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Scott,
We have been upgrading our fixer
upper and are interested in continuing the process. Problem is, our
2nd mortgage is an LOC and the APR is drowning us! We want to pay off
the LOC and our credit card debt and have some cash to invest in
renovations.
We are a single income family, and
as far as debt-to-income ratio is concerned, we're not looking so
good. We are hopeful our "sweat equity" will be sufficient
to borrow against. I am not so keen on this approach, but my husband
is in the building trade and feels our only way is up as far as
property value is concerned. What to do?
Alison
Alison,
Thanks for writing!
First off, I believe it is wise to
upgrade your home. It's a good investment, certainly at this time,
as well as fulfilling!
I am surprised that your LOC (home
equity line of credit) interest rate is so high that you would say
it's drowning you. There are benefits with home equity loans, well, at
least one, which is the tax write off. Another should be a lower
interest rate when compared to other loan options. But I'm not
getting that vibe in your case.
My
understanding of your question is that you want to fix up your
house, borrow money against its new value, and then pay off the LOC
and credit cards. Assuming that this is the case, it's not the debt
that is the trouble, but the cost of this debt. You're trying to reduce
this cost by reorganizing the debt. That's a good strategy!
Of course, you may have trouble
getting a 3rd mortgage simply because it's in the 3rd position. You
would want to refinance all your debts into one new, 30-year
mortgage at a low rate. I suggest a 30-year because your payments
will be as low as possible.
This is a good plan, but one that may take a while. In the interim, I would look at refinancing
some of these debts at lower rates. You should include new credit
options in this search. I have a quite a few low rate credit cards
listed here.
DO IMMEDIATELY: Contact your credit
card banks and attempt to negotiate lower rates. Tell them that
you're going to be renovating your house and, therefore, making
large purchases. Tell them that if they want you to use their credit
card for these purchases, they must reduce your current rates and your
purchase rate or you will use another credit card.
Please let me know how it goes.
Best,
Scott
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