is it smart to refinance a home to pay off credit card debt,and do some home improvements?

Question

and how hard is it to get your home refinanced with one spouse that has been self employed for under a year?

Answer 1

Hey Artist,

There are some really good answers thus far, and also some really bad ones.

First off, it is entirely impossible to use your self-employed spouses' income if he/she has been self-employed for under a year. Unless, they have been self-employed in the same line of work for the last two years, or, you do a "no doc" loan, in which your employment history is not verified AND you income's are ommitted from the loan. You must have a qualifying credit score to do so.

Second,
Let's examine your goals. Paying off your credit cards will in turn do what? Lower your monthly obligations? Is that your goal? And improving your home will do what? Increase it's value? Is that the goal? What is your current rate? How much debt do you have right now? How much equity do you have?

There are a lot of variables here, too many for anyone to give you the right advice. But let me tell you what I do know:

DO NOT bounce your debt around on 0% credit cards. You have the debt. You want to get rid of it. Work a plan out that fits within your budget. If you do decide to refinance, DON'T listen to advice telling you "you'll be paying on it for 30 years". Just because a mortgage is amortized over 30 years doesn't mean you have to take 30 years to pay it off. That's just ridiculous. Here's an example: You owe $100K on you house worth $150K. I have no idea what your rate is, so we'll use 6%. The payment is $600/month. You have $10,000 in credit card debt and the payment (minimum) is $400. Total outgoing monthly expense: $1000. By rolling in $10K in debts, pulling out $5K for home improvements and rolling in the cost to do the loan (approx. $1500) you end up with a new loan amount of roughly $116,500. Using the same rate as above, 6%, your new payment would be $700. You've taken $400 of COMPOUND interest, and converted it to a lower, simpler, tax-deductible interest rate, saving yourself $300 a month, getting that new kitchen or bathroom which in turn brings up the value of your home, and, there's more... If it costs you $2000 to do this, how many months of $300 savings does it take for you to break-even? Less than 7. After that it is TRULY $300 a month in savings. If you directed that extra $300 a month back into the principal of that loan, how many months would it take to eliminate the debt? 33.3. In less than three years from now, you are debt-free (if you do it right) and an improved home. It is even lower than three years since you get a portion of your interest back, every year.

That's treating your home like the investment it is... Not another liability.

Answer 2

Simply Put, "Do Not Refinance".
Instead look for a 0% APR Credit Card, with the period of time you need, to prepay the loan, while remaining at the 0%. Home refinancing can only be done 3 times, you just don't know what the future will bring, so you shouldn't do this if at all possible.
With the Credit Card 0% loan, you will pay off the loan.
With the Refinancing, you will pay 30 or more years, for the same amount of money, you'll have a higher house payment for 30 years, and you will be paying a heck-of-a- lot-of Interest. Let your house payment stay where it is, until the interest rate goes down by, maybe 2% from what you are now paying, then consider the refinancing. Remember it also cost money, that will be added to your house payment, to do a refinance.
Good Luck.
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I've decided to edit my answer, due to "Justin's Abrasive Remarks".
Before I answer a question I look at the asker's page. This shows me if this is a serious question or a joke question. Based on your last two questions, I took you to be a young person, basically just starting out in home ownership. I further decided you probably financed your home for likely 30 years. Having other debts that you want to take care of, told me that your capital was all spoken for, and if you did, do a Refinance, it couldn't be done for less than 30 years, because the new house payment would be too high. If I am wrong, than I'm sorry, I always try to give, well thought-out answers. My answer for the 0% Card Loan instead of Refinancing, was to save you the Refinancing Money, and Interest for as-long-as it would take you to pay back the home improvement loan.
Good Luck How Ever, You Decide To Go.

Answer 3

Do you have enough equity for a Home Equity loan or line of credit rather than a total refinance? Keep in mind that only interest on money put back into the home for improvements is tax deductible. This may allow you to borrow only what is needed rather than tie the house up in another total refinance. Less chance of getting burned too badly if the housing market drops. It may also be easier to qualify since the line of credit could be less than the actual total value of the house. It would also allow you to do things in steps..like paying off the credit cards first and then home improvements later, which will keep your new total debt down.

Answer 4

Using the money to pay off a credit card would only be viable if you stop using the credit card and change the ways you deal with debt. If one year from now, you have gotten back into credit card debt, refinancing the home would have been a waste.

As for the home improvements, if it was something necessary as in plumbing, electric or HVAC to live in the house, then yes. If it is something cosmetic as in changing the paint color of the dining room, then I would suggest getting at least three bids on the work, then saving up the money to pay for it in cash over the next few months.

You may want to try Dave Ramsey's site for help with financial advice. I have listened to him for years on the radio and have seen other people on Answers give him as a reference.

Answer 5

There are 2 questions. Should I refin and should I use the equity to pay off debt. Should I refin? Usually it's a good idea, especially if you can do a fixed rate with NO CLOSING COSTS. Should you use equity to pay off debt. NO. What you need to do is learn to save. You have 13k debt because you spend more then you earn. You should be able to pay your bills in full each month AND save 10% of your income. Pay off the debt by cutting back or getting a part time job. Pay yourself first!! QUESTION: why do you want to refin for 125k when you only owe 92 and 13 = 105. What are you going to do with the other 20k. Plus, giving yourself only 10k equity when you sell is not good. If (and only if) the house is worth 135k assume that it will cost you about 10% (closing, realtor and concessions) to sell. This is $13,500. And you would only have $10,000 equity. Now you are upside down.

Answer 6

Yes it is. Mortgage rates are much lower than credit card rates and the interest is tax deductible, CC interest is not tax deductible.

I work at one of the largest private mortgage banks in the Midwest and lend nation wide, we do stuff like this all the time, it's really quite easy. And can save a few hundred bucks a month. Feel free to email me.

Answer 7

No. Not in this market. With housing prices flattening, if not going down, taking equity out of your house is not a good thing to do. I know someone currently who took all of the equity out of his house for other investments that have gone down. Now he has to sell and is $20k in the hole on his house and can't sell it to save his life. You don't want to be this person.

Your house is not an ATM, don't use it like one. Instead, cut back on expenses, pay off your debt and then save the money to make the improvements.

Good luck!

Answer 8

NO NO NO! Never borrow against your equity to pay credit cards.
You will be trading an "unsecured" loan for a "secured" loan. Just get a lower rate "unsecured" fixed payment loan to pay credit cards.

Answer 9

If you stop using your credit cards after you pay off the debt, then yes, otherwise No.

Answer 10

Ditto. Best to be able to deduct your interest. Just don't run up those credit cards again.