tapping in to my equity to pay off high interest loans

Dallas, Texas
Creative Real Estate Financing
3yFollow

tapping in to my equity to pay off high interest loans

Rafael Abdalla
Member since 2020 · 5 posts · 2 votes

Hi,

i own 590k on my primary residency and its worth bout 1.5mil. Mortgage is $2500 per month, and we take home after taxes 11k per month. credit score around 750 fico

I have about 250k in debt that its keeping me up at night... credit cars, car loans, lending club personal loans etc.. 


would it be wise to tap in my home equity? HELOC or cashout refinance? very very newbie and scared.


i have a wife and 4 kids im not selling the home 

0Reply
11 views

Most Popular Reply

Ryan KellyBusiness Member
Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
3y

@Rafael Abdalla don’t turn unsecured debt into secured debt. Your home is an asset and those consumer debts are liabilities. Don’t move that debt onto your asset. If for any reason you ran into financial difficulty and couldn’t pay the higher mortgage, you would lose your home. Instead, just focus on tackling the smallest balance debt and eliminate it. Then move on to the next until you pay them all off. If you need more money, drive for Uber, deliver pizzas, sell some stuff, etc. You can do this.

[email protected]512-674-5478
Ryan Kelly Group - Keller Williams5110 Reviews
WebsiteView Page
4Reply
See this reply in the discussion

16 Replies

Jump to latestLatest
  • Eric Mcginn
    Real Estate Investor · Chico, CA · Member since 2016 · 248 posts · 105 votes
    3y

    What’s the average rate on the personal debt? 
    sounds like you have a good rate on your mortgage and refinancing would ruin that. 
    we need some more numbers, actually a lot more numbers to really tell you. 

    0Reply
  • Rafael Abdalla
    OP
    Member since 2020 · 5 posts · 2 votes
    3y
    Quote from @Eric Mcginn:

    What’s the average rate on the personal debt? 
    sounds like you have a good rate on your mortgage and refinancing would ruin that. 
    we need some more numbers, actually a lot more numbers to really tell you. 


     you are spot on. my Mortgage rate is 2.8% over 30 years. 

    0Reply
  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    3y

    Don't focus on the interest rate when deciding what to pay off first.  That's the wrong approach.  Focus on the smallest balance owed, and pay that off first.  That gets your the trifecta of positive results:

    1 - You eliminate a debt entirely, which means you also...

    2 ...eliminate the monthly payment that goes with that debt, entirely, which also means...

    3 - ...the money you were using to make those payments each month, you still have use of, and can apply it to the next largest balance,...

    ...and so on, and so on, and so on.

    3Reply
  • Travis Beatty
    Rowlett, TX · Member since 2017 · 14 posts · 2 votes
    3y

    I'm not a financial advisor by any means but what I'd recommend doing is finding the overall average interest rate of your loans, then see what the interest is for your HELOC. If your average interest rate is lower than the HELOC, keep paying the loans. If the HELOC is lower, maybe consider getting the HELOC to pay the loans off.

    2Reply
  • Rafael Abdalla
    OP
    Member since 2020 · 5 posts · 2 votes
    3y

    im paying roughly $3500 per month in interest alone

    1Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Rafael Abdalla:

    Hi,

    i own 590k on my primary residency and its worth bout 1.5mil. Mortgage is $2500 per month, and we take home after taxes 11k per month. credit score around 750 fico

    I have about 250k in debt that its keeping me up at night... credit cars, car loans, lending club personal loans etc.. 


    would it be wise to tap in my home equity? HELOC or cashout refinance? very very newbie and scared.


    i have a wife and 4 kids im not selling the home 


     Hey Rafael, 

    I would recommend speaking with a mortgage broker that can show you your total monthly debt paying off your high interest payments, refinancing your 2.8% rate and looking at a HELOC monthly payment paying off your debt.

    Rates on HELOCs are variable so keep in mind that your payment can increase. If the goal is to consolidate debt, refinancing might not be a bad idea if the interest rates on your other debt is very high. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
    WebsiteView Page
    0Reply
  • Ryan KellyBusiness Member
    Real Estate Broker · Austin, TX · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Rafael Abdalla don’t turn unsecured debt into secured debt. Your home is an asset and those consumer debts are liabilities. Don’t move that debt onto your asset. If for any reason you ran into financial difficulty and couldn’t pay the higher mortgage, you would lose your home. Instead, just focus on tackling the smallest balance debt and eliminate it. Then move on to the next until you pay them all off. If you need more money, drive for Uber, deliver pizzas, sell some stuff, etc. You can do this.

    [email protected]512-674-5478
    Ryan Kelly Group - Keller Williams5110 Reviews
    WebsiteView Page
    4Reply
  • Eric Mcginn
    Real Estate Investor · Chico, CA · Member since 2016 · 248 posts · 105 votes
    3y
    Quote from @Rafael Abdalla:
    Quote from @Eric Mcginn:

    What’s the average rate on the personal debt? 
    sounds like you have a good rate on your mortgage and refinancing would ruin that. 
    we need some more numbers, actually a lot more numbers to really tell you. 


     you are spot on. my Mortgage rate is 2.8% over 30 years. 


    Now the other half of the equation is the interest in the other personal debt. If it’s 18% than it might be worth refinancing everything at 7%

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Rafael Abdalla:

    Hi,

    i own 590k on my primary residency and its worth bout 1.5mil. Mortgage is $2500 per month, and we take home after taxes 11k per month. credit score around 750 fico

    I have about 250k in debt that its keeping me up at night... credit cars, car loans, lending club personal loans etc.. 


    would it be wise to tap in my home equity? HELOC or cashout refinance? very very newbie and scared.


    i have a wife and 4 kids im not selling the home 


     If I were you I would sell the house and pay all the debts, and buy new home. Having debts with large untapped equity doesn' make sense because that equity could only be accessed if you do sell/refi; but due to the large amount of debt, selling is way better.

    I would not even do HELOC, that's swapping debts.

    0Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    3y

    Don't worry about the rate or do a rate arbitrage.

    at $11k/mo you can pay off your loans, just need to spend smarter. You should eliminate loans by size, smallest first. Crunch down and knock this out in 18-24 months. Leave the house out of it.

    2Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    3y

    @Rafael Abdalla

    Take out a HELOC and pay it all off immediately.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Rafael Abdalla

    First you need to solve your spending problem. Out of the $250k owed can you sell the cars and get less expensive cars? What were all the personal loans for?

    We buy mortgages and I would say more than 50% of people that take a HELOC to pay off debt rack it right back up within 3 years because they have a spending problem.

    7e investments53 Reviews
    WebsiteView Page
    1Reply
  • Rafael Abdalla
    OP
    Member since 2020 · 5 posts · 2 votes
    3y
    Quote from @Chris Seveney:

    @Rafael Abdalla

    First you need to solve your spending problem. Out of the $250k owed can you sell the cars and get less expensive cars? What were all the personal loans for?

    We buy mortgages and I would say more than 50% of people that take a HELOC to pay off debt rack it right back up within 3 years because they have a spending problem.


     I would sell cars except none of it is cards, it’s all personal and business credit cards with PG on them

    1Reply
  • Diane Frissell
    Member since 2020 · 1 post · 2 votes
    3y

    Sorry dude but taking on more debt to try to reduce your debt is rarely profitable - when you're starting to go underwater prudent risk management states to sell off un-profitable assets.  Only way to real that **** in.  If it's your business that's un-profitable then uh... best of luck but sell off and salvage.

    Also avoid anyone trying to sell you more money because that's probably what they're paid to do

    2Reply
  • Rafael Abdalla
    OP
    Member since 2020 · 5 posts · 2 votes
    3y
    Quote from @Diane Frissell:

    Sorry dude but taking on more debt to try to reduce your debt is rarely profitable - when you're starting to go underwater prudent risk management states to sell off un-profitable assets.  Only way to real that **** in.  If it's your business that's un-profitable then uh... best of luck but sell off and salvage.

    Also avoid anyone trying to sell you more money because that's probably what they're paid to do


     got out of that business and now paying for the mistake #MoveOn

    0Reply
  • Chris B.
    Chandler, AZ · Member since 2020 · 295 posts · 272 votes
    3y

    With such a high monthly income and such a (comparatively) low mortgage, you really shouldn't owe anything on the items you have listed.  Lots of assumptions on my part as your overall big picture isn't clearly defined... The best advice I have is to stop buying new fancy things and live a normal American life.  We have no idea why you owe so much but if its because of things like vacations, fancy clothes, new cars worth over $30 - $40 k, or dining out...Simply cut back.  your income will easily cover all of your non-mortgage debt rather quickly.

    However if I were in a similar situation and my focus as you indicate is to save the most possible on loans, the formula is simple. Compare. How much are your highest interest rates? What would the rate of a HELOC be? If the HELOC plus amortized associated fees are lower than your highest interest rate, you have the answer. Do the same calculation with a cash out refinance and make sure to add in those associated costs. Given today's interest rates and the substantially higher fees involved with a cash out refinance, this is very unlikely to be a good option.

    The pitfall so many in your situation fall into is that once you restructure your debt, you take a moment to breath better and then you go right ahead and buy yet another fancy thing on credit.  Don't be this guy.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free