Strength Determination Merciless Forever
Joined:
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PA, USA
Posted: Today 9:57:46 AM EST
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Overheard a convo at work. They refi'd multiple times (7 or 8) dumping their debt into the mortgage - credit cards, vehicles, tuition, pool, etc. Genuinely didn't know this was a thing. Home equity loan, yes, but not this. What is the difference? As soon as I think I know how dumb people can be, the bar gets moved. |
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I've seen people do it because they are overwhelmed with monthly bills. Rolling everything into the mortgage can lower the payment substantially. In some scenarios, it does make sense. The problem is that now you have to finance your debts over 30 years and will pay a lot more interest in the long run. Still probably a better move than cashing in an IRA to pay off a car loan. |
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Originally Posted By apexcrusade: This has been a common strategy for as long as I can remember. Â Debt consolidation. Â It's another tool that can be used to help your financial situation. If you leverage other people's money, leverage it at the lowest cost possible. Yep. It is nothing new, but most people dont change after they consolidate and end up in a worse position. |
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Very popular in 2003-2008. People literally refied multiple times, took cash and didn't pay their mortgages. Obama bailed them out. Side note: this is why it's laughable that people, especially young folks, think real estate is an upward path to wealth. A lot of people walked away from homes that are now worth over a million bucks. Lots of people... RE booms and busts are real but if you're under 40 you can't see it. 
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I have a friend that bought his house when rates were 5% or so or whatever they were 15 years ago. I'd been bugging him to refinance for years, especially when rates were dropping under 3%. He refinanced to a 20 year (he was at 20 years) when rates were about 2.75%, rolled his truck payment and credit card debt into the mortgage and was paying the same as he was before. |
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Originally Posted By ag04blast: Yep. It is nothing new, but most people dont change after they consolidate and end up in a worse position. Originally Posted By ag04blast: Originally Posted By apexcrusade: This has been a common strategy for as long as I can remember. Â Debt consolidation. Â It's another tool that can be used to help your financial situation. If you leverage other people's money, leverage it at the lowest cost possible. Yep. It is nothing new, but most people dont change after they consolidate and end up in a worse position. One of my sisters did just that. She is still paying on a house she and her late husband bought 40 years ago, they refinanced so many times rolling debt into the mortgage that she has been upside down on her house for the last dozen years even with the market being high in that area. |
Life's battles don't always go to the stronger or faster man. In the end, the one who wins is the one who thinks he can! - SCI, NRA
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Team Ranstad
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Interesting fraud I worked on was a lady at a title company that would process these types of refinancing. She would add $500 or so to all the balances the homeowner was rolling into the mortgage, then the homeowner blindly signed off on the total. On the back end, she changed all the homeowner's balances back to what they should have been, then added a line for her personal debt for the difference. |
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Originally Posted By veritas8985: I've seen people do it because they are overwhelmed with monthly bills. Â Rolling everything into the mortgage can lower the payment substantially. Â In some scenarios, it does make sense. The problem is that now you have to finance your debts over 30 years and will pay a lot more interest in the long run. Â Still probably a better move than cashing in an IRA to pay off a car loan. I was really early on a teams meeting and two guys were talking openly. One said that every few years he cashes out his 401k to pay off credit cards and vehicles. 
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One of my friends does this. Basically uses his house and mortgage like a piggy bank. Run up credit cards and all other sorts of consumer debt, then essentially cash-out-refi to pay off all his debts, buy guitars, take trips to disney. Then spend the next year or so running up credit cards while paying on the house. Rinse and repeat. As long as house prices kept going up and interest rates were down, he was "good" with this strategy staying afloat. The strategy of repeatedly doing the process stopped working when house prices hit a wall. And it makes less sense to do it over and over now with interest rates around 6%. However, as a less frequent thing, it can sorta make sense. I wouldn't ever do it. But mathmatically, cash out refi gets you a 6-7% loan, which you could use to pay off a 35% credit card. This is ignoring all the other factors like putting the roof over your head on the chopping block, while never addressing the behavioral aspect that got you into debt in the first place. |
Strength Determination Merciless Forever
Joined:
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| I guess most of my shock is that banks let this fly. I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) But adding complete bullshit to it? I'm surprised the answer isn't "that's what a HELOC is for". |
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Originally Posted By ICON_636: I was really early on a teams meeting and two guys were talking openly. One said that every few years he cashes out his 401k to pay off credit cards and vehicles. Originally Posted By ICON_636: Originally Posted By veritas8985: I've seen people do it because they are overwhelmed with monthly bills. Rolling everything into the mortgage can lower the payment substantially. In some scenarios, it does make sense. The problem is that now you have to finance your debts over 30 years and will pay a lot more interest in the long run. Still probably a better move than cashing in an IRA to pay off a car loan. I was really early on a teams meeting and two guys were talking openly. One said that every few years he cashes out his 401k to pay off credit cards and vehicles. 
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Originally Posted By Into_the_Void: I guess most of my shock is that banks let this fly. Â I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) Â But adding complete bullshit to it? Â I'm surprised the answer isn't "that's what a HELOC is for". Banks like money |
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Originally Posted By Into_the_Void: I guess most of my shock is that banks let this fly. Â I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) Â But adding complete bullshit to it? Â I'm surprised the answer isn't "that's what a HELOC is for". It's a profit center. Creating debt, then selling it. In the secondary market - buying debt, then selling it. I engage in that. |
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I wouldn't do that. I used to work at a bank and I saw people get into trouble do shit like that because they really didn't understand what the were causing in some instances... like negative amortization. Better to take out a debt consolidation loan or most financial companies will let you borrow against your savings (assuming you have some). |
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Originally Posted By Into_the_Void: I guess most of my shock is that banks let this fly. Â I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) Â But adding complete bullshit to it? Â I'm surprised the answer isn't "that's what a HELOC is for". banks / lenders love it because now unsecured debt is secured by a HOUSE with a thirty year term. win for the bank ! i did a HELOC once when i had a property with ton of equity -- to get a new SUV. i knew i was selling the house in a year or two so the debt 'float' didn't bother me much and i got the tax deduction on the interest for like two years... but yeah -- as a means of perpetual lifestyle Upgrayedd -- gonna bite you eventually.
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Originally Posted By Into_the_Void: I guess most of my shock is that banks let this fly. I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) But adding complete bullshit to it? I'm surprised the answer isn't "that's what a HELOC is for". |
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Originally Posted By veritas8985: I've seen people do it because they are overwhelmed with monthly bills. Â Rolling everything into the mortgage can lower the payment substantially. Â In some scenarios, it does make sense. The problem is that now you have to finance your debts over 30 years and will pay a lot more interest in the long run. Â Still probably a better move than cashing in an IRA to pay off a car loan. This. Of all the financial gymnastics that people pull off this one at least made sense at one time. Not sure it does now unless someone is in way over their head. But not long ago, loans were cheap. My mortgage was 3.19% and my student loans were 9.88%. I didn't refi as I paid them off super quickly but I can see the argument in some cases. Of course racking up credit card debt is idiotic but doing this if you are already in that situation is better than bankruptcy or loan consolidation scams. |
Tarded, living a kick ass life!
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Originally Posted By ICON_636: I was really early on a teams meeting and two guys were talking openly. Â One said that every few years he cashes out his 401k to pay off credit cards and vehicles. Originally Posted By ICON_636: Originally Posted By veritas8985: I've seen people do it because they are overwhelmed with monthly bills. Â Rolling everything into the mortgage can lower the payment substantially. Â In some scenarios, it does make sense. The problem is that now you have to finance your debts over 30 years and will pay a lot more interest in the long run. Â Still probably a better move than cashing in an IRA to pay off a car loan. I was really early on a teams meeting and two guys were talking openly. Â One said that every few years he cashes out his 401k to pay off credit cards and vehicles. 
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| My mom is a compulsive shopper and has done this multiple times. It's the reason she'll work until she dies. |
Watching the kids shoot Pieeater's 1919 was great. Nothing warms the heart more than seeing a little kid kneeling in a pile of brass and links.-Pthfndr after the Nov 13th NorCal shoot
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Originally Posted By ICON_636: I was really early on a teams meeting and two guys were talking openly. Â One said that every few years he cashes out his 401k to pay off credit cards and vehicles. Originally Posted By ICON_636: Originally Posted By veritas8985: I've seen people do it because they are overwhelmed with monthly bills. Â Rolling everything into the mortgage can lower the payment substantially. Â In some scenarios, it does make sense. The problem is that now you have to finance your debts over 30 years and will pay a lot more interest in the long run. Â Still probably a better move than cashing in an IRA to pay off a car loan. I was really early on a teams meeting and two guys were talking openly. Â One said that every few years he cashes out his 401k to pay off credit cards and vehicles.  |
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Originally Posted By Into_the_Void: I guess most of my shock is that banks let this fly. I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) But adding complete bullshit to it? I'm surprised the answer isn't "that's what a HELOC is for". I don't know about recent times but banks used to encourage it. |
This is just a test
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Originally Posted By Into_the_Void: I guess most of my shock is that banks let this fly. Â I could see adding debt to the mortgage IF the debt is related to adding equity to the house (pool, roof, solar, HVAC, etc.) Â But adding complete bullshit to it? Â I'm surprised the answer isn't "that's what a HELOC is for". Why would they care if they have sufficient security in the asset that is being used to collateralize the debt? The bank isn't trying to be your parent. All they care about in the big picture is A) If you can make the payment and B) If the collateral is worth more than what they are lending you. |
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Originally Posted By Into_the_Void: Overheard a convo at work. They refi'd multiple times (7 or 8) dumping their debt into the mortgage - credit cards, vehicles, tuition, pool, etc. Genuinely didn't know this was a thing. Home equity loan, yes, but not this. What is the difference? As soon as I think I know how dumb people can be, the bar gets moved. |
Preferred pronoun: MARINE
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Originally Posted By KoolOperator: We're in a real estate bust. I've got a home in an $850 neighborhood that was listed at $750 in June down to $699 now and zero offers. Some areas are still going strong but that will end soon. And then the more desirable areas will go on a rip again. Lather, rinse, repeat. RE runs in long cycles. It's a great game to play if you're young, and have the $ to get in. I was a landlord for 30+ years and would do it again in a heartbeat, only I'd buy more. If I was young, that is. |
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Sure, get the lowest rate on your debt that you can. But the key is to stop racking up more debt. Lot of people don't understand that last little "life hack". |
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