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.