xp: Interest Rate question...

LuvBug12683

Dh and I are thinking about refinancing/taking out a home equity line of credit...we've never done anything like that before and was wondering if it'd be a good idea or not...(we have around 10,000 in debt we want to pay off)
we're currently in a 40 yr fixed at 6.25% but plan on building a house in less than 5 years...

what would you do??

preston18

Depends on what you owe on your house and how much it's worth. Also depends on why you have debt and what you've done to prevent it from happening again. I had a friend refi cc debt in to their home twice. They need to sell their home now and can't becasue they owe more than it's worth and racked up $25k in debt. Again.

If you can't pay Visa or the hospital, your credit rating takes a hit. if you can't pay your mortgage or HELOC, you lose your house. that's not a risk I'd take, especially with kids.

Seattle_JiLLn

I dont' know what interest rates are now - I think they came back up recently.   We were able to refi with Wells Fargo over the phone without paying any closing costs.  Usually you end up having to pay a few $1000 to do the refi.  Our refi interest rate isnt' as low as a "real" refi rate, but it still lowered our monthly payments by about $200.  We figured that was worth it.  We're just going to keep paying our regular payment though to pay it faster.  But if you could do something like that and then use the reduction in your payment to pay off your other debt.

Like the pp said, if you have a lot of equity in your house and want/need to use some of it to pay off something, I think that's OK.  As long as it's not jsut that you overspend and rack up cc debt.   If it was for home improvements or something,t hat would make more sense.

But if you dont' have much equity in your house, I wouldn't pull money out of it.  It can really mess you up financially.   Instead, I would find a 0% balance transfer card and move your debt there and pay it off as aggressively as you can.

JRS72206

We are thinking of doing a refi also. We have a friend that works at BECU (where we have our loan) and she has been watching the rates for us. She actually just called today to tell us they are below 5% (for now). The problem we is the fee's ($475 plus approx $3,000 closing costs) and if our house will even appraise for what we paid for it. The housing market sucks right now and prices have fallen a lot. I'm told that they just aren't giving as much as they used to for appraisals. We dont want to lose the $475 it costs to get it appraised if we can't even refi. We haven't decided.

I don't know much about this stuff either, just what we've talked about with our friend and parents. 

Seattle_JiLLn

Shop around... $3K in closing costs for a refi is pretty crazy.   Who is your loan through now??  Call that company and see if they can do a streamlined refi for you.  They shouldn't need to do all of the work that they do for a brand new loan.  You'd need to go down a LOT and plan to keep your house for a while to make those closing costs worth it.

tfarabians

Actually interest rates are probably at the lowest they have been in 40 years.  With good cvredit you should be able to get an interest rate around 5.25%.  Now the queston is how long have you owned your home?  Chances are with the decline on the housing market if you didn't buy it that long ago you may not be able to get money out of it to pay off your debt.  But yes getting rid of your debt is always a good way to go, unless its good debt like car loans and mortgages.  Even if you don't pull money out if you could refi right now and get a better interest rate it would lower your monthly payment and allow you to pay off some of that debt.