Should I Put Credit Card or Installment Debt Into a Mortgage?

The decision to Include credit card or installment debt into a mortgage should be based on a number of factors and questions to ask yourself.

I am asked this question all the time and there is no simple answer. I depends on a numbers of factors. Here are some questions you need to ask yourself.

1)  Are you paying off credit card debt monthly or just the minimum    payments?

2)   What is the rate that you are paying for credit card debt?

3)   How long are you planning on owning this home?

4)   How much is my home worth?

5)   Do I have enough equity to incorporate my short term debts?

6)   Is my credit card debt tax deductible?

Karen and Bill where referred by their attorney. There daughter was in foreclosure, they wanted to buy the home and then rent it back to her.

When I ran Karen and Bill’s credit, I immediately saw a number of issues. I could see that they refinanced about three months ago, so I asked them why they didn’t include their credit card debt when they refinanced. Their answer was actually shocking. “We were never asked by the loan officer and we didn’t know we could.”

I explained to them, that because they had $80,000 worth of credit card debt, their debt ratio was too high to be able to qualify for the purchase of their daughter’s home. Karen was almost in tears. 

Since they still had a lot of equity in their home I recommended that we refinance again. Doing a refinance again after three months sounds crazy, but not in this case. They would be saving $2,200 per month by paying off the credit card debt. Can you imagine $2,200!

Once that process was completed, we then began the process of negotiating the purchase of the their daughter’s home. I am now in the process of doing a mortgage for the purchase. They now qualify with out any debt ratio issues. In this scenario, paying off the credit card debt allowed them to accomplish their goal to help their daughter.

Joe Petrowsky, NMLS #6869

Right Trac Financial Group, Inc. NMLS #2709

110 Main St.

Manchester, Ct. 06042

Office: 860 647-7701 x116

Fax: 860 647-8940

Cell: 860 836-9294

Email: joe@righttracfg.com



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Jason September 12, 2012 at 10:55 AM
The right choice would be for these folks to declare bankruptcy. Instead, Mr. Petrowsky would have them line his pockets while losing all the equity in their home. This is terrible advice. Under no circumstances should anyone roll installment debt into their mortgage.
Daniella Ruiz September 13, 2012 at 07:02 PM
if only the credit lenders rates were less than the astounding numbers they are (some still want 20 percent!), it may well be a better choice to use a low interest mortgage liability rate account to pay it off, than to continue being abused by the credit card rate. there are advantages, much like those seeking to re-mortgage any equity (home/business/other) with another lower irate mortgage. long term planning can be tedious, but offers some advantages in unstable economies.
Jim G. September 13, 2012 at 07:13 PM
There may be a few - a very few - cases where rolling unsecured debt into a secured loan is a good idea. (If you have substantial equity, and a stable employment or income future, a one-time cleanup of crushing consumer debt might make sense.) But more generally, it's not about the simple money/interest numbers, but a more complex consideration of what you're willing to lose if the dice roll badly for you. If I got hammered by medical or other unexpected costs, or lost most of my income, I'd prefer to be able to write off unsecured debt (and my creditworthiness) and keep my house, rather than losing that financial keystone because it was more convenient, short-term, to roll excess spending into it.
Daniella Ruiz September 13, 2012 at 10:48 PM
Jim G>> yes, that is the trade off one must choose. i would hardly think anyone that runs credit cards up into those amounts mentioned had any reasonable income or potential income anyway. or if they were even diligent enough to make even the bare minimum payments to keep the collectors at bay. if the person had only enough steady income to make the only basic mortgage payments (and was strapped or unable to cover any of the credit card minimums) it might make sense, but only if.
Todd Turdfinger November 28, 2012 at 10:21 PM
Whope! Here goes Cynthia again with her amazing comments. Let him have it, Cynthia; let him have it.


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