Is it smart to use a home equity loan to pay off car loans, and a line of credit?
September 23, 2008 - My husband and I need to lower our monthly payments. We have no debt except a line of credit for $60,000 with the payment of $410 and two car loans both adding up to about $25,000 and the combined payment of $1050/mo. So, we are spending about $1400/month for these 3 things. If we got a loan for $110,000 and payed all these off, our payment at 6.6% would be around $700/month. Of course I would always pay more than that per month which would go to principle. Why isn't this a good thing to do? I realize that getting a new car would add to our payments once again. So, that would not be smart. Other than that, is this a smart thing to do? It seems like it is, but then why don't more people do this?
If the interest rate you can get on a home equity loan is lower than the bills you would pay off, then it is a smart idea. Not only do you lower your payments, you save on interest also. Not everyone does this because they may not be able to get a better interest rate, and lots of people don't have that much equity in their home. If you fall behind on payments, you don't lose your car, you lose your home, and not everyone is willing to take that risk.
In theory it sounds good. But here's what happens. You borrow the 100 grand and now you have financed your two old cars for 15,20 or 30 years. If that isn't bad enough statistics show that you will have more car loans, credit cards, etc. PLUS the 100 grand loan in 5 years. You cannot "borrow" yourself to prosperity. Pay off your obligations without refinancing and you will be proud of your actions.
- Dont you think that the loan has put you in more debt? Then there is interest on that as well?
- found a solution that worked better for me I can give you the number 877-243-3485 they got me out of debt in 24 months and brought my monthly down to about 50% of what I was paying. It was great, plus it didn't have the affect on my credit like a bankruptcy would have
OK I wouldn't recommend a home equity loan at all. it is basically taking out a 2nd mortgage on your house and you would not only have to pay your first mortgage if it isn't paid off but you would only get the amount of the equity you have on your home ( in other words if you have a home worth say $ 150,000. but you still owe $140,000 then you can only borrow $10,000.) then you lose the equity on it completely. And you have a 2nd mortgage on it to pay as well. meaning you will start all over paying on your house and should you decide to sell your house you make no profit if you have no equity. there are other ways to pay off the other debts without jeopardizing your home. Talk to a loan officer at your bank or call a credit counselor to help make a better decision. Is paying off a couple of cars worth the possibility of losing your home and now a days it is very difficult to get a fixed interest rate on your "refinance" loans so you could end up with a low interest rate to begin with then it could shoot up to a very high interest rate and once the interest rates go up they very rarely come back down.
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