Hey everybody. Let me say first: I'm so glad I found this blog and forum. It has really given me a swift kick in the ass/punch in the face. Thank you all.
Here’s my current dilemma:
The short version: what should I pay down first: a 15-year/10.25% mortgage, or ~$14k in low/zero-interest credit card bills?
The long version: my now-ex-wife and I own a home together. (It's a classic, mid-century 1000 sq ft 2bd/2ba in a fast-growing college town that I plan to die in. Definitely keeping it.) We got an 80/20 loan at the time (2006) at the suggestion of our credit union, as we had no money for a down payment.
My ex-wife now wants me to buy her out of the home and get her off the 80% loan, which will require me to refinance.
However, since my credit score is now much higher (around 780, compared to 675 when we got the loans), I'd love to get rid of the higher-interest 20% loan and refinance both loans into a single, lower-rate loan. To do this, I need to have 20% equity in the home, and I'm at about 10% right now. (My ex and I are on great terms, and she is fine with waiting until I achieve 20% equity before I refinance.)
As of today, the loan balances/interest rates are:
- 80% loan: $88,172 @ 5.375% interest, 30 yr.; Monthly P/I: $521
- 20% loan: $16,207 @ 10.25% interest, 15 yr.; Monthly P/I: $255 (I've made 88 of 181 total payments)
Purchase price of the home was $116,500.
My only other debt is two large, but low-interest credit card balances (this is old debt I am taking care of; I have clamped down hard and am no longer accruing new debt):
- credit card #1: $6,050.00 @ 3.99% until Sep 1, 2015, reverts to 10.24% afterward
- credit card #2: $7,544.79 @ 0% until Mar 1, 2015, reverts to 15% afterward
Does it make sense to throw extra money toward the high-interest mortgage — with the intent of refinancing within the next 12 months — instead of the credit card debt?
My income varies widely (I am a freelancer), but I can probably throw between $500 and $1000 extra toward the mortgage principal each month. At that rate, I can be at 20% equity by the end of 2014, I think.
Thanks for your help!