Here’s the situation:
In 2005 I foolishly bought a house outside of San Diego with 5% down, and 80/15 ARM HELOCs. (If I could travel back in time and punch 25 year old me right in the face, I would.) A year and a half later, I was forced to move, per Uncle Sam’s wishes, to a new duty station. At that time, I found a renter, and have had it rented 100% ever since, just barely covering the interest and property taxes. Until now, I have made interest-only payments, so I still owe the full amount on the loans. Ten years later, I now live in San Francisco, I’m at the end of my draw period, and my rates are jumping to 5.55% for the 80 and 5.95% for the 15, both now 30-year fixed. After biding my time through the housing market crash and slow recovery, it is still more than $60,000 under water, with no hope to refinance until I can achieve 20% equity. I’m now at a point where I have an extra $5,000/month to put somewhere after maxing out all other tax advantaged accounts.
My question is this:
Should I:
(A) Proceed to throw this extra money at the loans, kill them in the next 5 to 6 years, and keep it as a rental property.
(B) Pay down the loan until it’s at market value, and sell the house
OR
(C) Something else I should consider?
Other Details:
Purchase Price: $438,000
Down Payment: $21,750
80% @ 5.55%: $350,400 ($2000/month)
15% @ 5.95%: $65,700 ($392/month)
Property Taxes: $3,600/year ($300/month)
Insurance: $440/year ($37/month)
Current Market Value: $354,000
Current Rent: $1,600
Current Market rent in the Area: $2,000
No property manager. It’s been fairly low maintenance, but still, I’m more than 500 miles away.
Depreciated for about 7 years already, but now income is too high to claim. (7 years @ $11,150/year)
If there’s any other information I should share that would be relevant, please let me know.
Any advice would be most welcome! And thank you in advance!
