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Ask Lane Your Own Question
Category: Finance
Satisfied Customers: 12686
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I have a 30 year fixed mortgage with a 4.625 interest rate.

Customer Question

Hi, I have a 30 year fixed mortgage with a 4.625 interest rate. I have accumulated a substantial amount of credit card debt due to zero child support being sent over the past couple of years. Homes on my street are selling for about $220,000. I'm considering refinancing with a FHA 5/1 ARM with an interest rate of 3.5%. Part of the refinance would be absorbing $24,000 of my credit card debt increasing the new loan to $190,272. My payment now is $1156 and with the refinance and debt included in the new loan, my new monthly would be $1237.20. I'm struggling to pay bills and this seems to be the only way to escape the finance charges. Is this the best decision?
Submitted: 2 years ago.
Category: Finance
Expert:  Lane replied 2 years ago.
Hi,.Yes not know any more than this (all opther things being equal) this makes sense..You're replacing debt that's likely at much higher rates with (1) lower rate that is (2) tax deductible and (3) attached to an appreciating asset, your home..If you've thought through what happens in 5 years and you ability to handle that, This certainly makes sense financially .... (ESPECIALLY as you net worth doesn't change, your just replacing non-deductuble interest with deductible interest) ... AND although I don't have a crystal ball, if our new normal turns out to be a long-term low interest environment as many economists think, this makes even more sense.
Expert:  Lane replied 2 years ago.
Also,.You (from a credit rating perspective) might want to consider NOT Closing the credit card accounts..The two largest factors in your FICO score are (1) payment history and (2) credit utilization..Credit utilization, if you're not familiar, is the metric that looks at credit used in relation to credit avaiable..A credit utilization of less than 20% is VERY strong...SO pay them down to something close to zero, but don't close the accounts. (Takes some discipline) but again, a large piece of the Credit Score pie..
Expert:  Lane replied 2 years ago.
Also (although only 10% of the score) credit MIX is also considered. (having both revolving credit and installment credit).See this: again credit utilization is 30% percent of the score (second only to payment history at 35%).
Expert:  Lane replied 2 years ago.
But again, yes, this move DOES make sense purely financially..I hope this helped.Lane.If this HAS helped, I would appreciate a positive rating (using the stars or smiley faces on your screen)… That’s the ONLY WAY I'll be credited for the work here, Thanks!