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My home equity line of credit (HELOC) amount owed has now grown to where it is approximately double the amount remaining on my mortgage and the interest payments are killing me. I have no other debt. The total amount owed, remaining mortgage plus HELOC, is far less (probably about 50%) than what the house is worth.

Using any basic mortgage calculator, if I add the amounts together as the new 'mortgage', the monthly payments are only slightly more than what I am currently paying for my mortgage alone.

Our family income is quite substantial, and I am not worried about losing the house. However, it seems that I'm spinning my wheels by paying off the mortgage, and (barely) chipping away at the HELOC.

What would be the best way to consolidate these two debts?

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    "What would be the best way to consolidate those two?" Without more details, probably nobody can give useful answers beyond general guidelines. I think this question could be more specific to be really useful to the questioner or others.
    – NoDataDumpNoContribution
    Oct 11, 2018 at 11:32
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    I would strongly, strongly, STRONGLY recommend IMMEDIATELY opening Google Sheets and starting a budget spreadsheet. Just start simple. Write down your income, then write down each of your weekly, fortnightly, monthly and yearly (etc.) planned expenses, especially if they're automatic payments. Put everything in: fuel, tyres, all mortgage and credit repayments, interest charges, internet costs, netflix subscriptions, etc., etc. Use a formula to see what your weekly expenses are. Subtract that from your income, and now you have a rough budget for each week. Personally I would recommend...
    – Clonkex
    Oct 12, 2018 at 3:04
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    ...accounting for every cent, but it will take some time and effort to get to that stage. Simply remembering all the things you currently pay for will take time, and until you're certain you haven't forgotten anything you can't assume your weekly budget is accurate. TL;DR, detailed budgeting can drastically improve your life with debt. It relieves tonnes of stress and worry, and makes it much easier to know if you're winning or losing, how much you can spend and how long it will take to get everything paid off.
    – Clonkex
    Oct 12, 2018 at 3:06
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    When you are in a hole, stop digging!
    – Jeremy
    Oct 12, 2018 at 8:49
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    @glglgl That was probably the suggestion based on ease of access to anyone - obviously any spreadsheet type program would work for this.
    – GrumpyCrouton
    Oct 12, 2018 at 13:22

4 Answers 4

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The first step is to stop adding to the problem. Get on a written budget, cut expenses to the bone, have a modest emergency fund (1-2 thousand) just to help you get through true emergencies without borrowing money, and get as much of it paid off as you can.

You might be able to consolidate the debt into, say, a new mortgage, but you need to be careful to look at what that costs you. Closing costs can add half of a percentage point to the overall cost of the loan, so if you can get a plan to pay off the other debt in 3-5 years (a typical break-even point of a refinance), consolidating may not be worth the cost unless your current debt is at a significantly higher interest rate, and you can reduce the interest you pay. The danger is that consolidating often extends the term of the loan, reducing the immediate pain but extending it out for a much longer period. It can also make you feel like you've accomplished something, and enables you to KEEP spending, potentially leaving you with MORE debt than you started with.

Another problem with consolidating (as suggested in the comments) is that if the line of credit is unsecured (not a HELOC or backed by other collateral), you would be moving unsecured debt to a mortgage, so if you default on the consolidated loan, you'll lose MORE than you would if you default on the unsecured debt (since the bank can take the balance out of a home foreclosure).

So until you fix the problem, consolidating may actually make your problem worse.

One thing that helped me when I was in debt is when I think about buying something, I think that every dollar I spend at this point is borrowed money. Think about how long it will take you to pay off the debts, and how much interest the purchase will cost you. It might make that vacation or new HDTV look less appealing.

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    I think that every dollar I spend at this point is borrowed money. It also helps to think of it in terms of "If I spend money on this now, this thing will end up costing me 2x or 3x as much." $15 for takeout is a lot less appealing when you realize it's really costing you $45.
    – Mar
    Oct 10, 2018 at 22:19
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    I don't like this answer because it advocates rolling unsecured debt into a secured one. This is a typical suggestion made by collection agencies which do not have your best interest in mind.
    – MonkeyZeus
    Oct 11, 2018 at 14:09
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    @MonkeyZeus Fair enough, I did not consider that aspect. However, in my defense, it is not clear that the line of credit is unsecured (could be a HELOC). I certainly have the OP's interest in mind by suggesting that he/she not go FURTHER into debt and giving the OTHER downsides of consolidating. Consolidation would just be a way to reduce interest, and should only be done if that savings is significant (and the "bleeding" has stopped). But to be fair I'll include that in my answer.
    – D Stanley
    Oct 11, 2018 at 14:18
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    I'm less concerned about the downvote than the smear on my character by comparing me to a collections agent ;). In all seriousness, that is an important distinction, so thanks for the comment.
    – D Stanley
    Oct 11, 2018 at 16:00
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    @DStanley op edited and it IS heloc
    – user73687
    Oct 11, 2018 at 23:23
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Loans have a tendency to do that, kill you with the interest. Heck even if a person can afford the payments that is what is happening although it is well hidden. I mean after all, all the financial media, all television recommends a high credit score so you can borrow and buy from them today. Okay off soap box.

If your house is worth more than the two combined loans, you are probably best off getting a new mortgage and putting both loans under one payment. It may be inefficient interest wise, and it will be very inefficient if PMI is required, but at least the balances will not be growing.

Or, you can drastically cut your life style, get on a written budget, work more (second job or overtime) and pay down this loan so it is out of your life. This may be the only choice if the combined loans are greater than the worth of the house. BTW, this is what I would recommend.

Interest payments hinder a person's ability to build wealth. With the kind of loan you are talking about, it can destroy many years of hard work. It needs to go away. Treat this as an emergency. However, you can do this.

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    "you are probably best off getting a new mortgage" - the OP almost certainly has an underlying problem that they are spending more than they are earning. Until that is addressed, getting a new mortgage just means that they increase the likelihood of losing their house eventually.
    – Martin Bonner supports Monica
    Oct 11, 2018 at 8:54
  • @MartinBonner of course they are spending more than they are earning. Quite a lot of that excess spending, according to the original question, is credit interest. Refinancing that debt does address the spending problem, whether or not there are other undisclosed ways to further address it. Doing one doesn't in any way negate the benefit of doing the other.
    – Will
    Oct 11, 2018 at 16:31
  • @Will. You misunderstand my point. If their other expenditure remains at the same level, then cutting the interest payments will be very useful. However if they have a tendency to spend 105% of their income, then their other expenditure will rise and they will be in the same position (except their house will be more at risk). Refinancing is only worthwhile if they tackle the underlying problem.
    – Martin Bonner supports Monica
    Oct 11, 2018 at 19:32
  • @MartinBonner if refinancing is a cost-effective option, it is an essential part of tackling the underlying problem. You can't credibly claim to have given fresh priority to budget sustainability while passing up on a significant reduction in outgoings if one is available. Realising that other steps are necessary to solve the underlying problem doesn't at all diminish the value in addressing this particular part of it.
    – Will
    Oct 12, 2018 at 12:08
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My HELOC has now grown to approximately double my mortgage

So, how did it get there?
If it was a one-time thing like you had major medical bills from an emergency, did a major renovation on the house, or maybe had to pay to ransom a loved one... go ahead and refinance this week. (Assuming you don't foresee it will happen again)
If you aren't sure how you got to this point, and you don't change something, refinancing is a poor choice because you'll be worse off in two years (worse off because you are out-spending that "substantial" income).

Now, to answer the question you asked:

You asked: What would be the best way to consolidate these two debts?
But, I think the question you want answered is: "How do I minimize the interest I'm paying?"

Consolidation may not be the best move, because interest rates have gone up. If you've had your original loan a while (and I hope so) it may be lower than the current rates.
A quick trip to BankRate shows current refinance rates are about 4.6% for both 20 and 30 year fixed rate mortgages (assuming a 715 credit score and 50% equity).

Home equity loan rates are about 9.5% - and I'd advise a loan not a line of credit (LOC) because you've already rung up double your balance with a LOC - since you have a good income, have the discipline to just live off it.

If you do refinance be sure that you continue to pay what you're currently paying with the higher interest rate instead of the minimum payments - you'll pay it off much faster.

You didn't give us any actual amounts nor did you provide either of the interest rates, so that's as far as I can go with it.

WARNING:
A reason that your payments would be only slightly higher with both amounts as your current payment is that the life of the loan is longer.
Use the same mortgage calc to add up the total interest paid if you continue your current loan vs. the total interest paid plus refinance charges ($500 for appraisal + lender fees + etc.) to get the new loan.
Compare those amounts and I expect you'll see something different than what the monthly payment amount is telling you.

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  • It does seem like OP must be misunderstanding something about the calculators s/he is using, or using incorrect assumptions.
    – stannius
    Oct 12, 2018 at 19:53
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Your Debt is not something you “work on” - It is a HUGE, FLAMING EMERGENCY!!!

The core of the problem is that you are spending more than is sustainable. While re-mortgaging might seem to help, unless you drastically change your lifestyle, it will only make things worse in the long run. Getting a second job can help, but only if you also change your lifestyle. Otherwise with more income. you'll just spend more and will be in an even worse situation.

You need to get out of consumerist mentality and decrease your spending a lot. Here are some of the things you need to do:

  • Make a detailed list of all your expenses. Collect all receipts for cash purchases and make a budget. Until you do, you'll have no idea where you really stand.
  • Stop eating out and having fast food
  • No Starbucks or evening pub visits
  • Cancel your cable TV
  • Sell your car and use public transport. Even better, use a bicycle. You car costs you far more than you think. This is the biggest thing you can do to get out of debt. If you make money by driving your car, sell your fuel-guzzler and get a cheaper used car that has low fuel usage and low registration expenses.
  • Forget about vacations until all debt is completely solved and you have money put aside for it
  • Drastically reduce you cell phone plans
  • No purchase of non essential items
  • Make a shopping list of food that provides proper nutrition. If possible, go to shops only on dedicated days.
  • Pay credit card bills as soon as you receive your paycheck. Don't use them unless you have unexpected needs that must cannot be ignored (health, home and car repairs, etc.)
  • Make sure to put extra money in your savings account

There may be other things as well that you can make more efficient and get you living on a level that you can actually afford.

Here is example how you should address it.

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    Right, 2 × minimum wage + rental income is a lot more comfortable than supporting a family on a single minimum wage with no other sources of income.
    – gerrit
    Oct 11, 2018 at 13:03
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    @chepner in addition to some pople not even considering credit cards as debt, "have no other debt" was not in original post, but appeared in later edit. I agree that it is possible that OP for example does not have cable TV so suggestion to cancel it won't help him, but without more information I was intentionally more verbose - especially as other answers at the time were vague and not giving specific tasks that may help in reducing expenses. Also, as other people with similar (but not exacly same) problem may come to this question in the future, it is IMHO good to cover more possibilities
    – Matija Nalis
    Oct 11, 2018 at 15:38
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    @Mołot Of couse, I agree here. If OP's only pair of shoes fall apart I'm not suggesting he should continue going to work barefooted. Though, I think most people rich enough to get mortgage usually have more than one pair of shoes and clothing, which should last them quite a while. And if it does fall apart (or becomes not presentable for his line of work), OP most probably should buy in second hand shop, and not getting something trendy (and thus way overpriced). But no buying movies, music, games, gadgets, new phone etc. (unless required to make money at his job)...
    – Matija Nalis
    Oct 11, 2018 at 15:53
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    This makes a huge raft of unwarranted assumptions both about the OP's current lifestyle and their lifestyle preferences as they relate to future choices. If their debt is growing then it is not sustainable. If reducing the cost of current debt (i.e. directly answer the question) reverses that rate of growth then it becomes sustainable. Whether that comes with a lifestyle that suits your own tastes or not, the OP can continue living that indefinitely, and there is no emergency. Everything else is subjective judgement that nobody asked for.
    – Will
    Oct 11, 2018 at 16:24
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    @Will I don't see how my tastes get into the play at all? Whatever OP wants to do with his life is totally fine with me. I did assume he wanted to avoid foreclosure, getting thrown on the street and becoming buried in debt. Since it looks to me that it is highly likely the root cause is (rather common) unsustainable spending habits, I suggested several ways to reduce that and thus get him out of crisis and keep him out of it in the future (as I mentioned, just rebalancing the debt would likely result in debt recidivism and thus I would not recommend it on its own)
    – Matija Nalis
    Oct 11, 2018 at 17:52

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