Debt risk on HELOC help!

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Debt risk on HELOC help!

Postby sanilac » 04 Mar 2012 11:40

I have a high amount of debt associated with buying and fixing up two rental properties. In 2 1/2 years a HELOC term will be up and the full amount due which right now is 68k. The interest rate is currently 4.75% it's variable tied to prime. I have 43K on first mortgage it's fixed at 4.375% I have 54k in credit card debt. about 50% of that is at 20% rate. OUCH! I have been paying an extra $1,600 per month on the higher interest rate CC and only making the interest only payment on the HELOC. My concern is that because property values have dropped so much that even in 2 1/2 years the combined first mortgage and the HELOC would be close to 90% LTV and I might not qualify for a loan. Income is 80k score is 740. So my question is being as my prime concern is being able to qualify for a refi to pay off the HELOC in 2 1/2 years from now to protect my home should I be paying that extra $1,600 towards the HELOF instead of the higher rate CC?? Also would the first lean holder be motivated to refi the second loan [HELOC] more so than another bank because they might take a loss of the HELOC foreclosed?
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Re: Debt risk on HELOC help!

Postby couponstrip » 04 Mar 2012 13:43

This is complicated, but there might be some simple answers if you look at your situation more broadly. I don't want to give any specific advice, but I wouldn't rule out any course of action including selling your rental properties despite the fact that you would have to take a loss. Just because you bought them at a price does not mean the market has to return to your price in a reasonable amount of time, or ever (in real terms).

At this point, I think you would do well to seek out the services of a financial adviser who can help you with options to get your financial situation under control.
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Re: Debt risk on HELOC help!

Postby BRIAN5000 » 04 Mar 2012 14:43

This is complicated


Yes and confusing. You have three homes a PR and two rentals, 68k HELOC and 43K first mortgage and 54K in credit card debt. This is all the debt on 3 homes?. How much are they worth, how much is the rental income, how long did you intend to hold them, how long will you hold them? What was/is the oveall plan? 80k from other employment income?
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns
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Re: Debt risk on HELOC help!

Postby sanilac » 04 Mar 2012 16:01

More details
yes all that debt is associated with the 3 homes.... more or less. My PR and two rentals. Values?? There is the problem. They all dropped a LOT. However trying to be honest about values I'd say my PR is around 110k the other two homes [ rentals ] are worth 30k and 50k respectively. I am a contractor and fixed them up vert very nice granite counters ect. I only have 30 k total in either of them. After taxes and insurance ect I cleat $400 a month each. They rent easy... had them 3-4 years never been vacant. I've gotten good at screening tenants etc. My goal is long term.. always was.. I don't think social security is gonna be there for me. I'm 47. So I would really like to somehow make all this fly so I have that rental income when I'm older. The debt is also because of other things I won't bore you with. like I said I have been paying $1600 more towards the higher interest CC. That is.. $1,600 over and above the minimum payment on the higher rate cards. I would like to keep doing that. I don't like the idea of paying down that HELOC that's only at 4.75? when I have other debt at 20%!!! However... and this is my main point and question... in 2 years from now I go for a loan to pay off that HELOC do I stand a better chance of qualifying with 68k on the HELOC and by then maybe 20 k on the CC or would I be more likely to get a loan if I had been paying off that HELOC so I might have a higher CC balance of say 40k but only 48k on the HELOC? My concern is not just the interest.. I don't want to pay more interest [ by paying that $1,600 xtra to the HELOC instead of the higher rate CC ] but nor do I want to be turned down for a loan in 2 years when that HELOC is due and I don't have the 68 k? May I need to bite the bullet and bust a$$ to pay down that HELOC so I will only need to bore 48k... not 68. Know what I mean. I know I need to sit down with a bank and I plan on that but more information is better than less so here I am. I really appreciate your thoughts.
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Re: Debt risk on HELOC help!

Postby sanilac » 04 Mar 2012 16:05

80k income is both my wife and I and includes the rental income. It ain't easy around these parts.
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Re: Debt risk on HELOC help!

Postby adrian2 » 04 Mar 2012 23:20

sanilac wrote:It ain't easy around these parts.

I'm guessing you're in the USA. Most of the people in this forum are Canadians.
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Re: Debt risk on HELOC help!

Postby newguy » 04 Mar 2012 23:41

I don't know if it's Canada or the USA but don't you have mortgages on the rental properties?

I think it would be better for the borrowing to be tax deductible if it can be arranged. As far as paying down debt I would put all of it towards the CC because it's probably not tax deductible unless you could prove it went to earning rental income. It's also probably 5* the interest rate. The only extra borrowing I would do until then is maybe a loan to pay off the CCs.

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Re: Debt risk on HELOC help!

Postby sanilac » 05 Mar 2012 23:35

Did not know this is mostly a Canadian forum. My wife is Canadian does that count. :lol: anyway thanks guys. Guess it's more of a local banking issue. fyi no I don't have mortgages on the rentals. hence the CC debt. Some is at 20% a lot is at 5%... some is even at 0%. It averages to around 6%.
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Re: Debt risk on HELOC help!

Postby adrian2 » 06 Mar 2012 10:19

sanilac wrote:Did not know this is mostly a Canadian forum. My wife is Canadian does that count. :lol:

You're more than welcome here, just wanted to provide some context re: current status of housing market. Here north of the 49th, there is an annual thread commenting on how overvalued the real estate market is, and somehow it continues to defy gravity. So your predicament may bring some wake-up call for people projecting the past indefinitely into the future (a la Robert Allen's words "conservatively, you can expect real estate prices to increase by 10% a year").
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Re: Debt risk on HELOC help!

Postby flywaysuzy » 06 Mar 2012 11:31

It must be different rules in the states for loc, I've had one (unsecured) for years. Only had to use it for a year 15 years ago when we got it (to drill a well), then it's sat empty for years, until last year when I let my son write a check on it for a few months. Now it's empty again, but afaik, it doesn't ever expire...
None of the cc companies sending you 1% checks for 6 months in the mail? I just received one from Amex yesterday. Between you and your wife, you might float the money back and forth for a while. (I had friends that did that when they started a business!)
With the ultra low interest rates, any relatives/friends willing to loan you enough to retire the cc debt?
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Re: Debt risk on HELOC help!

Postby BRIAN5000 » 06 Mar 2012 11:52

I am a contractor and fixed them up vert very nice granite counters ect.


This looks like a tad overkill for low priced rental homes.
“Sometimes you are going to sell early and wish you would’ve held on, other times you will hold on a
little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns
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