Home Equity Loan
Pay off credit card with fixed home equity draw?
My 48 y/o sister has asked me a question and I don't want to give her bad advice. Here's her question and her stated financial info: Should they pay off balance on their 8.25% (prime for life) credit card (with a long and excellent credit history) and put that balance towards their home equity loan? Both have high FICOs. They currently have a 1st mortgage of $200K fixed at 4.25% until 5/09. They also have a fixed (locked in) rate of 7.65 on their home equity line at a 10-year term with a current balance of $50K ($18K avail). Their home is worth between $550-580K. They only have one credit card they use, but it's $12K (prime for life) currently 8.25% and she makes at least double the monthly payments in an attempt to pay down. They would like to eliminate the credit card debt if possible to be able to save more and not feel so stretched each month. Plus one teen now needs a car (more outflow). Banker will lock addt'l draw and combine both for 7.6%. Yearly income $90K. Advice? Forgot to mention that mortgage is $1375/month, she pays $700 on equity loan (min $685), and she pays $700-1000/month down on the credit card. If CC was eliminated, the banker told her the new lock on the equity loan would make that monthly payment $763, which she could also pay more down on with no penalty. She's really nervous about fooling with the equity in the home because of their old(er) age. Should she keep things as is and pay down aggressively or transfer to current home equity or other great idea? Thanks again.
Public Comments
- That Home Equity Line is almost maxed out. I wouldn't recommend transferring the credit card balance to the Equity Line at this point because that only ties up monthly cash flow. Because they'd be paying back interest and principal over that 10-year term on the Equity vs. a couple % on credit card balance of minimum monthly payment it wouldn't be worth "saving" .6% of interest on the balance. There's also the inherent risk of running up the credit card balance again which would put them in a very tight situation. I think in this situation what they're currently doing is fine. Keep focusing on paying down that credit card debt though and keeping the balance from growing instead of shrinking. Good luck.
