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Company Loan Type APR Est. Pmt.

To pay off 2nd home loan and Refi 1st mortage or save cash

Posted on: 19th Jun, 2010 12:56 am
my wife and i purchased our first home (a townhome) 4-5 years ago at the housing peak. (lucky us). since we were just out of college with limited cash on hand, we ended up with a primary 80% mortgage and secondary 20% mortgage.

our current home value and mortgage owed are roughly equal at this time. our primary mortgage is at 6.35% (209k) and secondary 7.25%(45k). we plan on living in this home for another 5-6 years.

we have the opportunity at to pay off the secondary mortgage in full and refinance our first loan. however, having been burned buying our 1st house and watching it drop in value are hesitant to sink more money into it.

does it make sense to do this and continue to pay extra in the continuing years off our mortgage and when we sell our house to use the money from that for our 20%+ on our next home

or.... just accumulate cash to use as a 20% downpayment on our next home, thinking that we may have negotiation room with home seller agent and loan company if sell our home for less than or around the actual cost of our current loan?
To be honest, I would not pay off the second and would keep the cash. Markets are still declining and by paying the second, you turn what is now a paper loss into an actual loss. If in 6 months housing is down a few ticks more, you will have effectively wiped out the equity you just paid for and be light 45K in your wallet. What I would suggest is looking into a refinance of both mortgages into one. It may sound crazy, but with your high interest rates, you could probably refinance both your first and second into one loan, even with mortgage insurance and save money. There are options to 97.75% to consolidate your 1st and 2nd. The MI may be tax deductible if your income is not too high and will be offset because you can significantly drop your rate.

You are short term with a goal in mind, don't throw good money after bad. Consult a professional and look at refinance options that don't require you to throw away money.
Posted on: 19th Jun, 2010 01:12 am
Posted on: 30th Jun, 2010 07:31 am
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