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I've purchased a property in hawaii in 2006 for $300,000. I had taken a 10 year interest only mortgage with a 5.55% rate and 15 year equity loan with an interest rate of 8.5%. I had cleared by credit card debts and was thinking of making extra principal payments on one of the two loans. But which one should I pay off first – the first or the second mortgage?

adonis · Posted: Wed Aug 08, 2007 4:16 am Post subject:

Welcome Mark,

It's better to pay off high interest debts first, so you can go for the second loan first.

miller_st · Joined: 17 Jan 2007 Posts: 918 168.95 Dollars($)

As the second mortgage has a higher rate, it would be much better to pay off that one first. But let me know how many years left on both the mortgages?

Miller

Guest

It's a 10 year interest-only loan and 15 year equity loan.

Niicss · Posted: Thu Aug 09, 2007 1:11 pm Post subject:

kevinm1979 · Joined: 13 Aug 2007 Posts: 2 1.50 Dollars($)

Definitely get rid of the second first.

Caron · Posted: Wed Aug 15, 2007 4:42 am Post subject: RE: which to pay off first?

Hi Mark,

Is there any prepayment penalty that you'll have to pay for making principal payments? Just check it out. Now, it may happen that even if you make extra payments worth $150 a month and yet you need not pay for the penalty. It depends on what is mentioned in the loan contract.

If there's no penalty involved, well, you can go for the high interest debt. The only benefit of prepaying the low interest loan is that, you can save the interest expense on a 30 year amortized loan compared to that of the 15 year equity loan. But this is helpful only if you stay in the house till 15 years are over. That is not an ideal situation though. So, I shall suggest that you pay off the high interest loan first.

Good luck Smile

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