"It takes one person to forgive, it takes two people to be reunited."Lewis B. Smedes
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Deciding When to Use Home Equity
There has been a lot of talk in recent years about using home equity to finance loans and lines of credit. This shouldn't come as a surprise, since home equity has both a high value (provided the homeowner has been making payments on their home for ...
Home Equity Loan
Home Equity Loan is the money that you get as a loan based on the value of your own home. In other words the money that you have invested in purchasing that lovely home can be leveraged to buy a Car, pay off Student Loan or any other loans. Other then ...
"How To Pay Off Your Home Loan 10 Years Sooner Without Spending One Penny In Extra Payments !"
How a Simple Plan with a Common, Yet Overlooked Home Loan Can Save You Hundreds of Thousands of Dollars Without Changing Your Budget By a Single Penny! Hello, Top Guns! You will laugh at the simplicity of this plan, and, at the same time, think what a ...
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The minimum payment on next month's credit card bill could be almost double what you were required to pay this month due to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. How will higher credit card minimum payments affect your family's finances, and can your mortgage advisor help you avoid financial hardship or even bankruptcy through cash out refinancing, a second mortgage, or a home equity line of credit?
Credit Cards can be powerful financial tools when used properly. However, if you're like 35% of our fellow Americans, you are only paying the minimum payment each month, at least according to the Federal Government Office of the Comptroller of the Currency. Federal regulators are currently pressuring major banks, including major issuers such as Citibank and MBNA as well as the Bank of America, to increase their minimum payments so that consumers have a fighting chance of paying off their high interest credit card debts.
Today, your credit card minimum payment is usually between 2% to 2.5% of the total debt on your credit card. If you were to pay the minimum payment every month today on $10,000.00 of credit card debt at 18% APR, it would take you more than 50 years, 601 payments in total, to pay off your debt, and you would pay an extra $29,000.00 in interest charges to the bank for the privilege of using their money.
By the end of March 2006, major card issuers nationwide will be increasing their minimum payments to effectively 4% of the total debt each month, which for the estimated 50 million Americans who are paying the minimum payment each month may mean that their credit card minimum payment will double. Regulators argue that by paying 4% credit card minimum payments versus 2% credit card minimum payments, you the consumer will be able to pay off your debts more quickly, if you can come up with the extra money each month! Taking the above example of $10,000.00 at 18% APR, you would be able to pay off your credit card debt with a 4% minimum payment in as little as 15 years, and you would pay less than $6,000.00 in interest fees to the bank. That's a savings of over $23,000.00 versus a 2% minimum payment.
Sounds great right? Higher credit card minimum payments can help you get out of debt faster than lower minimum payments, but there is one catch. You need to pay twice as much every month. So if your minimum payment is currently $400.00, you'll need to find another $400.00 per month just to keep up with the new minimums. Even if your bank does not increase your rates this coming month, it's only a matter of time before they are drawn into compliance with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and your credit card minimum payments rise.
As you can see from the above examples, the government is onto something, paying off credit cards more quickly saves consumers a ton of money, but it actually increases their minimum payments, making it unaffordable for the Americans who need this sort of protection the most. In fact, many of the people whom we've spoken to in the writing of this article would likely face bankruptcy after their savings were depleted with these higher payments.
But is there a better way? For homeowners there are some very attractive options available. A Cash Out Refinance, a Fixed Rate Second Mortgage or Home Equity Loan, or a Home Equity Line of credit from your mortgage broker is one of the most effective ways to stop paying high interest on credit card debt and to actually reduce your total monthly payments. For the average customer carrying $10,000.00 dollars of credit card debt at an APR of 18% their new higher minimum payment will be 400 dollars, and if they are like most customers they also have a car loan of $20,000.00 at 9.5% and pay about $450.00 per month, the typical savings realized by consolidating those debts with their mortgage or taking a second mortgage to pay them off can be 60-70% on their current unsecured or revolving debts, and even more savings come tax time through interest deductions available for mortgages.
Speak to a mortgage broker and you'll find that you can borrow $35,000.00 per month by refinancing with cash out, getting a home equity loan or second mortgage, or opening a home equity line of credit for as little as 200 dollars per month, or even less. Refinancing with cash out not only pays off your credit card debt and your car loan at the high interest rates associated with credit cards and auto loans, but also saves you over $650.00 per month in this scenario by lowering your total monthly payments. Yes, your mortgage payment will increase, but your total monthly payments will actually decrease, putting $650.00 in your pocket each month. Use some of that savings to make at least one extra mortgage payment per year and you'll pay off that mortgage even faster than you could the credit card debt at minimum payment levels. And you should speak to a tax professional as well, because while you cannot deduct credit card or car loan interest from your taxable income, in most cases you can deduct the interest paid on your mortgage from your taxes, which has the potential to save you thousands more over the life of the loan. This method is not for everyone, but if you are a homeowner facing financial constraints and the thought of your credit card minimum payments going up by up to double makes you shiver, it may make sense to speak with a mortgage broker and with your accountant about a debt consolidation refinance or a debt consolidation loan.
About the author:
Kyle R. Allen is a seasoned financial professional with a wealth of experience in the mortgage industry, advising clients on debt consolidation, refinancing & investor loans. Website: http://www.RefinanceOne.net
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HELOC, Car Loan Delinquencies At Record HighsU.S. News & World Report, DC - Jan 7, 2009In the latest sign that consumers are under financial stress, indirect auto loan and home equity lines of credit (HELOC) delinquencies reached their highest ... |
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Credit Cards: You Asked, We AnsweredNow - 23 hours agoThere's no better feeling than being HELOC free! Question: I request credit reports, but have not been able to find any way to find out my credit score. ... |
PersonalFinance: Should you refinance?Reuters - Jan 8, 2009Home equity lines of credit (HELOC) currently are charging rates as low as 3.5 percent; they are cheaper than regular mortgages now. But that may not last. ... |
The Dutch diseaseMotley Fool - Dec 31, 2008In America's case, it would be HELOC money and dirt-cheap loans from China that did the same thing to us that oil did to the Dutch. ... |
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