Author Topic: Mortgage advice - best way to pay down quickly  (Read 2847 times)

moustache1979

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Mortgage advice - best way to pay down quickly
« on: March 13, 2014, 11:58:55 AM »
In a previous thread I laid out my case study.  My biggest issue is mortgage debt and the recommendation of the group is for me to pay down my 2nd mortgage as quickly as possible.  I also want to tackle my main mortgage.

http://www.mrmoneymustache.com/forum/ask-a-mustachian/case-study-help-me-tackle-debt-and-build-plan-for-future/msg232331

Situation recap:
$203k 1st mortgage - 25 years left to go, 4 7/8% rate  ~ $1,750 monthly payment ($335 Prin / $590 Escrow / $825 intrest)
$34k 2nd mortgage - 11 years left, 8 1/8% rate ~ $300 monthly payment ($230 interest / $70 principal)

I have enough cash now to pay off the 2nd mortgage and keep a comfortable cash cushion in savings.

I would like to make progress on paying down 1st as well but don't know best way to go about doing it.  I would love to Refi into a 15 year at a lower rate but the issue is my home value.  I don't know where an appraisal would come in and I don't want to go through the Refi process only to get a low appraisal.  Value is ~$180k on Zillow and could be upwards of $200k since my house is much more updated than many of the comps.

Any suggestions on how to go about attacking my mortgage debt?  I have heard of the following:

1) pay extra with my normal monthly payment
2) join a plan to do multiple payments each month to pay down principal faster
3) pay down a chunk and recast
4) Refi, but could mean bringing $60k to closing which i am not willing to do right now (assuming a worst case valuation of $180k and 20% down)



nereo

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Re: Mortgage advice - best way to pay down quickly
« Reply #1 on: March 13, 2014, 12:19:57 PM »

$34k 2nd mortgage - 11 years left, 8 1/8% rate ~ $300 monthly payment ($230 interest / $70 principal)
I have enough cash now to pay off the 2nd mortgage and keep a comfortable cash cushion in savings.

Absolutely pay that down right now if you have the cash to do so.

Any suggestions on how to go about attacking my mortgage debt?  I have heard of the following:

1) pay extra with my normal monthly payment
2) join a plan to do multiple payments each month to pay down principal faster
3) pay down a chunk and recast
4) Refi, but could mean bringing $60k to closing which i am not willing to do right now (assuming a worst case valuation of $180k and 20% down)
First, after paying down your second mortgage you should have $300+ you can apply towards your 1st mortgage (2,050/month total). I haven't done any refinancing but if your credit is good and your appraisal is good you shuold be able to get a rate lower than 4 7/8%.  If you can get a rate at/below 4% on a 15 year term you'll pay close to the same amount ($1750 + $300) but be done almost 5 years sooner.

Catbert

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Re: Mortgage advice - best way to pay down quickly
« Reply #2 on: March 13, 2014, 12:27:25 PM »
Well, definitely pay off the 2nd.  8 1/8% gives me shivers!

4 7/8% really isn't that bad when you look at the last 40 years of mortgage interest rates (or even 15 years).    Zillow isn't necessarily all that accurate, but 180K and 240k is a big difference so it seems unlikely that you can refi at this point w/o paying a lot down.

I would take option 1 - pay extra each month.  I'd set up as an auto payment. 
Option 2 of making payments every two weeks isn't as magical as they make it seem.  1st, the plans I've seen charge you a fee to do it so you are losing part of the advantage.

 


MrCash

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Re: Mortgage advice - best way to pay down quickly
« Reply #3 on: March 13, 2014, 12:49:58 PM »
Like others have said, pay off the 2nd mortgage as soon as possible!  Don't even think about the 1st mortgage until the 2nd one is complete gone!

This will take a huge load off of your shoulders and free up your cash flow immensely!

AccidentalMiser

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Re: Mortgage advice - best way to pay down quickly
« Reply #4 on: March 13, 2014, 12:57:30 PM »
Well, definitely pay off the 2nd.  8 1/8% gives me shivers!

This.  Today.  Before you go to bed.

For the first mortgage, I'd just start adding to the mortgage payments.  I read your original post just now.  I'd pay off that credit card before I started on the mortgage (even with the interest rate difference).

I'd also consider a Molotov Cocktail for you car (just kidding!!!)

GetSmart

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Re: Mortgage advice - best way to pay down quickly
« Reply #5 on: March 13, 2014, 02:44:04 PM »
Technically - it looks like you may be able to go through HARP again according to the website:

"The mortgage cannot have been refinanced under HARP previously unless it is a Fannie Mae loan that was refinanced under HARP from March-May, 2009."

http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx

Not sure what the rates are or if this helps, but might be worth looking into. 


moustache1979

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Re: Mortgage advice - best way to pay down quickly
« Reply #6 on: March 13, 2014, 03:01:05 PM »
my HARP refi was late-June 2009 so outside of the Mar-May 2009 exemption