Posted on: 29th Sep, 2010 03:12 am
Hi. Here is something I have been thinking about but never really had time to figure it out. I've done some basic math, but would like some other opinions.
Simply put, this is the scenario. I have 4 loans.
350,000 (fixed) 6.39%
100,000 (fixed) 6.75%
100,000 (floating) 6.15%
50,000 (revolving) 6.15%
I have an extra $150 p/w where is the best place to put it?
Simply put, this is the scenario. I have 4 loans.
350,000 (fixed) 6.39%
100,000 (fixed) 6.75%
100,000 (floating) 6.15%
50,000 (revolving) 6.15%
I have an extra $150 p/w where is the best place to put it?
If you make the assumption that interest rates will not change, you will benefit most by paying down the highest interest rate loan even if it is fixed. You will still have to make the same monthly payment amount, but the time it takes to pay it off will decrease.
If you make the assumption that interest rates will soon rise on your non-fixed loans, you will probably benefit by paying down those first. When interest rates rise, you will have a smaller balance on which that rate and payment is calcualted.
Since the rates are all in the 6's and you are only paying an extra $150/month, I would pay down the revolving account first since it seems to me to be the one that will mostly likely jump up once the economy gets on its feet.
If you make the assumption that interest rates will soon rise on your non-fixed loans, you will probably benefit by paying down those first. When interest rates rise, you will have a smaller balance on which that rate and payment is calcualted.
Since the rates are all in the 6's and you are only paying an extra $150/month, I would pay down the revolving account first since it seems to me to be the one that will mostly likely jump up once the economy gets on its feet.
Methinks Timmy knows something about lending, rates and finance. I agree here - you may have no notion about what rates will do, but his advice is worth following, I think.
Hi. Thanks for your advice. I can clarify two points. 1. Interests rates are going to rise 2. I have an extra $150 per week not per month.
To my way of thinking (which may be wrong) if I pay more of the big loan then overall I will pay less interest over the time of the loan, say 30 years. The bigger the loan the more interest paid...but others have told me it works out the same, even if the interests rates are all the same?
To my way of thinking (which may be wrong) if I pay more of the big loan then overall I will pay less interest over the time of the loan, say 30 years. The bigger the loan the more interest paid...but others have told me it works out the same, even if the interests rates are all the same?
Sorry about missing per week, but it works out the same. It's not the size of the loan that counts. It's the interest rate that counts. You help yourself by not having to pay interest on the the $150/ week that you pay down your loan. If you have a million dollar loan at 1% interest, it would be in your financial favor to pay down your $10,000 loan at 6% interest first. But in your case, since rates will rise, I recommend paying down your non fixed loans first.
Timmy Do
Golden Rule Homes & Loans
Timmy Do
Golden Rule Homes & Loans