Refinance Home Equity Loan

Question: Refinance, home equity loan or sell?

(Posted by: CleoCATra on 2007-07-10 16:39:18)

We have credit card debt of $72k. (cancer treatment costs) We have excellent credit and own two homes, but are cash poor and have the high credit card debt that we want to pay off WE WANT TO PAY OFF THE $72K AND HAVE A CUSHION OF AT LEAST $25K. Here is the break- down: HOME #1 PAYOFF - $279K, WORTH $425K (currently rented covering payments) HOME #2 PAYOFF - $245K, WORTH $425K(currently live in but want sell and leave the area in the next year or two) SELL A HOUSE AND PAY OFF DEBT, LEAVING CASH IN THE BANK OR KEEP GREAT REAL ESTATE INVESTMENTS AND GET A LOAN OF $100K, PAY OFF DEBT LEAVING $28 CASH IN BANK. We just can't wait another year or two to pay off the credit card debt because we are broke each month after paying bills, and need some relief now. Both homes are in hot markets. Dallas/ Ft Worth & White Mountains Arizona. Any ideas or help are much appreciated!!

Posted by: Rabbit on 2007-07-10, 19:30:40

You are kidding, right? You have a big debt pressure and own two homes, either of which are in a supposedly good market and you are wondering what to do? SELL the vacation house, now! If you seriously are wanting to sell both and move, the opportunity to do so is not going to get any sweeter for quite a while. Sorry to be dramatic, but there are things going on with credit, home values, and value of money. Get out now, while the getting is good, and take advantage of what is still an advantage.

Posted by: das_coon on 2007-07-10, 17:01:38

I think the most flexible option will be to do a home equity loan. This will give you a lower interest rate than the credit card, and interest is tax deductable. It still allows you to live in the home, and sell it when the time is right for you. Refinanceing will likely result in the lowest rate, but will come with more upfront costs. It also will likely be at a higher rate than what the current home loan is at. If you do refinance watch out that there is not prepayment penalty (if you decide to sell and move soon). If you are looking to leave area, ask yourself if you will want to have either property. Selling is the most drastic since it means you will be forced to rent until you move. If you decide to not move than you will either try to occupy the first house instead of renting, or buy a new one. Each of which comes with many transactional costs. To sum up: Heloc: Low interest rate Tax deductable Flexible if you decide to move or not Refinance: Lowest interest rate Less flexable, often higher costs in obtaining Potentially will be at higher interest rate than current home loan. Less flexible moving later, if prepayment there is condition Selling: High transaction costs More costs if you change your mind if you decide to stay in area. Will have to move (the pain of this depends on how much junk you have accumulated or if you have kids) May reduce living expense Gives you a better allocation of your equity (no longer home rich cash poor). I would pick the Heloc, but you are the best one to balance the pros and cons of each option.