Credit Card Consolidation Loans Using Home Equity – Is It A Good Idea?

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Credit Card Consolidation Loans Using Home Equity – Is It A Good Idea?

A client wants to know if using his homes equity to consolidate his credit card debt is a good idea or not. He has a home worth approximately $350,000 with a mortgage of $129,000. He has credit card debt of $18,000 and both he and his wife make sufficient money to carry a much larger mortgage payment and they have an excellent credit rating as well. His stated objective is to minimize the interest that he pays as well as minimize the monthly payment. Unfortunately he cannot achieve both objectives. We added four calculations at the bottom of this post to illustrate why he must decide which objective is a priority for him.

Basically if you select a long term mortgage at a low interest rate, you will pay more total interest than you will with a shorter term mortgage even if the interest rates are the same. A long term mortgage will also provide a lower monthly payment. For example his combined existing mortgage and credit card debt will generate a monthly payment of $719/ month while a personal loan at a higher interest rate than his mortgage and his existing monthly payment on his current mortgage will generate a total payment of $994 a month or $275 more per month in payments.

On the other hand total interest charges for the combined mortgage and credit card debt will be $71,900 over the life of the mortgage. The total interest for the personal loan and mortgage only total $67,200 since he pays off the personal loan portion in five years instead of 25 years. Sticking with the credit cards will cost him an additional $5000 in interest charges which we know he is not interested in.

Our client will need to decide which is more important to him. A lower monthly payment or a lower total interest cost with a short term personal loan and higher monthly payment for a period of five years. Depending on his other monthly expenses and plans, he may opt for the lower monthly payment to keep his cash flow as low as possible. Further analysis and discussion will need to be considered by the client before making a decision.

DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION

Credit Card Debt Loan Amount :: $18,000

Credit Card Debt Loan Application and Processing Speed (when do you need the funds):: I need to fix my credit card debt situation within the next two weeks, this is when my statement due date occurs.

Do you currently have a mortgage? :: yes, my mortgage amount is $129,000

Bank Name and Branch ::Bank of Colorado, Edison Ave

What City/Town, State and County do you live in? :: Colorado Springs

Zip ::80915

What is your employment field? :: State government

Employment Position :: middle level manager in the property division

When are you paid? (monthly/weekly/biweekly):: biweekly

Your credit rating to be – excellent, fair, or bad? :: fair to excellent

How did you find us? :: looking online for credit card consolidation solutions

How are you paid? (direct deposit/paper check):: direct deposit

Gross Amount Per Paycheck :: $2,880

Do you agree to have this information published online, without your PRIVATE information of course? :: I guess so, I would prefer that my employment status and personal information is not disclosed

Extra information here please (some detail):: I have a total of five credit cards. Two of them have a $5000 limit,while the other three add up to an additional $8000. Unfortunately I have charged them all up to the maximum. I really do not want to have to pay the high interest-rates that the credit card companies charge.

I’m looking for a solution that would allow me to consolidate my credit card debt, pay lower interest rates and a lower monthly payment. I’m wondering if using my home equity on my home would be a possible solution. I have some savings, however would prefer not to use these funds at this time.

Note to Lender :: I work for the state government and have a middle level management position. It pays well, great benefits and there is little danger of being laid off. I’ve been with the government for 10 years and expect to continue there to fulfill my career. My wife also works for the government and has a lower level management position as well. Together we have sufficient income to carry a much higher mortgage.

Our home is worth approximately $350,000, and the current mortgage on our home is only $129,000. This should leave sufficient equity in our home to be able to absorb an additional $18,000 and allow us to consolidate the credit card debt at a much lower interest rate. While this is not the ideal solution for us, it is probably the most expedient. We should have managed our credit better, but this is reality and now we have to deal with our frivolous ways.

We also thought about applying for a personal loan, however this would probably entail a higher interest rate than what the mortgage rates are currently. Our objective is to minimize the total interest that we pay and also to minimize the monthly payments at the same time. We would appreciate your suggestions regarding the best approach and to also let us know if this application can be approved?

Category: Credit Card Debt Loan APR 21% APR 9% APR 3.9% APR 3.9%
Loan Principal $18,000 $18,000 $147,000 $129,000
Payment Schedule Monthly Monthly Monthly Monthly
Length of Term 5 5 25 25
Amount to be paid $27,605.70 $22,116.73 $218,898.21 $192,094.35
Total interest paid $9,605.70 $4,116.73 $71,898.21 $63,094.35
Paid per installment $453.79 $363.56 $719.67 $631.54