min. payment of $ 437/mo

–owe $ 15900 to finance company @ 18.99% interest (car loan)– min payment of $ 228 bi-weekly

–owe $ 790 to HBC credit card @ 28.9% interest (used for wedding attire and wedding necessities)

–owe $ 126000 to mortgage company @ prime + 8%- originaly purchase price of house was $ 133,900

Citifinancial has offered us the following home equity loan terms:

–lowered interest to 18.9%
–pay off car loan & credit card debt
–pay off our existing loan with them
–lowered monthly payments to $ 377/month (we would pay bi-weekly and about $ 250 bi-weekly, so paying more then minimum payment)
–$ 2900 cash upon signing new loan (which we could REALLY use to buy new appliances for our kitchen- dishwasher is dead, and so is our dryer)

My husband doesn’t think it is a good idea to take our a home equity loan, while I think it is a good idea because of a lower interest rate, paying off other debt, and NOT financing our needed appliances (at an in-store rate of 28% interest, because we don’t have extra cash right now)… what do you think?

We have had our original citi loan for 13 months, and it was originally $ 12 500– we have it down to $ 9900 in a year, so we are good at paying it on time, and paying more on it when we can.
I think it is a good idea to take the loan, because it seems it will help our credit, lower our monthly payment (though as I said, we would continue paying more than the minimum)– and the best thing would be that our other loans are more than 18.9% interest- so wouldn’t it make sense to pay only ONE bill (the new citi loan) than a bunch of small ones at higher interest rates??

Help me make sense of this- how can I explain this to my hubby so he sees it the same way I do? HE says he doesn’t want to do it because he wants to pay citi financial off and never deal with them again- he doesn’t see how it can really help us out right now…

ALSO it would prolong our payments to citi for 2 years beyond what we are owing them right now- this new loan would be for 160 payments- 160 months=13 years whereas we owe them for a little under 11 years right now… and our car loan is 4 years ammort.

What makes sense- taking the loan OR paying what we do now on different bills and never getting anywhere?

6 Comments
  1. Reply
    golferwhoworks
    April 29, 2011 at 11:18 pm

    holy mackerel a mortgage at Prime +8% what are you thinking? you should get an FHA fixed note to 95% and pay off everything with maybe the exception of the student loan as that interest is tax preferences any way. I find it hard to believe if you have not done so but looked at getting that interest lowered as well. Never do a variable rated note while rates are so cheap right now.
    I am a mortgage banker in TN & KY

  2. Reply
    TaylorProud
    April 30, 2011 at 12:04 am

    1st you have to make sure that your home is worth the total amount your will owe on it, with Falling home prices, that is a very touchy
    You should make sure you are willing to live in your current home and can afford the payments.
    Don’t use more than 1/2 of your equity available.
    you could easily over extend yourself.
    You can probably get a cheaper interest rate and better payments at a bank or credit union.
    I just made one at my credit union, where my 1st mortgage is I owe 55,000 on my 1st and 2nd for $ 35,000 at 9% interest (don’t have perfect credit, but better than18%)
    I can probably resell for Twice what I owe now, because I bought my split foyer when home prices were still cheap.
    I get paid weekly so the credit union allows me to pay this weekly at a rate of 65.00 a week.
    $ 260.00 per month.
    I have to make extra payments if I intend to ever move.
    Much easier to pay for this way, though.
    You need to really, really look around!

  3. Reply
    Becky D
    April 30, 2011 at 12:34 am

    A mortgage at prime + 8 holly crap.

    You should look into a complete refinance with debt consolidation. Pay everything off into one payment would be the best for you considering that you mortgage is 13% right now. You can do a whole lot better than that. Contact your bank and every other bank and see who can give you the best interest rate and the lowest cost to do it.

  4. Reply
    Larry
    April 30, 2011 at 12:38 am

    That rate seems very high. I don’t know your credit situation, but I would definitely shop around a little before I signed the note.

    Some things to consider:
    1. Is it a variable rate loan? If so, that is very risky. Interest rates are still pretty low and are more likely to go up than down.

    2. You say that this loan will extend your payments for two more years. Does that mean you would be refinancing your original loan? If so, was the rate on your original loan lower? If so, you could actually be paying more in interest by taking this loan.

    3. Often people who get home equity loans to pay off debt, end up charging up their credit cards again, so they only end up with more debt. Do you have the discipline to avoid that trap?

    4. By taking the loan you are taking some risk that, if you can’t make the payments you will lose your house. In addition, if the value of the house drops below the amount of your debt, you wouldn’t be able to sell it without coming up with money to pay off the debt. So you could end up stuck in your house.

    I am not saying you shouldn’t take the risk. Just make sure you understand it and decide together that it is worth it. If either of you says it isn’t, you shouldn’t take the loan.

    One way to determine the benefits: assuming you pay the same amount per month as your current monthly payments, what will you pay in interest under each scenario. Unless your interest drops dramatically, it probably isn’t worth the risk of getting a home equity loan.

    Good luck.

  5. Reply
    tjfinvestor
    April 30, 2011 at 12:46 am

    Hi Melanie, you need to take drastic action. Your finances are a big mess. At the rate you are paying your Citifinancial loan, currently 9,900 @28.9% it will take you a long time to pay that off if you don’t do something now. You have a high balance and a high interest rate.

    What is your credit score? I am only asking because the rates you have for all of your loans are sky high which tells me that you are over extended and probably have a low credit score.

    Based on the prime rate now 5% you are paying 13% for a mortgage rate when you could be paying 9.45 with a FICO score of 600 which isn’t anything to write home about.

    Whatever you do don’t take any cash out to spend, you cannot afford to do that, it’s a waste of money.

    My recommendation is to shop around and see if you can refinance your entire package of debt including your first mortgage. The only downside is that banks are tightening up lending standards so it will be hard to get a loan at a low rate but, do your homework anyway. Do you have any idea what your house is worth?

    What is the loan duration on your car loan and what is the origination date i.e., when you closed the loan? Who did you finance it through? Do you have access to a credit union?

    If you cannot get a better loan rate for your entire debt, look for ways to reduce your spending and direct the savings to paying off your highest rate balances first.

    If you cannot do any better then the CitiFinancial deal, it will turn out to be a better deal for you and you should take it. Make sure that you understand all of the costs, no pre-payment penalities. Ask questions about every detail and then at the end of the discussion ask for a better rate. Just say the deal is not good enough for you to accept. The rationale for using a HELOC is to reduce your monthly payments for servicing your debt and for tax reasons. I assume that you itemize deductions on your taxes, if you do then you will save additional money on your taxes because you will be able to deduct the interest on your HELOC in addition to your first mortgage. This will reduce your taxes and you will be able to pay down your loan faster by using the tax savings.

  6. Reply
    puppylove
    April 30, 2011 at 1:39 am

    Something is wacky with the situation. Is everything getting paid on time? The interest rates are ALL triple what most people have. My house is at 5.25% and credit cards are at no higher than 9.99%. Even my car is at 5.5%! So my advice to you is to schedule an appointment with a financial advisor who will tell you exactly what to do financially to pay it all off quicker……they don’t cost that much for a consultation and you will definitely reap the benifits!

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