I’m trying to help out my parents make a decision on whether or not to do a cash out refinance. I really want second opinions, especially because I feel like I’m missing something. Here’s the relevant info below:
House Value: $450k, originally bought in 1998 for $160k. 1st Mortgage: $134k balance, 3.875% rate, $2297 payment 2nd Mortgage (HELOC?): 61k balance, 7.99% rate, $500 payment
Parent’s income: 5.5k/mo private disability (untaxed), additional $1200/mo after tax
Credit Card Debt: $20k, across 7 cards, $561 monthly payment
Proposed Loan: $264k, $197k payoff, $~11k fees
My father wants to do a cash out refinance to combine both to 5.75%, with a $50k cash out to pay off the credit cards. From his math/the offer from a bank this will reduce the mortgage to $2140 from $2797, and total monthly payments with mortgage AND credit cards goes from $3358 to $2140.
I have gone on a big journey of learning personal finance and with that and getting older I have realized my parents have been very bad with money. They are in their early 60s, and my father has recently become disabled and is on private disability which is largely behind the debt snowballing and the second mortgage in the past few years. It’s a tough situation especially when they should be retiring soon and essentially have no retirement funds.
My first intuition is to avoid new debt at all costs – especially with how rates are now. It’s almost a 2% raise on a mortgage. I feel like I’m missing something in the math. Please give any advice!
submitted by /u/Dreevy1152
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