looking for some opinions re refi and credit debt

jea2007May 5, 2011

A little back story for the last 4-5 years my life has undergone a large makeover. My marriage dissolved resulting in a divorce last year. I returned to school and graduated in 2010, it has taken me until now to get a job.

I have been living off child support, alimony while it lasted, student loans and unfortunately credit. I have managed to hold onto my house and my car while getting up there is paid in full.

I am starting a well paying job next Monday. I have started to look into refi on my house, need to get the x off the mortgage and deed. My bank has indicated that it looks pretty likely that I can do a one time modification to remove my x without a complete refi, this is good as I can afford my current payment and have a fairly good interest rate 5.25% on a 30 year fixed with local service. I also have a HELOC from our original conversion from construction to permanent mortgage. That was done because at the time we were carrying 2 mortgages and needed that to cover down payment until the first house sold.

Long story short, house never sold and actually he moved back into that house.

So I have okay credit, few late payments but only one on HELOC and not past 30 days. I have some rather large credit card debts. 7K on one with a max of 8K and 17K on another with a max of 21K.

I received a cash payment from my X of 7900 due to me for his car value. My questions are what would be better for my credit picture, pay down the credit cards, or the HELOC. And which is more likely to help with my refi/modification.

I feel kind of like it should go on the HELOC, but don't like those high balances either.

I will need a different car some time this year, but not until the house is taken car of.

My bank said my income will qualify me for my mortgage without problems, but my credit may bump my interest if I have to totally refi, plus refi costs a couple thousand verses a couple hundred.

He suggested we could sit on the HELOC for a bit as long as x is okay with that, which I believe he is, and redo that in a while.

I'm really torn as to where I should put that money. I am tempted to put it on the HELOC until the adjustment goes though, and then take it back out and pay down the credit.

Any thoughts or suggestions from those who are better at this, I've never really had to make these decisions.


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What's the outstanding balance on your mortgage and HELOC? What's your house worth? The LTV may impact the refi you can get.

    Bookmark   May 5, 2011 at 10:11PM
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General rule of thumb is to pay off the debt where the highest interest rate exists. And, I'm guessing that's with your credit cards? You could pay one of those off entirely and save more in the long run. Plus, the interest on the HELOC is tax deductible...the credit card definitely isn't!

But, if you do have to do a complete refi, are you at risk of any LTV issues?

    Bookmark   May 5, 2011 at 10:13PM
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According to the mortgage broker, I am okay, at least that was the impression he gave me. I am thinking maybe the smart thing is to sit on the money for the time being and see what happens with the modification.

I figure once that goes through or not I can decide based on interest and so forth.

I owe about 325K on the house and the assessment is 450K, the HELOC is 42K.

I can pay off one card completely or most of one and part of another.

    Bookmark   May 5, 2011 at 11:40PM
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If you wanted to refi the entire amount, (325+42), that puts you at about 81% LTV. But, that's based on the assessment, not one an appraiser would give you. And, that doesn't include closing costs. So, while that's probably a good estimate, I'd find out what homes in your neighborhood are selling for. Foreclosures have killed so many refi's no matter what credit rating people have. It's sad but true. And, if you do have to end up with a full refi, you don't want to get stuck needing a few thousand dollars.

I do think your best bet is to get the modification done first and hope you don't have to do the full refi. Once that's resolved, then you can get rid of those credit cards :)

Good luck!

    Bookmark   May 6, 2011 at 7:22AM
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I'd hold onto the cash to see if you need to use it for refi closing costs. Whatever's left, dump it on the smaller credit card to pay it off. Then work your way through the rest.

    Bookmark   May 9, 2011 at 1:32PM
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