stumped
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Joined: 08 Oct 2006
Location: Friendswood, Texas
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| Home equity loan |
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I was thinking about getting a home equity loan to pay off some debt of around $5000. I owe about $60,000 on my home. My home value estimate is: Low estimate $75,000. High estimate: $117,000. My credit because of this debt is poor with my score being 548. Country wide, my mortgage company turned my down but offered me a refinance loan but the interest rates would have been through the roof at about 10% verses the 6.25% I pay now. I really need this money to fix my credit and the letters I seem to recieve from Counrty wide on a monthly bases tell me I qualify for home equity!! I just don't get it. Can somone offer another company that may help me get a small loan?
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Sun Oct 08, 2006 3:30 am |
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rockhound
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| $5,000 debt |
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I can't answer your specific question regarding where to get a loan. However, $5,000 is not the end of the world. Have you considered drawing up a budget, assessing your income and expenses, and then cutting some non-essentials to pay off the $5,000 without taking out another loan? If you buckle down, you could probably pay that $5,000 off within six months, and not have to pay the interest and closing costs of a new loan. I would even bo so bold as to suggest that your credit score would improve as a result.
Good luck!
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Mon Oct 09, 2006 12:28 am |
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thomas70
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I second Rockhound's suggestion. If you have the discipline and the drive to get out of debt...
Tom
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Thu Oct 26, 2006 3:26 am |
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go2self
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quote:
Originally posted by coaster
The only way it makes financial sense to get a loan to pay off other debt is if the interest paid on the new loan is less than the interest paid on the old loan.
Absolutely true, keeping in mind that the interest rate is not the sole cost factor. The term of the debt repayment has a significanty greater impact on debt cost.
Time is our most volatile resource that if not used immediately is lost instantly
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Thu Oct 26, 2006 3:47 am |
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JCook
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I'm jumping in here to tip the scales to the "just pay it off" side.
If you are going to use a loan to pay off a loan then you haven't learned anything a will likely not get out of debt or will be back in debt soon.
Cut back enough to make it painful and you will learn the lesson and stay out of debt. Then you can let interest earn money for you instead of paying interest.
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Tue Nov 07, 2006 3:21 am |
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go2self
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Paying off a debt in full by using your own cash has a proven basis, if you do not factor in growth. If growing assets to produce safe income streams are important then try this:
Say you have a 100,000 mortgage @ 6% for 30 years...
take a 30 day loan for $500 @ 8% apr.
pay that $500 to the principal of the mortgage sometime in the first year.
then you pay off the 30 day loan in 30 days
cost for the 30 day loan is less than $2.50
Why? The $500 payment to principal eliminates 4 month of payments
or 4 X 599.55 = $2398.20
So for $2.50 you made $2398.20 (availalbe as equity)
quote:
Originally posted by coaster
The only way it makes financial sense to get a loan to pay off other debt is if the interest paid on the new loan is less than the interest paid on the old loan.
Right on Coaster!!
Now imagine if you could duplicate the above sceneario at your convenience until the mortgage is paid off in full.
The mortgage would be paid off in less than 7 years (closer to 4 years 8 months) leaving you with 100% equity in the property.
hmmm....why not cash out the 80% equity and repeat the above again?
I know it is easier said than done but in reality it is acutally much easier to do than explain the precise methods and bank services employed to make the above practice extremely safe and profitable.
I hope this lays to rest the opinion that it is not profitable to use a debt to pay off another debt. The example clearly shows that an 8% loan to pay off a 6% loan is not only profitable but is the difference conventional consumer practices and smart money.
Time is our most volatile resource that if not used immediately is lost instantly
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Tue Nov 07, 2006 8:48 pm |
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go2self
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Where does the money to pay off the $500 loan comes from?
You are not missing anything, it is just a matter of knowing where to look.
The money exists as idle cash in any budget having a positive cash flow. Understanding that a budget consists of only 3 moving parts, IN, OUT and WHEN, it is the WHEN, otherwise called the time value of money, that can be leveraged to benefit the account holder.
While there are many programs that describe or even sell the concept as a new or revolutionary concept I know of only one that provides individualized education, training and a performance guarantee using the process.
Without intending to be uncooperative, trying to describe the process is like telling someone how to ride a bike. We all know that it is possible but all the printed words, audios or visuals will not be as effective as getting on the bike and pedaling.
(Shameless promotion follows)
Subscribers to the SELF education and training programs learn to re-define their debt to include exit strategies that minimizes debt cost by practicing derivative financing within the restrictions of their existing budget.
Time is our most volatile resource that if not used immediately is lost instantly
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Tue Nov 07, 2006 11:08 pm |
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JCook
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I agree that you can play loans against each other and come out ahead, BUT.
How many times does one of those "things in life" happen? How often are there layoffs, personal accidents, weather related catastrophes, etc.?
When these things happen the borrowing house of cards can easily fall in.
It is my preference to play it safe and not only have more interest coming to me but not pay any interest at all. It's your choice, just don't forget the risk.
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Wed Nov 08, 2006 2:25 am |
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go2self
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quote:
Originally posted by coaster
quote:
Originally posted by go2self
...The money exists as idle cash in any budget having a positive cash flow....
OK, well then in the interest of fair disclosure, don't you think it would be a good idea to redo your analysis including the opportunity cost? i.e. that "idle cash" could be earning 5% interest.
Oh, and PS, I think you know where the promotion belongs. 
(Sorry, but I had to list it because I cannot disclose the entire workings of the SELF process in this forum.)
In the interest of full disclosure: The analysis still stands because earning 5%, 25% or 100% interest (apr) on $500 for 30, 60, 90, or even 365 days will not equal 2398.20.
The idle cash that I describe and put into play is the cash in an active budget. It is the cash used for daily expenses, bill payments and everyday living, not to be confused with disposable cash (income).
Example of idle cash: Any amount sitting in a checking account overnight.
Example of disposable cash: Any amount not allocated towards a purpose.
Time is our most volatile resource that if not used immediately is lost instantly
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Wed Nov 08, 2006 8:06 am |
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rockhound
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| Occam's Razor |
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And cutting even more directly to the point, the original poster was so desperate to pay off $5,000 in debt that he even may have considered getting a home equity loan on less favorable terms than his current mortgage, with very little equity built up in his home. Does this sound like someone who has "idle cash" or even "positive cash flow"? If he did have $500/month extra laying around he would be well on his way to paying off his debt on his own, and wouldn't have been asking for help. I hope some of these discussions helped the guy.
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Thu Nov 09, 2006 2:31 am |
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Nishima
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Umm...perhaps I'm dense or missing something as well.
If you are borrowing $500 to pay on your house...then repaying the $500, it means you have $500 a month "extra" in your budget. Why get a loan and pay the $2.50 plus hassle, paperwork, credit checks, etc?
As coaster already mentioned...why get a loan at all? You have the $500 every 30 days apparently. Most mortgages these days allow prepayment of principle without any penalties.
What is this cycle you mention you can't do without the loan? You have to repay the loan every time no? That's $500 a month anyway you look at it.
Unless your mortgage interest is over 8 or 10%, I would think it's better to invest the $500/mo.
I think your math is a bit fuzzy.
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Mon Dec 04, 2006 8:51 pm |
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Davy Dany
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Got good information from the thread. I was confused abt the credit calculation... The thread helped me to find a good solution...
Thx Guys...
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Fri Feb 02, 2007 6:57 am |
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