Should I refinance my home or go for an equity line of credit?

Question

I've owned my home for only two years.My interest is 8%. I would like to pay off credit cards and do some home improvment. is it a good idea to look into an equity line of credit(if I have any) Should I refinance? Or should I find other way's to pay off CC and do home improvments. I would really like to get my self out of this CC hole I'm in. I'm not sure if using my home would be a good idea..Maybe I should refinance? I'm really lost!! I want to make the right financial decision. Please help with any advice. BTW- were having another child in Febuary and I need to get rid of some mold in the basement bathroom, That's why I need some money fast for home improvments.
Thank You

Answer 1

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Answer 2

I love the hostility towards the mortgage industry LOL Hi, I am a certified mortgage planner. A refinance loan is when you refinance the first (and if you have one a second lien) into a new loan. I have to demonstrate something called Benefit to the Borrower to do one. IE, lowering interest rate, going from ARM to fixed rate mortgage, lowering overall payments etc. The rules to refinancing have changed in the last 6 months, drastically. The main reason to refinance right now is if you are in a ARM and can move to a fixed rate mortgage, the rates are very comparable right now. But I couldn't say whether they will stay that way. Home Equity Loan is a second lien on the property. On title it comes after your first. I have never seen an ARM on one of these. They are usually fixed for a term of 15-20 years, sometimes 30. Home Equity Line of Credit is obtained from a bank. It is a line of credit that can be a fixed or adjustable rate. As you pay own the line, you have access to it again. It is sort of like a credit card, but the collateral is your home and if you don't pay it the consequences are huge. They are usually available to you for a specific time ie., 10, 15 or 20 years. IF you have more questions, please feel free to contact me. As a CMP my goal is to be a resource and tool for people. Good luck.

Answer 3

If you are able to qualify for a refinance for the whole amount, including the cash you need, at a lower FIXED interest rate, then refinancing is probably a better option. If not, a second mortgage (at a low FIXED rate) is the only option, assuming home prices in your area have appreciated since you bought your home, and yours is now worth more than when you bought it.

Be careful, though. It sounds as though perhaps you qualified for your house with a very low interest, adjustable rate loan that shot up to 8% very quickly, am I right? And you have gone into debt further, and have a child on the way. You may find a lender who is willing to do the same again, loan you money on a very low rate that climbs very quickly. The rate will still be less than what you are currently paying on your credit cards, but it sounds as though you are already living beyond your means, and have every expectation that your cash flow situation will get worse in the near term. If your ability to make money is not keeping up with what you are spending, regardless of the current need to fix your house, you will find yourself right back in the same situation in another 2 years time. Home sales are starting to falter, and you may be looking at a very different market then. You may not be able to use your home to pay off debt again, until you build some real equity.

In your shoes, I would also try to find other ways of making money. Refinance, or get a second mortgage by all means, to resolve your credit card debt immediately, but you are in the vicious cycle so many people are in financially. Work a second job, or even consider selling your current home and buying something less costly, using any income from the sale to pay off your debts. Anything you can do to give you a cushion will improve your chances of being able to keep your home in the future.

Answer 4

If you are ready to commit for a longer term (e.g. 20 years), then you should be able to refinance at a better rate than 8%. However, there are a few costs associated with refinance like clsing costs, etc which typicaly are not required for Home Equity Lines. If you are not sure how much money you really need to consolidate your debts and to do some home improvements, then having a home-equity line (of amount you immediately need plus some extra) would be better as you will only pay interest on the exact amount borrowed (a not the entire amount).

Answer 5

Well, you're in a pickle here. You have two outstanding issues. One is your debt, and the other is your mold problem. If you refinance, you can lump in your house payment and your credit debt. It should knock down your monthly payment for house and credit combined. However, you cannot ask for extra on your refinance to cover the mold. They will take dollar for dollar on the refi. Let's say you owe $100000 for house and $10000 for credit debt. They'll refi you for $110000. No more.
If you want to take care of your mold, home equity loan is the best bet. However, there will additional costs for that. A current appraisal will have to be done first, which costs about $350. Then, they see what your house is worth now compared to what your house was purchased at. Then, the difference is the limit of your home equity loan.

I'd refinance and the money you save per paycheck can go towards your mold problem. That's probably the best you can do.

Answer 6

Well mtg rates are still high but you refinancing and adding in some extra money for the things you need might make your payments the same. Did you think about claiming on your insurance policy the mold damage? I believe an equity line of credit is a good way to go because the payments are cheap. Then later on down the road when the mtg rates go down then refi to get your interest rate down.

Answer 7

Check with some lenders in your area, including your current mortgage holder. They can estimate whether your home has appreciated enough to make a refi feasible. If you do, be sure to get a fixed-rate loan. I'd stay away from lines of credit at this time. Interest rates are too unstable.

You should be able to beat 8% easily. But, then, 8% is extremely high for a loan issued 2 years ago. It could be that your credit score was low then. 2 years of on-time mortgage payments may have helped that situation, but it depends on the rest of your credit picture--primarily those credit cards.

I believe you can get a free estimate of your credit score from Equifax. Check online. I'd do that before approaching a lender.

Answer 8

The best thing to do is sit down with a financial advisor from your regular bank, who will help you look at your options free of charge. S/he will be able to take into account your salaries, taxes and current interest rates available for your credit rating as well as how much money you are looking to take out. There are many variables here, so it's best to get a real answer from a financial advisor, not just yahoo answer people.

Answer 9

Your interest rate seems a little high.

Talk to a personal banker and/or a mortgage broker. They should only give you advice after they fully understand your situation. There are a number of other factors to consider, such as:

- how much tolerance do you have for fluctuations in your payments?
- how secure is your income?
- how much do you need to borrow?
- what penalty would you need to pay to refinance now?

Get expert advice on this - it's no small potatoes we're talking about. -- Good luck!

Answer 10

Refinance with a fixed rate or get an equity loan for a fixed rate.

Answer 11

IF YOU CAN REDUCE YOUR INTEREST RATE AT LEAST BY 2% THEN YOU SHOULD CONSIDER RE-FINANCING. IT COULD GIVE YOU A LITTLE EXTRA CASH AND WILL SAVE YOU ALOT OF INTEREST DOWN THE ROAD ON YOUR MORTGAGE.