As title says, I am considering a HELOC to pay off debt that has a higher interest rate.
My fiance has a car payment that is around $450/month with 11.9% interest. We owe appx. $12,000.
We have a new roof going up next spring estimated to be appx. $7k. We also will need to replace our homes HVAC system soon, estimated at $10-$12k.
My fiance also has student loans, one Parent Plus loan at appx. $24,000 and one regular student loan at appx. $18,000.
Our home's estimated value is $190k, with ~$60k of that value being gained equity over the last 7 years. Our original loan was around $130,000 at 4.5%, of which we have paid about $20,000.
My credit score is in the mid 700s.
Do you think it would be a wise decision to take out a HELOC to cover:
The car
The roof
The HVAC
The student loans
All in one go, then pay back the HELOC as fast as possible to avoid higher APR? Consolidate the monthly payments while simultaneously eliminating higher ones?
All advice welcome and appreciated.
Considering taking out a HELOC to pay for roof repair, new HVAC, car and loan payments. Is this a good plan?
byu/TA2556 inpersonalfinance
Posted by TA2556
17 Comments
Hard to say without knowing the rest of your numbers. What is your household income? Savings? Retirement? That’s quite a bit of debt. Do you absolutely NEED a new HVAC and roof right now? How about a cheaper car?
No. Pay off that car asap. Start saving for the roof. Start saving for the HVAC.
Why must the roof be done in spring? Why are you replacing your hvac if it’s still working?
Do you have any emergency fund at all?
Don’t do anything extra towards the fiances student loans until you’ve been married a few years. Since you aren’t married who owns the house? Did you buy it together?
You’re consolidating a bunch of unsecured debt (except for the car) into a secured debt where your house would now be at risk for the sake of a car and student loans. Not a great idea IMO. For the next car, and since you’re getting married anyway, if you can get a better auto interest rate than your wife you should buy the car, not her. Agree with others that it sounds like HVAC can be taken car of later on down the line.
I personally view my paid off home as a part of my retirement. It is comforting to know that when I retire, my housing expenses won’t be significant (and we’ll have an extra pot of money we can tap into if we decide to downsize).
Given that, I’d treat this plan as pretty close to a 401k loan or early withdrawal, and be looking at it as more or a last resort to get out of financial trouble.
I’d first be taking a long hard look at our income and expenses so see how much we can do with that… and then maybe apply for a consolidation loan to try and swap some high-interest debt for merely medium interest debt, if budgeting wasn’t enough.
HELOCs still require a certain debt to income ratio, usually around 40-45% and a good loan to value usually around 70-80%. I don’t know your income. But those are the general parameters.
Remember that HELOC interest is only tax deductible if the money is used to buy or improve your home. If you use it for debt consolidation you cannot deduct the interest on your federal income taxes.
Just go refinance the car. If your credit is good, go to a credit union and they will give you a much better rate.
Commenting only on the HELOC. We used one from our credit union with an excellent FIXED rate for the full amount we borrowed. Be very careful if yours has a variable rate and make sure you can pay more than the minimum payments.
This is the classic “financing a burger over 30 years” scenario.
You’re just taking existing distributed debt and bundling it into an attractive single payment. However, you haven’t accounted for the how much it will cost to service this new debt…
This can work if you will be aggressive and pay off the HELOC as fast as possible. However, most people do not which costs them more in the long wrong.
If you’re going to tackle this single large snowball within 24 months, do it. If you’re just kicking the can down the road because “the monthly payment is lower,” don’t. You can tackle all of these individual debts by themselves without a HELOC and save up for the home upgrades.
You aren’t married. Do not buy a home or get any loans together until you are married to someone.
Do not move debt around.
Refi the car loan – 12% is crazy
You are using fiancé and “our home”?
Your fiancés car and “we owe”….did you help him buy the car?
How long have you been engaged? Do you have a set wedding date?
Is the home jointly titled or is it yours and you both live there?
You listed your credit score but not your fiancés despite listing his debts. Does he have a bad credit score? 11.9% interest rate is terrible. He needs to shop it to local credit unions, if he can’t get a lower rate you need to discuss why his credit is so bad before you get married. Red flag.
You didn’t list income and any assets, are you both working or does fiancé not have a job?
I took out a HELOC for my HVAC replacement 18 months ago. I also put my last bit of cc debt into it as well 29% —> 7.9%. All that being said, I knew exactly how much I could pay each month onto that HELOC and have paid it down aggressively. It will be paid completely off in 12 months. I only did this because I needed the new HVAC and did not have enough cash accrued quite yet. But had the $$ to put toward it same as if I was saving the cash. Same for the cc’s debt.
My philosophy for HELOCs is to take only what you need for the project at hand. It’s so tempting to take out more.
Honestly, have you learned anything from being forced into having to make this decision? Unless you change something, you will be broke and in debt forever. If you do this Heloc, it is important that you pay off your debt ASAP and get that 6-month emergency fund in place, especially as a home owner. This is the only path get rid of the feeling you have now and build wealth. You got this.
Heloc only for home improvements. Everything else, find a way to deal with outside of the heloc.
Restructure your spending until the debts are paid off. This is the tough, but straight and narrow way of doing it.
Have you talked to the roofing and HVAC companies to see if they offer interest free periods? Why pay any interest if you don’t need to? Just replaced my HVAC and they are 2 years interest free* (or otherwise stated that interest is already baked in to your price whether you take the time so pay or not).
You have $60k of equity but describe around $70 of debt and planned expenses? I don’t think that math works out. You don’t have enough equity to cover that and nowhere will give you a HELOC for 100% of the equity you do have