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OK everyone, I'm going to divulge some personal info for some what-if scenarios for everyones opinion.
A couple of years ago, my wife and I purchased a house with 5% down, 80% primary loan, and 15% secondary loan. Both loans are 30 year fixed. We have no kids, excellent credit (last time I checked 2 mo. ago), and have one lux. car lease (36 mo) payment. I should have got a better MPG car.
Due to a 10% increase in income and finally paying off our CC debit, we are interested in making a dent to pay off our second mortgage with 8.5% APR. Due to the amortized loan, I hate paying for so much up front interest which decreases the amount of funds I can place on principle. Even though I can pay more into the principle, it would take me ~12 years to pay it off with lots of interest paid. Even though the interest is tax deductible, the overall monetary saving is some 15-20% of the APR, so roughly 6.9% interest I don't recover on tax day.
I can currently pull out a private loan with 5.99% for 60-84 months without any transfer, prepayment, or annual fees from through my Mastercard. This is effectively going to hit my CC max, and likely decrease my credit rating for a while. Total payoff using my CC loan gives ~20% increase compared to total payoff, which is not bad but still risky.
We don't plan to purchase a large ticket item for a while, are both young 'n healthy with insurance, and can effectively survive (barely) on one income if necessary. We have no emergency funds for the ho-crap situations.
OK everyone, I'm going to divulge some personal info for some what-if scenarios for everyones opinion.
A couple of years ago, my wife and I purchased a house with 5% down, 80% primary loan, and 15% secondary loan. Both loans are 30 year fixed. We have no kids, excellent credit (last time I checked 2 mo. ago), and have one lux. car lease (36 mo) payment. I should have got a better MPG car.
Due to a 10% increase in income and finally paying off our CC debit, we are interested in making a dent to pay off our second mortgage with 8.5% APR. Due to the amortized loan, I hate paying for so much up front interest which decreases the amount of funds I can place on principle. Even though I can pay more into the principle, it would take me ~12 years to pay it off with lots of interest paid. Even though the interest is tax deductible, the overall monetary saving is some 15-20% of the APR, so roughly 6.9% interest I don't recover on tax day.
I can currently pull out a private loan with 5.99% for 60-84 months without any transfer, prepayment, or annual fees from through my Mastercard. This is effectively going to hit my CC max, and likely decrease my credit rating for a while. Total payoff using my CC loan gives ~20% increase compared to total payoff, which is not bad but still risky.
We don't plan to purchase a large ticket item for a while, are both young 'n healthy with insurance, and can effectively survive (barely) on one income if necessary. We have no emergency funds for the ho-crap situations.
So is it a good idea?
Depending on how long it would take you, I would save up some money, then pay off the second mortgage with a combination of your savings and a cheaper home equity loan. I'm about to buy a house with a similar package (73% first, 22% second, 5% down approximately), but we're expecting to get a decent-size sum of money soon which we'll use to pay off part of the second, and pay off the rest of the second with a lower-interest (6% vs. 8.5%) home equity loan. The home equity loan is lower (after taxes) and more flexible than a credit card loan.
First of all, get an emergency fund set aside. Some people, like Dave Ramsey, advocate a $1000 emergency fund in the bank before attacking your debt. I'm more comfortable with a month's household salary in the bank.
I'd just put everything I could toward the second mortgage to get it paid off as quickly as possible.
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