By JLP | February 24, 2007
I was sitting here watching college basketball when a commercial for Countrywide Home Loan came. They were advertsing a “Combo Loan.” From their website:
Get ready for fantastic savings with a Combo Loan from Countrywide.
Want to get cash and simplify your bills? Refinance with a Combo Loan from Countrywide. Consolidate your first mortgage, your second mortgage, your car loan and all your credit cards into one easy loan with one low monthly payment. Less than perfect credit okay.
Three things stand out to me:
1. What’s the definition of “savings?”
I think too many companies try to equate lower monthly payments with “savings” and ignore the long-term costs. These loans aren’t cheap once you factor in the closing costs that are involved anytime you refinance.
2. Do you really want to finance your car (or your credit card debt) for 30 years?
I realize you can refinance for a shorter term. However, a lot of people won’t. Rather, they will look at the monthly payment and make their decision based on how it will impact their cash flow. That can be a big mistake.
3. If you have less than perfect credit, you probably won’t get a very good interest rate.
Loan companies don’t give away money. If your credit isn’t that great, you’ll be penalized with a higher rate. The higher your rate, the less advantageous it is to refinance.
One advantage to going this route would be the tax-deductibility of mortgage interest (credit cards and auto loans are not tax deductible), which will lower the cost of the loan. However, I don’t think it is enough to offset the long-term costs of carrying short-term debt over the long-term.