Mortgage Down Payment or Pay Off Credit Cards?!

[JasonEngler]

We are currently in the process of building a home for both our family and our inlaws. As part of this arrangement we are receiving a sizable down payment from the family. Unfortunately, we have some credit card debit that just doesn't seem to want to go away. (We are currently using the snowball method.) Should I put some of the down payment towards credit card debt or just put it on the house to reduce the mortgage payment?

$600 a month saved in CC debt vs $200 reduction in mortgage payment.

Thanks in advance!

Let me know if you need more details to make an accurate suggestion.

[getforfree]

If the cc interest rate is higher than mortgage rate, I would pay off the cc first. And if your mortgage will not have prepayment penalty, you can always pay more on mortgage later.

[mekish]

$600 a month is a lot of money, i'd say pay off the credit cards, once they're gone you'd have more dispensible cash to put towards the mortgage.

The money from your family is specifically to go towards the house, correct? If so, ethically you should put the money toward the house even though financially you would be better paying off credit card debt.

[Beccagold]

Who will "own" the house? Just you or your inlaws, as well? If its just you, I would say pay down the CC. If its both, I agree that ethically it should go towards the house.

[JasonEngler]

Who will "own" the house? Just you or your inlaws, as well? If its just you, I would say pay down the CC. If its both, I agree that ethically it should go towards the house.

Our inlaws came to us with the proposition, so ethically I feel okay resolving this issue (CC debt) before I purchase a home for all of us. The title will be in our name only, not the inlaws, but it will be our ethic responsibility to care for them for the remaining years of thier life.

All good questions, please keep the feedback coming!

[DebbieL]

Wow, your inlaws sound very trusting. I wouldn't touch that arrangement (if I were them) with a ten foot pole. They basically have no recourse if you decide to put them out in a couple years (not saying you would do that). I wouldn't put up a large down payment and not have my name on the title. I also think that if they are entering into this arrangement with you (which I would discourage them from if they were my friends) then you morally should use the money for it's intended purpose. It sounds like you want to use it for the cc though. How about asking them if that is something that they are okay with? If you already know that they wouldn't be okay with that, then you have your answer.

[skydivingchic]

Unfortunately, we have some credit card debit that just doesn't seem to want to go away.

This statement concerns me a bit. You said you are using the snowball method of repayment, but also seem to be saying that you aren't making any progress on the debt. Have you addressed the spending issue(s) that ran up the debt in the first place? Until you do that, paying off the CC in one fell swoop will do you no good - you'll just be back in the same situation in a year or two.

Assuming you have addressed the original problem, I agree with Debbie. Talk to your inlaws about the issue and ask if they would mind you using the money to address your debt first.

[JasonEngler]

This statement concerns me a bit. You said you are using the snowball method of repayment, but also seem to be saying that you aren't making any progress on the debt. Have you addressed the spending issue(s) that ran up the debt in the first place? Until you do that, paying off the CC in one fell swoop will do you no good - you'll just be back in the same situation in a year or two.

Assuming you have addressed the original problem, I agree with Debbie. Talk to your inlaws about the issue and ask if they would mind you using the money to address your debt first.

I am down to my last credit card... but it is a whooper! We've addressed the behavior of overspending and haven't used our credit cards for a long period of time. This is just one of those debts that you don't see alot of progress on. It's currently sitting on a 0% interest rate for another 10 months, so it's not really painful to pay it off slowly, but it is just slow progress.

Thanks for the feedback!

[JasonEngler]

Wow, your inlaws sound very trusting. I wouldn't touch that arrangement (if I were them) with a ten foot pole. They basically have no recourse if you decide to put them out in a couple years (not saying you would do that). I wouldn't put up a large down payment and not have my name on the title. I also think that if they are entering into this arrangement with you (which I would discourage them from if they were my friends) then you morally should use the money for it's intended purpose. It sounds like you want to use it for the cc though. How about asking them if that is something that they are okay with? If you already know that they wouldn't be okay with that, then you have your answer.

We've been taking care of them for the past 5 years, as best we can. This includes paying for incidental, house maintenance, and other items that come up. We've purchased their car and titled it in their name and pay their insurance.

Yes, they are very trusting, but we've always had a good relationship. The house was going to be an inheritance, so rather then waiting until they pass they wanted to know if they could move in. Unfortunatelyk, our current home is not large enough so that is why were are purchasing a new home.

I understand this type of relationship is not the norm, but I am confident we'll be able to work through our challenges and make it work. We lived together in their house 5 years back for 9 months while we were building our current home. The only challenge then was the room issue.... which is what I want to address the second time around!

Thanks for the feedback!

[Cashguy]

If the cc interest rate is higher than mortgage rate, I would pay off the cc first. And if your mortgage will not have prepayment penalty, you can always pay more on mortgage later.

+1. You can also refinace the principle if the rates drop... using the savings to apply even more to the cc. Just be sure to use the savings wisely.

[Homebody]

Are they having their own attached MIL unit or a room in your house? If the house is not actually started, make their own unit. 9 months of living together is far from the rest of your life together.

I personally could not stand living with my MIL for the rest of her life or my own mother for that matter!

[veronak]

I pretty much agree with the others, pay off the cc

[Magicman]

Credit card debt can be hard to understand, but basically the bank is loaning you money that is not secured by any collateral. This is why they have to charge so much in interest and penalties.

I am not familiar with your personal situation, but I would like to throw out another idea for you to consider.

The idea is this; get pre-approved for the largest home loan you can. Use any excess money you can save by doing some of the work on the house yourself (sweat equity) to pay down your credit card accounts.

As you build equity in your new home, take out a home equity line of credit (HELOC) that will carry a much lower rate of interest (because it is secured by the equity you have in your home) and pay off your higher credit card interest account.

You will basically be using low interest money to pay off your high interest debt. I hope this helps.

Don't forget to always shop around for the best rates on any mortgage before signing a contract. There are a lot of lenders in the U.S. who want your business. You are in control.

Good luck.

[JasonEngler]

Credit card debt can be hard to understand, but basically the bank is loaning you money that is not secured by any collateral. This is why they have to charge so much in interest and penalties.

I am not familiar with your personal situation, but I would like to throw out another idea for you to consider.

The idea is this; get pre-approved for the largest home loan you can. Use any excess money you can save by doing some of the work on the house yourself (sweat equity) to pay down your credit card accounts.

As you build equity in your new home, take out a home equity line of credit (HELOC) that will carry a much lower rate of interest (because it is secured by the equity you have in your home) and pay off your higher credit card interest account.

You will basically be using low interest money to pay off your high interest debt. I hope this helps.

Don't forget to always shop around for the best rates on any mortgage before signing a contract. There are a lot of lenders in the U.S. who want your business. You are in control.

Good luck.

Thank you for this feedback!

The interest rate we are looking at is approximately 5.65%, fixed. No ARMs, 80/20 loans, or any other creative financing options. The only changes to our payment will be when taxes go up or down (yeah right!). I don't plan on using an Escrow account, as I think we can manage the money better and pay the taxes on time each quarter.

We'll have enough equity in the home at time of purchase to do a home equity loan/line of credit, but wasn't sure if it made sense tying unsecured credit to secured credit (our new house).

Thanks!