Author Topic: 2nd mortgage payoff question  (Read 2270 times)

Manguy888

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2nd mortgage payoff question
« on: February 02, 2014, 02:27:26 PM »
Hey all -

I have a 2nd mortgage for 40,000 dollars from the bad old days of 2005. It is only 200 dollars a month, but it is a balloon mortgage that comes due in June of 2015. As I understand it, this means that the entire 40k will be due in 2015. I'm trying to figure out my options but I'm not very savvy with this stuff.

Options:
   - pay it off - I have enough savings and extra 'just for fun' stocks that I could pay this mortgage off and be done with it. Since I still owe a bit more than my house is worth at this time, paying off the mortgage is just throwing liquidity down a black hole. Not the best option.
   - Let June 2015 come and try to negotiate it to become a non-balloon mortgage. This option would be great for me but I don't know if the company will do it. They bought my mortgage from elsewhere and seem to be a 'collection only' type of company. Afraid to let it go until 2015 without knowing what will happen, feels a bit like playing chicken.
   - Try to get a loan from another source and use it to pay this off. Since it wouldn't be a mortgage loan, no more tax deduction, and likely higher than the 6% of this loan.
   - something else??

Things that are not options:
   - a regular refinance - no equity in the house for a second mortgage holder so no it's a nonstarter
   - leaving or selling the house - we can afford it, we like it, we're not going to move.

Calling on all mustachians to help me through this complicated (for me) scenario.

-Eric

Frankies Girl

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Re: 2nd mortgage payoff question
« Reply #1 on: February 02, 2014, 02:43:53 PM »
If I am reading that correctly, it's a 6% loan for 40K, coming due in full in 2015. And you're making a monthly payment of $200?

You're not even paying off any principle with that low of a monthly payment, so lots of interest is still accruing on the full amount - meaning you'd never pay that off at that rate. So you are already throwing money away doing this - since you're just racking up even more debt the longer you let this go on. You're barely paying a half of a percentage point of the 40K each month, and they're just adding that extra owed onto the original amount. That is completely stupid if this is the case.


My opinion? PAY IT OFF NOW.

Another Reader

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Re: 2nd mortgage payoff question
« Reply #2 on: February 02, 2014, 02:55:20 PM »
It's not likely you could get a second or a HELOC on the property for enough less than 6 percent to make this worthwhile, even if you had equity.

I would probably call the servicing company to see if they have any options to suggest today.  What's your first mortgage interest rate?  Maybe they have an underwater refinance option that would combine the mortgages at a good rate.  Who is the servicer?  Some are strictly in the sub-prime collection business, and talking to them is pretty useless.  Others are more flexible and may be subsidiaries of lenders that could do a refinance.

Failing that, I would start aggressively paying this down.  I would keep reserves and avoid selling stock, but throwing $2,000 a month extra at it would get this alligator paid off in 20 months.

Weedy Acres

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Re: 2nd mortgage payoff question
« Reply #3 on: February 02, 2014, 03:37:44 PM »
You've got the cash to pay it off?  At 6% I would write a check in a heartbeat and get rid of the thing.  Saying "I'm underwater so there's no advantage to paying it off" if the wrong way to look at it.  If you owed 10K on a car worth 5K, you wouldn't say the same thing, so why would it apply to a house?  You get an instant and guaranteed 6% return by doing this.

Gray Matter

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Re: 2nd mortgage payoff question
« Reply #4 on: February 02, 2014, 03:53:53 PM »
I agree with everyone else--talk to the/a lender about options if you want, but ideally, just pay it off ASAP.  It is debt and it's not a great interest rate.  Be done with it!

rocklebock

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Re: 2nd mortgage payoff question
« Reply #5 on: February 02, 2014, 04:04:19 PM »
I have the same type of loan as a 2nd mortgage - also from the bad ol' days, offered as an alternative to PMI at the time, f you had good credit. I've refinanced the primary mortgage a couple of times, but no one would handle this one. I'm just paying it off as fast as I can - should be done in April or May.