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Using A Second Mortgage |
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Dear Edith: We are on Social Security and both have part-time jobs. We owe $12,000 on credit cards and would like to pay them off with a second mortgage on our home. The bank we make our payments to has offered us the loan at 10 percent interest. We have been trying to pay off the credit cards but the interest is so high, 17 percent and 24 percent. Would it be beneficial to get that loan or are there some things we are not aware of that could make this not a good situation? --Mr. and Mrs. T. K. E |
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In your situation, and given the horrendous interest rates you're paying, taking out a second mortgage to pay off credit cards could be a very good thing or a very bad one. Which way it turns out depends on you. Second mortgages or home equity loans are generally available at much less than 10 percent. I suspect, though, that your credit rating may mean you're lucky to have the offer from your own lender. If you take the loan and pay off your credit cards, you'll save at least $100 a month in interest payments, besides which the mortgage interest would be tax-deductible. You'd save a bit more on your income tax, assuming you itemize deductions. But there's a big catch here. The plan only works if in future you pay off your credit cards completely every month. If you start running up new balances, you could end up with twice as much debt as you have right now. You'd be in big trouble, with your own home at increased risk |
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Edith
Originally published on February 6, 2005 |
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