Posted: Sun Dec 10, 2006 9:35 pm Post subject: pros and cons of paying off second loan on rental home
I have a home in Connecticut with a first and second mortgage. It was my primary residence. Recently I have had to go out of state due to my job. My primary loan is at 7% with a balance of $2,00,000. I want to continue paying for it. The second loan is a 30 year loan due in 12 years at an interest rate of 8.5%. The balance is $25,000 and it will become due by 2018. I have given my home for rent and each month getting $1325 as rent. This for me is a loss as I am unable to pay off the monthly payment entirely from the rental payments. Should I pay off the second loan first as that may save me some amount.
I currently rent in California where I pay a rental sum of $1460 and want to buy a home here in future. It will take some time for me; Other than the two loans, I don't have any write-off for taxes. Should I take a loan equal to the total balance of the two mortgages or should I pay off the second. Will that help me tax-wise? _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant
If you ask me frankly Nathan, paying off the second loan seems the right thing to do. You won't be paying interest at 8.5% for the rest of the term. And, that's your savings.
Posted: Sun Dec 10, 2006 11:40 pm Post subject: RE: refinance vs second loan pay-off
Hi Nathan,
You can refinance the first loan with a higher loan amount including both the loan balances. But it should be worth the cost of refinance, you should be able to get a favorable rate of interest and you should be able to make up for the costs of the new loan within a short time. You can find this out by dividing the monthly savings (due to a lower rate on refinance) by the total cost of refinancing.
Hope you will get some help from this information.
Posted: Mon Dec 11, 2006 12:16 am Post subject: RE: how to reduce taxes on rental home
Hi Samantha,
Refinancing is a good option. But then, whether one pays off the second loan or goes for a refinance, he can never get a dollar-for-dollar write-off on taxes. For instance, if someone is in the 20% tax bracket and he pays $12,000 in total interest, his tax savings will be limited to 20% of $12,000 = $2400 and not the total interest. Hence, the higher the tax bracket, the higher is your deduction.
Samantha
