refinance, home equity loan or sell?

Question

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!!

Answer 1

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.

Answer 2

You need to live somewhere, so staying in the house is probably the best bet. As far as refinancing or a Home Equity Loan, that depends on a few other factors. If your current mortgage is at a higher rate, it may be wise to refinance and take some cash out. If your current mortgage is at a really low rate, just take out a Home Equity Loan (HEL). As far as the safety of a HEL, that depends on what you mean. You are taking out the equity in your home, so if you don't pay this bill, your home is on the line. If you are concerned about the rates, a HEL will have a fixed rate, so there is no worry of it increasing. A Home Equity Line Of Credit (HELOC) on the other hand will adjust any time the Fed's change the rates. I think they have been raise a lot over the last few years, so the rising should slow down or stop at this point. Of course if your credit is too bad to qualify for any loan, you should probably sell, take the money and pay off ALL your debt, rent for 6-12 months, allow your credit to rise and then buy again at better rates. Peace, Greg S.

Answer 3

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.