Refinance help!

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Termz01
Posts: 2
Joined: Tue Mar 13, 2018 4:04 pm

Refinance help!

Post by Termz01 » Tue Mar 13, 2018 4:18 pm

Need some advice...trying to pay off some debt, lower monthly bills and raise my credit score. Looking at doing a cash out refinance.
1) I have about 20K of credit card debt..(is it a good idea to pay off credit card debt with a mortgage?) I'm sure it will help my credit score, but not sure if it's worth it.
2) I have an outstanding 401K loan of 17K, I'm debating about paying that off so I have that money back in 401K making money for me. I will also free up the monthly 401K loan payment.

I can't do both. I could pay part of each one? Just not sure what's the best route to go? Appreciate your thoughts.

Thank you.

delamer
Posts: 5140
Joined: Tue Feb 08, 2011 6:13 pm

Re: Refinance help!

Post by delamer » Tue Mar 13, 2018 5:06 pm

More details like income, expenses, 401(k) balance would get you better advice.

Generally, it is not a good idea to trade unsecured debt (credit card) for secured debt (mortgage).

Payoff the credit cards before you put any money to the 401(k) loan.

While you are missing some potential growth with the outstanding 401(k) loan, at least the interest you are paying is going to yourself. With credit card debt — probably at a much higher interest rate — that is just lost money.

With that amount of credit card debt plus the 401(k) loan, you need to get a handle on your spending — which it sounds like you know.

You have two options to get the debt paid off:

1. Decrease spending and/or
2. Increase income.

Even if you shift debt from credit cards to mortgage, you still have to pay it back. Never forget that.

chevca
Posts: 1690
Joined: Wed Jul 26, 2017 11:22 am

Re: Refinance help!

Post by chevca » Tue Mar 13, 2018 5:09 pm

Taking out debt, even a lower rate mortgage, is not paying off debt. You just moved it to a new debt instrument with likely a lower rate. Although, it's probably not much lower, if any, than the 401k loan, I'm guessing.

How does this free up those payments, if you have a new, bigger mortgage payment? It may be slightly less of a payment due to lower interest rate, but don't be fooled, you still have the payment(s).

Welcome to the forum. We know nothing about you, and we would need interest rates, balances, income, and more to give good advice. But, it seems more like you have a debt problem, as in you just keep taking on more and more. Taking on debt to refinance to try and get out of debt is likely not the way to do it.

Do you have extra income each month?... Stuff you can sell?... Expenses that can be cut?

Termz01
Posts: 2
Joined: Tue Mar 13, 2018 4:04 pm

Re: Refinance help!

Post by Termz01 » Tue Mar 13, 2018 5:54 pm

Here are some more rough number details:
200,000Currently paying mortgage: $1500
50,000 HELOC : $450 (6%)
17000 401k loan: $540 coming out of my check each month
19k credit card bills: $600 per month in payments
3090 total in payments

I could pay off all or some of those bills by paying it off with a cash out mortgage refinance. My monthly payment would be about 1900.

And I totally understand that we got ourselves in a bit of a mess, our credit currently is not great. But we’re trying to change that and get on the right track.

delamer
Posts: 5140
Joined: Tue Feb 08, 2011 6:13 pm

Re: Refinance help!

Post by delamer » Tue Mar 13, 2018 8:46 pm

Termz01 wrote:
Tue Mar 13, 2018 5:54 pm
Here are some more rough number details:
200,000Currently paying mortgage: $1500
50,000 HELOC : $450 (6%)
17000 401k loan: $540 coming out of my check each month
19k credit card bills: $600 per month in payments
3090 total in payments

I could pay off all or some of those bills by paying it off with a cash out mortgage refinance. My monthly payment would be about 1900.

And I totally understand that we got ourselves in a bit of a mess, our credit currently is not great. But we’re trying to change that and get on the right track.
The point both of us previous posters were trying to make is that you won’t be paying off any bills by doing a cash out mortgage.

You would just be shifting the debt to a new loan with a lower interest rate for some of the debt.

What specific ideas do you have for getting on the right track, other than the cash out?

You asked what the best route to go is — in your position, I’d cut back everything to the bone and get rid of the credit card debt.

chevca
Posts: 1690
Joined: Wed Jul 26, 2017 11:22 am

Re: Refinance help!

Post by chevca » Tue Mar 13, 2018 9:25 pm

What's the current mortgage rate, and what would the refinance rate be? My hunch is saying you'd be refinancing to a higher rate plus fees and costs to do the refinance to shift your debt around.

You have already taken out and used the HELOC. I say, stop using the house like a cash machine.

Find a way to attack and take out the credit cards. The 401k loan gets paid back by you, to you, and I'd let that one go as is. Then start paying down the HELOC.

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