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We have a variable interest rate, currently at 5.24% on a 40,000 mortgage (this was a 2nd mortgage loan to get us at 20%). We also have a 36,000 student loan fixed at 5.5%. We have been paying $600 a month to each. We have payed enough over the minimum on the student loan that we wouldn't have to make a payment for a year.
I thought we should put the full $1200 towards the variable mortgage since that interest rate can go up and just pay the minimum when it becomes due towards the student loan (paying that much less to the mortgage at that point) when we have to.
My husband thinks we should continue making equal payments towards each.
Which makes more sense? Or should we pay something like $1000 toward mortgage and $200 toward student loan? Please help.
Your husband is on the right track.....interest rates aren't going to explode anytime soon and you can refinance the mortgage easier than the student loans.
Well, first off you should be paying towards the principal on your student loans instead of making prepayments. I guess making prepayments buys you some flexibility, but so would just leaving the extra amount in your savings account earning .09% interest or whatever they're giving you.
I'd just keep doing what you're doing but make sure the payments on your student loans are going towards the principal.
Thank you MrRational, Malloric, and City Guy997S. I appreciate these forums and the people who take the time to help! Why is my husband always right??!! ha ha
I actually would suggest something different from the other posters here.
First, calculate what your mortgage payment would be if interest rates rose to the cap (you can easily find amortization calculators online) including the tax/insurance/HOA/whatever else.
Is that payment something you could make now?
If so, make that as your payment, and then put the rest of the excess on the student loan. That way, you can keep your payments the same no matter what happens to the rates. Changing rates would change the amount of your payment going to principal vs. interest, but your monthly budget would not be affected. I believe the ease of managing a non-changing budget is worth the tiny amount of money you might in theory lose this way, plus you can make the payments automatically and avoid the risk of being late.
If, on the other hand, the mortgage payment with interest at the cap is too high to be affordable, you need to refinance to fixed rate, increase income, or reduce expenses to get out of that risky situation.
What is the interest rate on your 1st? Is your second and equity line of credit or a loan? How long ago did you get these two mortgages, has your property value increased?
Could you refinance and get rid of the second variable rate and get it all under a lower fixed rate? I think thelopez2 was headed in the same direction with his questions.
Could you refinance and get rid of the second variable rate and get it all under a lower fixed rate? I think thelopez2 was headed in the same direction with his questions.
That is part of it, but if the variable is a Line of credit, I'd put it all toward the HELOC, Since the rate is roughly the same, you're not talking about saving a lot of money. If the rates of the HELOC drops, move some money from the HELOC to the student loan, Not a lot because there is still a potential for it to increase. One the HELOC is paid off, you can think about paying off the Student loan with the HELOC or keep the Student loan at 5.5%. Also down the line when your HELOC is paid off, you might save some equity in your home to do a cash out refinance to pay of the SL.
If both of you work and have high income , you might lose the student loan interest deduction.
Here is an extreme if you think rates are going to move up in the future, sell your house if you've lived in it for two years and you have appreciation, pay off your student loan with the cash, buy a new, your last home with a lower down payment, finance the PMI upfront, with excellent credit, it might be about 1.8% , put 5% down, ask the seller to contribute to your closing cost, Pay your mortgage for the next 30 years and be done with it. If you make your new loan larger than the combination of the loans you are paying off, you will be digging yourself into a larger hole, which you don't want to do.
Of the people that I know that paid off their homes, they did something simple, get a loan an paid it off, when they refinance, they took a shorter term, not a new 30 year fixed.
Last edited by thelopez2; 11-23-2013 at 06:58 AM..
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