Pay of 30k debt by rolling into mortgage, considering current economy?

[MilkTrance]

Read this part to answer my question based on the basics:

Financial wizards -- considering the current global economy, should we renegotiate 1 year early on our mortgage and roll our debt into the new mortgage, OR should we take a "wait and see" approach?




More details here if you need 'em:

We are finding it difficult making ends meet, and our home has some renovations that need to be completed (minor ones, like installing a bathroom mirror) even if we need to sell at some point.

We would operate on a mainly cash-only basis, aside from our mortgage, if we rolled the debt in.

Please help. We are very, very tight right now and are slowly drowning...

Our mortgage has about $140,000 remaining on it and is at 5.25%; our credit cards are BOTH maxed (2,000 at 19% and 13,000 at 11%). Our line of credit is $15,000.

We bought the house for $165,000 (including insurances) and it is now "valued" at $320,000. Doubt we could get that, though. The house next door sold for $240,000 and is one floor smaller. So I'm guessing we'd get $275,000.

please help -- if we renegotiate I want to do it quickly

[TiredX2]

What interest rate would you get on your new mortgage? What would the new payment be? What was the old payment?

Do I understand correctly that you have a balloon payment that comes due in one year?

Does the new payment allow you to easily make ends meet?

[sillygrl]

It sounds good, as long as you commit to not accruing more debt and plan on paying it down. I think where people get in trouble is, they max out their credit cards, refinance, pay off the cards and then start using them again. Then, they have maxed out credit cards and no equity on their homes.

The mortgage payment has a lower interest rate, so I would consider rolling the debt into that and freezing your credit cards so you don't use them anymore.

[llamalluv]

That's not paying off debt. That's consolidating it.

However, if you are barely making ends meet as it is....what is going to happen when you have a higher mortgage payment?

[cristeen]

Well, you'd be reducing your annual interest, but increasing the number of years it takes for you to pay off the principal. Generally this is considered to be a bad idea.

I think it would really depend on what interest rate you could get right now, and honestly if you don't have good credit, with the economy what it is, you may not be able to get a decent rate. Especially considering the economy, lenders are really cracking down... if it's going to be tight, you may not be able to get a loan, or you may wind up getting that loan at the price of a higher interest rate. It's also going to depend on what the new payment amount is. Are you going to be able to afford that?

And what did you mean by "renegotiate one year early"?

Can you negotiate with the credit card companies to lower your interest rates? Is your line of credit maxed out (I'm assuming yes, but it was unclear)? Can you qualify for a new card with a 0% interest on transferred balances, to transfer the current debt onto so as to not keep paying such high interest rates (not usually the best of ideas, but if it saves your bacon...)?

Dealing with cc debt by consolidating it into a mortgage is one of the very last things I would ever recommend, since you'll be paying for that purchase for the next 30 years. However, if you've exhausted all other avenues and it's your last option, then it's your last option.

[CarrieMF]

In Canada we refinance approx eveyr 5 years. There is no payment needed for refinancing, all you do is get a new interest rate.

Some people will refiance for a higher amount & put debt onto the mortgage extending the number of years to pay on the mortgage, HOWEVER there is a cost to this. How much it costs depends on your mortgage broker/banker.

If you refinance early there is a cost to doing this too, when we looked into it it was $700-$800 minimum. Most banks have a timefram where you can refinance early without penalty, the TD is 90days.

The new interest rate you'd get at a bank now would be higher than what you are currently paying. It'd be over 6%.

I would first call your cc companies & ask for a lower interest rate.

Second, find out first what the penalty for refinancing early & for consolidating debt would be. With a mortgage of that amount you're looking at $1000 or more.

Third figure out how much extra money in interest you'd pay on a higher mortgage with a higher interest rate you'd be paying for the next year & figure out how much interest you'll be paying on your current debt then see which is higher.

Do you work? If not, can you get a job around dh's hours? what assets do you have? What are the rest of your bills like?

[mamamelia]

i'm doing something similar and i completely disagree with it being a bad option - it depends on how you handle your mortgage AFTER consolidating. for us, it's one of the best options. i'll give you a few details:
we took out a 345K mortgage 3 years ago. it is now down to 310K. our current interest rate is somewhere between 8-9% as that is what the interest rates are sitting at in australia.
during that 3 year time span, we also took out 3 seperate personal loans, now totalling 35K. the interest rate on the personal loan is around 12-14%.

we are in the process of consolidating and our new interest rate will sit at 8%. so we will effectively go from owing 310K to 345K (back at where we started 3 years ago). BUT... we will also be selling. our home was bought when the market was down for quite some time for 322K. the market is still down but will start to pick up soon apparently due to the reserve bank wanting to lower the rates... so... we will just be happy if we reclaim the 322K we bought it for (which going by the current sales, seems quite doable). so, once we sell we will be owing 345-315 (i'll even put us selling at 315 just to be on the very, very safe side of calculations).. = 30K left to pay the bank. we will be renting for several months in the cheapest place we can get into and put all of our disposable income back into the remaining mortgage. according to calculations i did today, it will take less than 8 months to pay off the remaining mortgage in it's entirety and we will be debt free from every angle (since we don't have any other loans like CC, interest free or student). then we will move to a better place! :

we actually end up paying it off quicker by consolidating because our payment amount is reduced drastically and that allows us to put more money into the actual principal rather than it going to interest. if you can work something similar out, i say go for it. strongly consider selling if its sending you into a spiral. the house we live in is totally not worth its cost to us and frankly i can't wait to be debt free and start all over again (just have a mortgage for a more suitable home with no additional loans of any sort to look after). dh and i have learnt very valuable lessons with credit and he told me himself he wants to close the last CC down once its paid off (which is next month) and we're not doing anymore personal loans unless its a matter of life or death.

goodluck!

[MizLiz]

We just did this about a month ago and I sure wish we had done it sooner. Our new interest rate is 5.45%, we had a TON(much more than the OP has) of debt rolled into our new mortage, and our mortgage payment went up by less than $100 a month. Call a mortgage broker and find out what they can do for your situation.

[SuzyLee]

Like the PP said, you aren't paying off debt, you are moving it around.

It is generally considered to be a bad idea because you are trading unsecured debt (CC) for secured debt (they can take away your house if you don't pay).

The big question for me is, how did you get yourself into this mess? And what has changed that if you roll the CC's into the mortgage, you won't rack them back up again?

[mtm]

have you changed your lifestyle? What I mean is, will you charge new stuff when you have space on your ccs? I would hate to see you add the cc debt to your mortgage and then rack up more cc debt. Its so easy to do, esp if you're going through a rough period. I wouldn't do it.

[MizLiz]

Originally Posted by SuzyLee

Like the PP said, you aren't paying off debt, you are moving it around.

It is generally considered to be a bad idea because you are trading unsecured debt (CC) for secured debt (they can take away your house if you don't pay).

But mortgage interest rates are generally incredibly low compared to credit card rates, and it doesn`t sound like the op wants to walk away from any debt... consolidating just makes it possible to look after debts while still having enough money to get by on. I`ve not heard of this being a bad idea unless there are no means or intentions to pay off the debt in the first place.

[sillygrl]

But I thought one suggestion that seems to be popular is to consolidate debt if you can get the interest rate lower. What I mean is, if you have two cc's and one is at 10% and one is at 15%, and you can do it, it makes more sense to go ahead and transfer the debt from the higher interest card to the lower card. Is that not right? It makes a lot of sense in my head, you'd end up paying less $$ in interest and if you pay the same amt of $$ as you did before, you'd get the debt paid off much quicker.

[llamalluv]

Originally Posted by sillygrl

But I thought one suggestion that seems to be popular is to consolidate debt if you can get the interest rate lower. What I mean is, if you have two cc's and one is at 10% and one is at 15%, and you can do it, it makes more sense to go ahead and transfer the debt from the higher interest card to the lower card. Is that not right? It makes a lot of sense in my head, you'd end up paying less $$ in interest and if you pay the same amt of $$ as you did before, you'd get the debt paid off much quicker.

That's not true. You pay MORE money in interest by stretching out the payments over the course of a 30 year mortgage, even with a 75% reduction in interest rate. Try to think of it this way.

$25000 @ 20% interest over 5 years is $662/month, which totals $39741

$25000 @ 5% interest over 30 years is $134/month, which totals $48315

It is cheaper ($8500 cheaper) to pay the debt off in 5 years at CC rates, than to toss it into a mortgage and take 30 years to pay it off.

Numbers from here

ETA: After I re-read (for the THIRD time) your post, I realized you were talking about surfing, not refinance! Whoops!

[Kyamo]

Originally Posted by llamalluv

That's not true. You pay MORE money in interest by stretching out the payments over the course of a 30 year mortgage, even with a 75% reduction in interest rate. Try to think of it this way.

$25000 @ 20% interest over 5 years is $662/month, which totals $39741

$25000 @ 5% interest over 30 years is $134/month, which totals $48315

It is cheaper ($8500 cheaper) to pay the debt off in 5 years at CC rates, than to toss it into a mortgage and take 30 years to pay it off.

Numbers from here

ETA: After I re-read (for the THIRD time) your post, I realized you were talking about surfing, not refinance! Whoops!

That's true, but if you can afford the $662/month, switch the debt to the 5% BUT keep paying $662 into it, you will save money. In the case of a mortgage though, there are often limits to how much extra you can pay, so check that before assuming you can pay the extra.

[amyamanda]

I am in favor of converting variable-interest rate debt to fixed-rate interest debt in the current economy. We just took a fixed-rate home equity loan (not a HELOC, a one-time loan) and consolidated our variable-rate debt. Our mortgage was already fixed-rate.

I think it's a very prudent thing to do. Especially if you are lowering your interest rate - I would not want to carry anything at 19% interest. Good luck.