Put CC debt into Mortgage?

[hOrnizuka]

Hi,

I just found out that a relative is in a serious cc debt. I believe a balance of 29k in his CIBC Aero Classic Visa. This card has an interest rate of 19.50% annual and 0.05% daily. He is paying close to $460 on interest each month. Should I suggest him to put this 29k into his mortgage/home loan? Any other advice is really appreciated.

[pitz]

Hi,

I just found out that a relative is in a serious cc debt. I believe a balance of 29k in his CIBC Aero Classic Visa. This card has an interest rate of 19.50% annual and 0.05% daily. He is paying close to $460 on interest each month. Should I suggest him to put this 29k into his mortgage/home loan? Any other advice is really appreciated.

Yes. But he he must destroy his credit cards and vow to never use them again. Otherwise he will be back in the same spot a couple of years from now, and probably won't have any home equity to secure better financing with.

[AllWheelDrift]

He definitely should find a better way of financing that debt. Adding it to his mortgage would involve refinancing which could be costly if his mortgage isn't up for renewal. If he has equity in his home, he should open a Home Equity Line of Credit in which case he should be able to get an interest rate of Prime (4.75%). If he doesn't qualify for a Home Equity Line of Credit, he should apply for a regular line of credit with an interest rate in the Prime + 1 to Prime + 5% depending on his credit.

He could also get some temporarly relief by applying for a new credit card and doing a balance transfer to a lower interest rate.

Most importantly though, he needs to make sure he doesn't run up his CC debt again once he's transfered his existing debt.

[budfrogs]

Try having them call CIBC and asking for a lower interest rate!

Many people that move their loans over it feels like they actually did something for their debt and they don't.

Also a lot of people that move CC debt to something else rack up more CC in a few years and end up owing their original debt + the new CC debt.

Get them on a written budget. I would recommend getting spending and working on the debt before moving the debt.

[hOrnizuka]

Thanks for all the advice. Yah, I want him to get off this CC debt immediately. And pay it at a lower interest somewhere else and the first thing that was in my head was throw it into the mortgage. I will get him to consult with other options like line of credit before doing so. I will make sure he stop using that CC and work on paying off his debt.

Adding it to his mortgage would involve refinancing which could be costly if his mortgage isn't up for renewal.

Can someone please explain this part? He can only put this cc debt into mortgage when it's up for renewal? :confused:

[coolspot]

Thanks for all the advice. Yah, I want him to get off this CC debt immediately. And pay it at a lower interest somewhere else and the first thing that was in my head was throw it into the mortgage. I will get him to consult with other options like line of credit before doing so. I will make sure he stop using that CC and work on paying off his debt.

Shouldn't your relative be doing the leg work? Seems like he/she doesn't care about the debt... perhaps neither should you. People have to help themselves, if they're not willing to - things won't change.

[MoreMiles]

You should never convert an unsecured debt into a secured debt... which is what you want to do. If your relative cannot afford to make the monthly payment, defaulting a secured loan means losing that property. Compared to an unsecured credit card loan, you simply need to avoid collection agency call... you still get to keep a roof on the top of your head.

So there are pros and cons... for someone at the verge of bankruptcy, do not make that conversion!

[pitz]

You should never convert an unsecured debt into a secured debt...


Well, in Canada, very little home equity is actually exemptable from bankruptcy. Unlike, say, Florida or California, that have non-recourse purchase money mortgages, where your rule would usually reign supreme.


which is what you want to do. If your relative cannot afford to make the monthly payment, defaulting a secured loan means losing that property. Compared to an unsecured credit card loan, you simply need to avoid collection agency call... you still get to keep a roof on the top of your head.


Bank gets a judgement. Judgement not satisfied, they take measures to seize property. Houses and home equity is not by any means judgement-proof.


So there are pros and cons... for someone at the verge of bankruptcy, do not make that conversion!

Yeah its obviously fact-dependant, but don't fall into the trap of using US-style rules in Canada. They don't work, or they might work, but for different reasons. There is enormous incentive in the US to use home equity as a financial tool because of tax deductibility (if your deductions exceed that of the standard deduction, ie: you itemize on your 1040 return).

[MoreMiles]

Pitz, thanks for the clarification. It will still take longer to go through a court system for unsecured debts. You can then file for all kinds of excuses to delay that... before you know it, 6 months would have passed. Lots of asset shifts can be arranged during that time. With a mortgage, it only takes a couple of missed payment to hear foreclosure notice.

[hOrnizuka]

Thanks for the feedback.

He is not on the verge of bankruptcy. He can still pay the monthly mortgage and the cc bill ($460 interest + some amount). It's just that interest amount is staggering! So the quickest way is to reduce that amount is to either get a LOC or throw it into mortgage. I'm pretty sure a lot of loans have way lower interest rate than his cc. I think I now understand why you shouldn't turn un-secure into secure. If you can't pay the secure, you lose the property.

Thnx!

[brew99]

Thanks for all the advice. Yah, I want him to get off this CC debt immediately. And pay it at a lower interest somewhere else and the first thing that was in my head was throw it into the mortgage. I will get him to consult with other options like line of credit before doing so. I will make sure he stop using that CC and work on paying off his debt.



Can someone please explain this part? He can only put this cc debt into mortgage when it's up for renewal? :confused:

If his mortgage is not up for renewal (i.e. the term still has time on it), then the only way to "jig" the numbers is to refinance. Refinancing can cost him some money, but by dropping the interest rate from the cc of approx. 20% to the rate of a mortgage, say approx. 5.5%, he will save the cost of refinancing in no time.

Going the secured LOC is also another way as mentioned before.