I would imagine that we wouldn’t qualify

I would imagine that we wouldn’t qualify because our debt to income ratio is high. What kind of loan are you thinking? I think we could get a loan through our credit union for about $15,000. I guess that would combine one car loan with our credit cards. That might work depending on the payment amount. Hmmm.

Yes, I can be that disciplined. Do you mean get a 10 or 15 year mortgage on our house? or get an additional mortgage to help pay off the debt?

Well, I don’t “need” to do these improvements, however I do have an uncle living in my unfinished basement.

I don’t see how it could cost me more than I can afford, if I’m already making those payments. I do understand it could be costly if for some reason we weren’t able to make the payments and the loan was tied to our house. We aren’t struggling to make the payments, I’m just sick of the debt and the interest we’re paying. We have considered just paying off the credit cards one at a time by paying extra on one account, then paying off the next, etc, etc. And then looking into getting a loan to finish the basement later on.

I just figured it would be beneficial to do it now since:

  1. We are already making pyaments of $xxx
  2. That money could go towards debt and the basement, which would make our house worth more
  3. We have someone living down there and it would be nice to at least finish the 1 bedroom and bathroom

It just made sense to me that if we’re already paying that amount and yet having nothing to show for it but debt, why not put that money into the basement? That would not only give us something to show for the money, but also we would gain that money back in the house.

All improvements to a house make it more valuable. But from a real estate sales perspective, there are certain types of home improvements that you can recover when selling a house and others that you don’t. Kitchen and bathroom remodels are the easiest costs to recover. Adding a new bedroom may or may not be recoverable. I don’t remember if it ranks high up in investments that you can recover.

By recoverable I mean that a future buyer may be willing to pay a premium for your house for certain things, but balk at other types of improvements. From personal experience, I inherited a house in which my parents enclosed a patio to and added a bathroom. When I sold it I was not able to recover the costs of improvements. My father shrug his shoulders and said the improvements were to get more enjoyment from the house. It sounds to me like you want to have your uncle enjoy the portion of the house in which he lives.

yes….and in 75-80% of the cases that’s what happens. It’s different in most peoples minds….The “bill” is only $185, so if I don’t pay the extra this month, it’s ok….then the next month, then the next month. But right now, your bills say – I owe $345 / month, and you know that’s what’s due.

Just pay extra on the credit cards

At this point and time, my husband and I have decided to just pay extra on the credit cards and maybe do an equity loan further down the road. That way we could use all the money for the basement and not have 1/2 go to credit card debt. We also will set up a savings pland and get a few things along the way. Maybe we’ll start finishing the basement one project/room at a time.

That’s not true that no one ever pays back the principle. I know that “could” happen, but that doesn’t mean it would in every situation. What do you mean “they are not building anything”? This of course is just my opinion, so TIFWIW. I think an interest only loan can provide you some valuable financial relief. The important thing to reflect upon is what you would do with that relief.

You said you intend to make extra payments towards the principle. If you have the discipline to stick to this, the lower interest of an IO is a benefit you might want to take advantage of… If that relief makes you feel like going shopping then that interest only loan is only putting off till tomorrow a debt you’re better off taking care of today.

If you do go with the interest only loan a good budget is going to be important. I do agree that it could certainly be a disaster! I definitely would never get an interest only mortgage.

Why not refinance everything into one loan?

interest only loan doesn’t build on principal, only pays the bank their interest. It’s a rip off situation… There are calculators to see if you should refinance. Try bankrate.com or do a search for something like: refinance calculator.

On second mortgages etc… Because it wouldn’t just be you ‘planned’ to, but your very house would be in danger of loss in you didn’t. That is a big risk, and you had better be 100% certain you are that disciplined. If you have had trouble before, you probably aren’t.

Interest only, what is the benefit exactly? Again, have you been that disciplined before? If not, you’re kidding yourself that you would now. Just like I’m going to buy this pair of pants even though they are too small right now because I really will lose 10 lbs within 2 month… sure, right… lol Has your (and your spouses) history proven you are that disciplined and be extremely honest with yourself? If you’re that confident, why not just get a 10 or 15 year mortgage with required higher payments?

Somethings to consider are:

Do you really need to do these improvements? If the bank is essentially saying you can’t afford them, maybe you should wait? Is this a want that will cost you more than you can afford, or a need you will just have to live with? Also, without spending more, maybe then you could qualify for a different loan or could in 6 months etc…?

Strongly telling myself, I need to have this conversation with myself much more often. : )

Mortgage (home equity loans)

Hi I’m new here.

My husband and I are looking into a home equity loan to pay off our credit card debt/ lower payments/ lower interest rates. We also want to finish our basement with the money or at least finish a few major rooms. (bathroom and bedroom to start). We figured this would be worthwhile to do since as of now, we’re paying $345 in credit card debt/month along with a $108 car loan payment, so totalling about $450/month. We’re being offered an interest only loan with a payment of approximately $185/month. We would pay at least the $345/month on that to pay down the principle. Is this a good idea since we’d be basically be adding equity back into our home for the same price we’re “wasting” on credit card debt? We’re also looking into refinancing our mortgage, but aren’t sure if we should or not. We’re trying to save on interst as well as monthly payments.

Don’t do it! You are taking credit card debt which is unsecured debt and now taking out a home equity loan which makes it a secured debt. Once you do that if you should default in anyway you can loose your home. With unsecured debt if you should default you wouldn’t. For more info on that check out Mary Hunts website Cheapskate Monthly – she talks a lot about that and highly warns against it.

Also watch this video:

Interest only loans are not stupid. They are a financial tool, like any other, that can be used inappropriately. Whether an IO loan is good for you or not would depend on doing a financial analysis and understanding the details of your situation and what you are trying to accomplish.

Sorry, you can’t change my mind on this. Basically you never pay back the principal, and they are not building anything. They are another way that banks have convinced us that debt is good, savings is bad.

If you are concerned about being in debt or have any difficulty handling debt, however, I’d say there is a very good chance interest only loans aren’t for you. I understand what you’re saying, but isn’t that the same as saying that someone wouldn’t pay extra on their credit cards even though they planned to? We’re not going to do it, I just don’t see why it couldn’t work if we planned and budgeted.

I was going to do the loan to help cut the interest rates AND do the basement as well.

I don’t have “savings” to put down on the principal. I’m already making payments of $345 on credit card debt. I was going to keep making that payment amount or similar if we got the equity loan. I wouldn’t be able to afford to keep payiing the $345 on credit cards AND pay for a home equity loan. We were told we might not be able to quailify for a fixed 2nd mortgage because our debt to income ratio is high. The interest only loan option was what was available to us.