Should I refinance after losing my job?
I was recruited from my job of 3 years by a higher paying job. They changed their minds about the qualifications of the position days into my employment and let me go. Now I have no steady income, a mortgage ($107K), $14,000 in credit card debt, and other bills. I received an offer to refinance my home, credit card debt, and an additional $10,000 cash for a monthly fixed rate charge of $596/month (escrow not included). Currently I pay $1,070 for just my credit card and mortgage. On the surface it seems like an excellent opportunity. I still have 2 paychecks due to me as well as a payout of my student loans and grants- which together should add up to around $6,500. As I'm vigorously searching for employment, I fear losing the ability to take care of my wife (also unemployed) and kids.
My concern is the impact it could have on my credit. I am currently between 710-725 and understand that this could cause a small dip in my score. I do not plan on moving or making any other large purchases in the next 3 years. I would like my score to stay above 700 because I have worked hard with low income to maintain a respectable credit score.
Is this a good decision? Would I face any negative affects from this? Would you consider the pros in my situation to outweigh the cons? Are there any surprises that refinance companies may throw at me after I agree to the terms as I understand them?
Based on the facts you laid out, the answer to your question lies in cash flow. I’m not sure there is any right or wrong in the decision you’re about to make but it seems to me the refinancing offers an opportunity to consolidate your debts into one payment which, under most circumstances, is much preferable to multiple payments. You're caught in an awkward situation and although you’re seeking employment, there are simply no guarantees. Put together a cash flow analysis of all your expenses and your anticipated sources of income. I think the refinancing becomes obvious as long as you can do it with minimal fees. The lender will be required to provide you with a HUD statement in the should lay out all of the fees and hopefully with no surprises. I hope this helps a little and good luck.
Very sorry to hear you lost your job that way and I hope you get back on your feet quickly! So a couple things stand out - if your current payments are $1,070 just for the CC and mtg, but refinancing with consolidating your debt and doing a cash out would drop your payments to 596 then either your current debt is at astronomically high interest rates or you are adding a ton of years to the loan that you are taking out.
If your CC debt is indeed at very high rates, then refinancing with the consolidation is one option. I would caution you, however, that rolling $14K of CC debt into a new 30 year loan means you are essentially taking 30 years to pay off that nut (aka interest for 30 years on it). I would suggest that you put additional payments toward the loan to get it knocked off sooner once you are stable.
Generally I would say compare the interest rates and years of repayment to see if there are really worthwhile savings or are you just extending the notes very far out. I would also say that though this sounds feasible, you will likely not qualify for the refinance once the underwriting bank learns you do not currently have a job. You may need to wait to do all this until you are back to full time employment.
One other option you may have would be to take out a new credit card and do a balance transfer if you can find one that will offer 0% for life or 15 months to help lower some of those interest charges and ultimately payments.