Refinance or Pay Down Debt?

[cvb921]

If one had the opportunity to pay off all debt, credit cards, etc. except for the mortgage or refinance existing arm (resets in 2+ years) and use that amount as a down for the new mortgage what would be a good course of action? Thanks.

[disneysteve]

I'm confused by the question. What does refinancing have to do with your ability to repay other debts? Why can you only do one of these things? If you have enough saved to pay off your credit cards, wouldn't you still have that money available after you refinance, or is refinancing going to raise your payment and reduce your free cash flow?

[cvb921]

Sorry for the confusion. I will be receiving a fair amount of cash as a gift/inheritance. Should I pay off all non-mortgage higher interest debt (loan, cc, etc.) or use the cash to put down on a refinance (current ARM 6.25% resets in 2 + years) lowering the amount owed on the house?

[Seeker]

If one had the opportunity to pay off all debt, credit cards, etc. except for the mortgage or refinance existing arm (resets in 2+ years) and use that amount as a down for the new mortgage what would be a good course of action? Thanks.

To me it would depend on a whole bunch of factors....

1) Interest rates on debts? versus interest rate on mortgage and other costs of refinancing the mortgage?

2) How likely are you to rack up more credit debt should you "pay off all debt"?

3) Job/Career situation? Can you meet your budget at it stands now if you choose either course of action?

I'd personally pay off debts first rather than the mortgage, because credit card interest rates are usually higher than mortgage interest rates.

The other thing to consider is that if you do pay off your credit cards with your windfall, you'll be able to hopefully apply all those "saved" dollars (not going to CC bills every month) to paying extra toward your mortgage.

But all of the above assumes that you have:
1) an EF in place
2) your job is relatively secure
3) that you stop putting more than you can pay-in-full each month back onto those CCs.

[disneysteve]

Sorry for the confusion. I will be receiving a fair amount of cash as a gift/inheritance. Should I pay off all non-mortgage higher interest debt (loan, cc, etc.) or use the cash to put down on a refinance (current ARM 6.25% resets in 2 + years) lowering the amount owed on the house?

I think all of Seeker's questions and points are good ones. Without all that detail, I'd lean toward paying off the consumer debt. You can still refi and get into a fixed rate loan, probably around 5% or less and lower your monthly payment. So it would be a win-win. You'd be debt free except for your home and you've be paying less on the mortgage.

[familyof4]

Am I assuming here or do you need the cash in order to refinance? Most times if you have the equity, you can roll any closing costs into the mortgage. Do you need to refi a lower amt to be under loan-to-value?.. I think there are things we do not know here.

If it were a straight forward refi and you could do it with the home's equity. I would pay off all non-secure debt.

[Shane Watson]

Take a professional call on the matter. There are many refinancing organization that are helping with that matter. I did not have the choice of selecting from two options like you do. So, it is an advantage for you.

[Runaway Finances]

From my experience, when someone has credit card debts and then they either have a windfall of cash or they get a consolidation loan to pay off the debts....within 12 months they have credit card balances at least as much as they were prior to paying them off. I've never quite figured out why that is, but I've seen it time after time.

Unless you have changed your behavior regarding spending, I would strongly recommend two things: 1) Build up an emergency fund with the gift that you DO NOT touch for anything but major repairs to your house, medical emergencies and the like, and 2) pay down the mortgage so when it resets (or if you refi now) you have a good loan to value ratio.

Then, develop a systemmatic plan to pay down your debt. I've learned that everyone that has balances on credit cards has a certain tolerance level of debt. Once the debt gets to that level, they won't spend any more. That level can be the limit on the cards and for others it is a certain dollar amount. Once it gets to that level, they do something to pay it down. But, like I said, within 12 months it is back to where it is. So, I've learned to leave the balances high until they change their behavior and systemmatically work it down. Once they have changed their behavior in spending and pay down the debt, they rarely will grow the balances ever again.

[EconoMutt]

Hi.
Anyone know which bank is offering good rates for refinancing of car?

You may want to check out Pentagon Federal Credit Union.
Penfed.org

[lucmas]

I will be receiving a fair amount of cash as a gift/inheritance. Should I pay off all non-mortgage higher interest debt (loan, cc, etc.) or use the cash to put down on a refinance (current ARM 6.25% resets in 2 + years) lowering the amount owed on the house?