cancel
Showing results for 
Search instead for 
Did you mean: 

advice needed!!

tag
Anonymous
Not applicable

advice needed!!

Hello....if anyone can offer advice to me on this it would be greatly appreciated.

my husband and i own a condo.  we have had it for just about 3 years.  we bought just before the market took a down turn, so the prices have dropped considarably, actually about 30,000.  We got one of those subprime loans and have an adjustable rate mortgage.  Our adjustable rate is due to start adjustiing in two years.  We have about $25,000 in credit card bills (my husband took out some credit when he opened his business), and we are in about negative $30,000 eqiuty with our condo.  We currently have $20,000 in savings and by next year at this time, i expected to have at least $30,000 in savings, if not more.  Our credit scores are great, mine is in the high 700's, and the mortgage is only under my name.  My question is this.....should i take the money from savings and pay down our credit card debt or should i save it towards refinancing in two years or should we try and refinance sooner?  I am optmistic that the market will come back up, just not sure how long that will take.  We live in MA, and most definetly here, i know that condos are the last prices to bounce back after such a hit.  I want to be prepared to refinance prior to our rate adjusting.  My gut feeling is saying to pay off credit cards and start saving all over again towards refinacing.  What do you guys think?   Thanks, in advance.

Message 1 of 5
4 REPLIES 4
Anonymous
Not applicable

Re: advice needed!!

All in my opinion...

The game is not to pay interest. If your CCs are charging you interest it would not be wise to leave a balance to keep money in savings unless your savings is generating a much higher int yield. If you run out of money from savings you have credit avail on credit cards. Why keep loosing money to finance charges while paying taxes on interest profit income from your savings when you can clear off some of that debt?

 

Where to apply the money is simple. Highest interest whether it be your mortgage or CCs.

Message Edited by ilovepizza on 10-28-2008 12:49 PM
Message 2 of 5
Anonymous
Not applicable

Re: advice needed!!

Unfortunately you are in a rather tricky situation.  In fact I'm in a similar situation minus the credit card debt, not nearly as much in savings, and with a house instead of a condo.  Taking the money in savings and using it pay down your credit card debt would reduce your interest expense in the short term, and lower your debt to income when you go to refinance.  The problem that will arise when you go to refinance however is that the value of the condo will likely be insufficient to secure the loan.  At that point you will have to come up with enought money to paydown your loan to a level that the new lender would feel comfortable with.  If you use your savings to paydown your credit cards, then you'll likely need to advance on your credit cards to come up with this money.  Unless you use a balance transfer offer, you'll end up paying a rather high interest rate on this money.  I'm not sure if you had all the credit card debt whenever you initially qualified for this mortgage, but if you didn't then you might not qualify for the loan even if you're able to pay it down to an amount consistant with the current market value of the property.  In other words your debt to income might be too high.  You do of course have the option of letting the rate reset on your adjustable rate mortgage and just pay the higher payment amount.  No matter what you decide, I'd reccomend finding out what index your interest rate is based on, what margin you pay over the index, what's the max amount that the rate can change and how often it changes.  As there is no telling what the real estate market will do in the next two years, and what the value of the property will be when you go to refinance this is a very tricky situation.
Message 3 of 5
Anonymous
Not applicable

Re: advice needed!!

First you need to find out what the new payments would be on the condo.  I would not use all my cash for anything.

 

If you can afford the condo with the new payments (as you say it will come up in value down the road) Do it.

 

I would pay down your CC debt!!!  But not all your cash. to get a mortage they use FICO middle score and D/R. A high CC debt will hurt your chances.  Paying down on the CC debt will raise your scores and lower your debt.

 

As I said do not use all your cash!!!  then start saving again to pay down the mortgage to refi.

Message 4 of 5
Anonymous
Not applicable

Re: advice needed!!

First you need to find out what the new payments would be on the condo.  I would not use all my cash for anything.

 

If you can afford the condo with the new payments (as you say it will come up in value down the road) Do it.

 

I would pay down your CC debt!!!  But not all your cash. To get a mortage they use FICO middle score and D/R. A high CC debt will hurt your chances.  Paying down on the CC debt will raise your scores and lower your debt/ratio.

 

As I said do not use all your cash!!!  then start saving again to pay down the mortgage to refi.

Message 5 of 5
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.