Should I Put Credit Card or Installment Debt into a Mortgage?

“Should I Put Credit Card or Installment Debt into a Mortgage?”


I am asked this question all the time and there is no simple answer. I depends on a numbers of factors. Here are some questions you need to ask yourself:


1)   Are you paying off credit card debt monthly or just the minimum payments?

2)   What is the rate that you are paying for credit card debt?

3)    How long are you planning on owning this home?

4)   How much is my home worth?

5)   Do I have enough equity to incorporate my short term debts?

6)   Is my credit card debt tax deductible?

Karen and Bill where referred by their attorney. There daughter was in foreclosure, they wanted to buy the home and then rent it back to her.

When I ran Karen and Bill’s credit, I immediately saw a number of issues. I could see that they refinanced about three months ago, so I asked them why they didn’t include their credit card debt when they refinanced. Their answer was actually shocking. “We were never asked by the loan officer and we didn’t know we could.”

I explained to them, that because they had $80,000 worth of credit card debt, their debt ratio was too high to be able to qualify for the purchase of their daughter’s home. Karen was almost in tears.

Since they still had a lot of equity in their home I recommended that we refinance again. Doing a refinance again after three months sounds crazy, but not in this case. They would be saving $2,200 per month by paying off the credit card debt. Can you imagine $2,200!

Once that process was completed, we then began the process of negotiating the purchase of the their daughter’s home. I am now in the process of doing a mortgage for the puchase. They now qualify with out any debt ratio issues. In this scenario, paying off the credit card debt allowed them to accomplish their goal to help their daughter.

image: James Baker/

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