Tell us what to do :(

[Spyatu]

Hello, Not in my wildest dreams I could think that I will be ending like this, but here we are,

I like to know of what suggestions or alternatives you guys see with my scenario,

is what it is, here is my scenario.

Purchased house on Jan 2005, pay $585k for it- We think the house right now could appraised at $446k due to the market, information provided by the xxxx county property appraiser office

We have two loans

Primary loan- XXX Mortgage- $409,500K Interest rate of 6.875 % ( Interest Only loan ) Monthly payment $ 2,346.09

Second one - XXX Fargo, Line of credit- $220,500K Interest rate of 5.38% adjustable ( Interest Only Loan) Monthly payment $ 1,300.00

Yearly Taxes $10k
Insurance 3k Homeowners
Flood Insurance $475.00

One car payment of 23k car is worth 12k

Credit Cards Dept 75k ( mostly due to investing in our business )

Excellent Credit
Yearly Salary 100k+
401k - 207k, was is now 190k

I been looking at companys that offer 'Mortgage Modifications" the deal cost
3k but it just seems to go to be true ?

The last thing I want to do is to close my business as it doesn't required much to operate.

Please share your thoughts, ideas or comments we need your help

[AngelinaCat]

Hello Spyatu, welcome to the forum. First, it will help to know what state you are in, then we, the various froum members, can reply more specifically to your situation.

Next, whatever you do, do NOT EVER touch your 401k to try to pay off any of your debt. Your 401k is exempt in any state and is part of your retirement plan. Forget the fact that you even have one. Also, from what I read here on this board, payment plans from your employer and/or you are exempt from seizure.

Next, many credit consolidation plans including the 'mortgage modifications' companies are scams. They suck you in, take your money for them to fix your debt, and you STILL end up stuck for your debt. I suggest going to the consumer advocate, Clark Howard, and perusing his site and listening to his radio show. Clark's site: clarkhoward.com.

Good luck to you.

[AngelinaCatHub]

[Spyatu]

Thank you ! I live in Florida, Married with two children, I was referring 11% of my salary to the 401k but I just changed to 4% until the market gets better, our main problem is that the schools are excellent for our children so moving is somewhat out of the question, I think

[fltoo]

If you are paying interest only, soon the bank is going to make you start paying principal since the mortgage exceeds the value of the house.

These companies that quote low closing costs "roll" the costs into the mortgage. More predatory lending since you are now paying interest on your closing costs amortized however many years you keep the loan.

I had guessed you were in FL due to the high homeowner's and flood insurance. Isn't it awful???

The tax stamps alone for FL are over 3000. , and they can not be negotiated.

Go to zillow.com and find out your market value. The county appraisal is not market value.

[Spyatu]

wow, so it looks like is even worst of what we think ?

[Flamingo]

If you are paying interest only, soon the bank is going to make you start paying principal since the mortgage exceeds the value of the house.

These companies that quote low closing costs "roll" the costs into the mortgage. More predatory lending since you are now paying interest on your closing costs amortized however many years you keep the loan.

I had guessed you were in FL due to the high homeowner's and flood insurance. Isn't it awful???

The tax stamps alone for FL are over 3000. , and they can not be negotiated.

Go to zillow.com and find out your market value. The county appraisal is not market value.

I agree with Fltoo - your two interest only mortgage payments made me cringe. When does that stop? Both your payments are going to rise dramatically at that time. Everyone's 401(k) is down so don't worry about your 401(k) - just don't take anything out of it (think long term and forget you have one). I would not stop contributing cause you are buying shares low - contribute just enough now to get your employer match.

[Spyatu]

Thanks for the support !

When does that stop? 10 years

[JRScott]

What is your Gross Monthly Income?

What is your car payment monthly?

I have to concur probably with the above, the house is probably beyond your means, but can't be sure without the GMI. If the mortgage is more than 25% of your GMI then it probably is not sustainable into the future especially with FL's taxes and insurance cost.

Also are these fixed rate mortgages set to interest only or as I fear adjustable rate mortgages?

[Never_Again]

Those interest only loans ARE scary! The 25% rule is good, but I would figure what it would take to amortize those loans, ideally in 15 years, but 30 would be better than what you have. To amortize those loans would cost the following:

To pay off the first mortgage in 15 years would cost $3652.14 per month!! To pay it off in 30 years is "only" $2690.12.

The second to be paid off in 15 years would be $1787.66, and 30 would be $1235.42. Something is off on the math on the LOC. I calculated it at the maximum you listed, and my payment on 30 years came up less than your interest only. But the principal is correct. If you are going to calculate affordability, it MUST be with a loan that actually pays off. By my calculation, you could get a 30 year mortgage on the total for $3777 per month (6% fixed), but the issue is going to be the value.

I also figure since you have excellent credit, as you state, that you are NOT late on anything.

You have, in round numbers, $100K in consumer credit. I am sure that some of that is at better rates than what I am figuring, but at an average interest of 12%, you can pay them off in 3 years paying $3300 per month!

So, I am figuring payments of $5409 per month on your house to pay it off in 15 years, and $3300 per month on your consumer debt to pay it off in 3 years. This is $104,508 per year to put yourself on good financial track within a very short time!

Add in taxes and insurance, and you are at $117,983 per year.

Now, this sounds like a lot of money, and it is, but you list income of $100K plus. The question is, how much plus are you? If you have over $150,000 after taxes, this is doable.

Can you sell something (I am sure that the answer is yes!)

A bankruptcy will probably result in the loss of your business, if it has any assets at all. If it is primarily a service business, you will probably be OK.

The loss in value of the house could be a temporary loss, and may (read probably will) rebound in time. Yes, it could be 10 years, but you mentioned that moving was really not an option. If moving is not an option, then you need to work with it. If you put yourself on a 15 year payment plan, then in 10 years you will walk out with serious equity.

Now, if moving IS an option, things change considerably.

We are missing a big piece of the puzzle... your total income. That will determine where we are going here. You may not be bankrupt, but it will depend on that number. I have a strong suspicion that you will not be eligible for a chapter 7, based on income (although if you keep your house and car, you might be, but that defeats the purpose.) A chapter 13 will require a re-payment plan, that may leave you strapped as well.

If you are bankrupt, then you need to make changes in your lifestyle now. Stop using the credit cards (a good idea no matter what you decide!). Make plans to buy a cheaper car (under exemption) for cash, and be prepared to walk away from the vehicle that is worth less than half of what you owe on it.

I think that you might benefit from a trip to a lawyer as well as a financial counselor (you would have to visit one before a bankruptcy anyway.) Post your actual income, and we may be able to help more.

[Spyatu]

Thank you so much for all the help !

What is your Gross Monthly Income?

Year to date earnings is $ 103,912.86 and I suspect we will end on the 125k range

Credit cards we bounce them around over and over to have 0%

What is your car payment monthly?

735.00 24 more payments to go, and by the way nothing fancy is just a ford excursion 03

A bankruptcy will probably result in the loss of your business, if it has any assets at all. If it is primarily a service business, you will probably be OK.

zero assets right now

Also are these fixed rate mortgages set to interest only or as I fear adjustable rate mortgages?

yes after 10 years

I know everyone is against touching the 401k, we are too, but if I sell the truck, pay off the credit card, that will free up around $2200 a month which will allow me to keep this house for the sake of the kids ? last time I call them is my understanding that you have to be behind on your payments before they allow you to used some of your money ? we have NEVER been behind in any payments but I sense that the train is coming to a stop very soon

[ansky0007]

Not the best advice but I have seen it work for some friends of mine... They fell months behind on their mortage and ended up getting mortgage forgiveness cutting their amounts owed back to the current value of the property and they forgave them almost $300k on their mortgage and gave them a new loan with a lower rate for them not to go foreclosure.

[Never_Again]

One thing about personal finances... it is personal! You ultimately have to do what is right for you.

You are definitely not in good shape financially, but I don't think that you are bankrupt yet. That large income keeps probably makes filing a Chapter 7 not workable, although it would depend on your schedule J expenses.

But either way, to file for bankruptcy without a plan as to what to do after will not work either.

You say that your credit cards are primarily from investing in your business? But yet, you have zero business assets? Did the credit cards come from paying business expenses? If so, why did you need to use credit to pay business expenses? Did the line of credit on the house operate the business as well?

If these are the cases, and you have a business with zero assets, you need to carefully evaluate the operation of your business. If you are having to invest this much money in debt, do you have a viable business model?

Either way, you need to commit to not using the credit cards again!

You said that paying off your credit cards and vehicle would make it workable for you? Have you done a written budget yet? Make sure that you include in that amortizing loan payments, that is, loans that would pay off over time, on your mortgages. Do you have a plan to operate your business on a cash basis? If you took the money from your 401K, Can you pay all of your other bills, invest in retirement (at a higher rate to cover the withdrawn money), pay cash for vehicles, maintain short term savings, and live on the income that you have, without digging yourself further in?

If you can do this, and have that plan, and that commitment to not go into debt ever again, then go ahead and take the money.

I suspect that you are not at that stage, so to take the 401K money would be a waste to you. What I suspect is that if you have not made plans as I mentioned above as to how to live, you will be right back where you are now inside of two years. Now, facing bankruptcy, and you will have liquidated your 401K.

Can you take a second job? Can you sell something other than the 401K? Can you increase your business income?

I do not say these things to be hurtful, and I certainly am not preaching to you out of self righteousness... I am speaking from experience. If I had implemented some of the practices that I have after filing five years ago, I would never have gone down this road.

The time is now to make the decisions that you need to make to govern the rest of your life. There are people on here every day that will have the opportunity to make a fresh start after bankruptcy, and in a few years will be right back where they are now, only now they can't file for another three, five, seven, or whatever years. Others have learned, and will not repeat this situation ever again. I hope that I am in the latter.

[Spyatu]

Not the best advice but I have seen it work for some friends of mine... They fell months behind on their mortage and ended up getting mortgage forgiveness cutting their amounts owed back to the current value of the property and they forgave them almost $300k on their mortgage and gave them a new loan with a lower rate for them not to go foreclosure.

Now that is something I have also heard "forgiveness cutting their amounts owed back to the current value of the property" who can help me with this I'm sure a lawyer but what type, this could be my exact solution?

[Never_Again]

Don't forget that you will get another "gift" with the debt forgiveness... a 1099 for the forgiven amount calling it income!

You still gain money here, but just be prepared for the taxes!

I would think that any mortgage company doing this would want to be assured that if the house increases in value, and you sell, that they can recover the amount that they "forgave?"