Cash- out refi to pay credit card bills is risky
Tribune Content Agency Q: We would
like to get a lower interest rate on our mortgage, and we are hoping to get money out when we refinance. We’re going to use the cash to pay off our credit card debt, which is why we would like to get money on the refinance. a cash-out refinance and even then, there are costs that can make this prohibitive.
But we can understand why you’d want to do it. If you’re paying double-digit interest rates on credit card debt, it makes financial sense to trade those sky-high interest rates for a locked-in fixed interest rate at what are still near-historic low rates.
But you have to understand that by taking out a home equity loan, you’re putting your home at risk. If you don’t pay your credit card debts, you could wind up having a collection agency chase you all the way to bankruptcy. If you don’t make your mortgage and home equity line of credit payments, you could find yourself in foreclosure, tossed out of your property.
The first thing to find out is how much equity you have in your current home. Then, you have to find out how much your property is worth. Then, you have to check your credit history and credit score, to understand what kind of an interest rate you’ll be facing on the cash-out refinance.
Finally, you have to talk to some lenders until you find someone who is willing to do the transaction for costs that are reasonable so that the whole transaction makes sense.
We’d love for you to think about why you’ve run up all this credit card debt so that once you do your cash-out refinance, and get your finances squared away, you don’t find yourself spending more than you can comfortably pay off at the end of the month.
For more information, contact Kathryn Weber through her Web site, www.redlotusletter.com
(c) 2014 Kathryn Weber. Distributed by Tribune Content Agency, LLC.