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I am receiving $2,500 in a few months. I don't know what to use this money for. We don't have credit card debt or car loans. The options are: Make an extra principal only payment on the mortgage (3.75%, 27.5 years to go) or on the home improvement loan (5.99%, 7 years to go).
The idea of using it for the mortgage is we want to get rid of PMI and some principal only payment will help, also since the loan is recent, the impact of making principal payments will help us finish paying it earlier and save us more money on interest. But the loan has a bigger APR.
What is the principal balance left to remove PMI vs the balance left on the home improvement loan? If one of them is significantly less than the other I would prioritize all extra money to that one since then you can use the extra cash flow to attack the other once the first is paid.
Your thinking is sound. Personally, i would put it on the one with the lowest balance and the highest interest rate. In this case, those are the same one, the HELOC.
However, I will posit a 3rd and 4th option. Do you already have a fully funded emergency fund? If not, I would put it there first, even though it means still paying interest. And are you already contributing enough to any available 401k accounts to take full advantage of any company match? You can't beat 50-100% returns with any amount of paying off loans.
Towards the bottom. It says a lien on your home (such as a HELOC) could affect PMI removal.
Logically, how would the original poster reach 78% LTV ratio on schedule with a HELOC outstanding worth $7k?
Ltv is a calculation with regards to pmi of the first mortgage. Cltv is what you are looking for I think. It looks like we were both wrong, they may require it but most likely require it isn't supported by what you posted and I don't think that's the reality.
Last edited by Lowexpectations; 05-15-2017 at 04:20 PM..
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