Posted on: 10th Dec, 2006 08:35 pm
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?
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?
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.
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.
god bless you.
samantha
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.
god bless you.
samantha
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.
Thanks,
Caron.
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.
Thanks,
Caron.
I think the easiest way out is to increase the rent after some time.