Author Topic: pay down house or student loans  (Read 1617 times)

donedeal511

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pay down house or student loans
« on: August 31, 2016, 12:06:26 PM »
I have some extra money coming in now that my wife changed jobs and daycare costs have been eliminated. I'm looking to pay down some debt with the excess money ($1000-1500/month) I currently owe 260k on my house at 4.5% with no PMI. At around 230k I can refinance at something closer to 3%. My student loans total ~140k. Around 90k is in a variable account at 4.2% and the remainder is in mixed federal accounts that range from 2.5-6.5%. What would be the best use of this extra $1000-$1500 / month in terms of paying down debt?
« Last Edit: August 31, 2016, 12:08:08 PM by donedeal511 »

ShoulderThingThatGoesUp

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Re: pay down house or student loans
« Reply #1 on: August 31, 2016, 12:10:33 PM »
1. Eliminate student loans greater than 4.5%
2. Get house balance down to where you can refinance
3. Eliminate student loans greater than 4%
4. Pay minimums and invest your free cash

frugaliknowit

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Re: pay down house or student loans
« Reply #2 on: August 31, 2016, 02:22:25 PM »
If you can throw $1250 per month extra at the mortgage, you'll have the balance down to $230K within 24 months (probably sooner, since your regular payment will knock it down as well).  Then, assuming rates are still below 4.5%, your property appraises appropriately, and assuming your break even point* is sooner than your expected move out date, refinance into something lower, then attack debt using the "Cascade method" (highest interest rate first), which will likely be (at least some) parts of your student loans.

*Add up all costs of the refinance (lender will provide this), then figure out how long you would have to stay in your home to recover them.  If you do not plan to stay in your home long enough, abort the refinance plan and attack the highest interest rates first.

moof

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Re: pay down house or student loans
« Reply #3 on: September 01, 2016, 11:27:34 AM »
If the crap hits the fan you can walk away from the house, but not the student loans.  Get rid of those like your hair is on fire.  They are lower interest rate than credit cards, but have much nastier claws when it comes to defaulting.

If you have no PMI, I am surprised you cannot refinance?  Did the value drop after you bought?

Lastly, without knowing your total income I don't know if your student loan interest is deductible at all for you.  Your mortgage interest almost certainly is.  If you are in the 25% tax bracket and deduct mortgage interest, but cannot deduct your student loan interest the breakeven point between the two is 3.375% on the student loans.  If both are fully deductible in your situation then this point is moot.

donedeal511

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Re: pay down house or student loans
« Reply #4 on: September 01, 2016, 02:40:56 PM »
My income inhibits me from deducting student loan interest. So it seems best scenario is to to pay down student loans >~4%. Everything I've read about mortgage refinancing says refinancing can only occur if there is greater than 20% paid off based on assessment value. We only put down 5% and took a higher interest rate in leu of PMI.

ShoulderThingThatGoesUp

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Re: pay down house or student loans
« Reply #5 on: September 02, 2016, 12:27:54 PM »
My income inhibits me from deducting student loan interest. So it seems best scenario is to to pay down student loans >~4%. Everything I've read about mortgage refinancing says refinancing can only occur if there is greater than 20% paid off based on assessment value. We only put down 5% and took a higher interest rate in lieu of PMI.

Yeah, I think your situation is pretty straightforward: pay down your debt highest-interest rate first, stop when you get to a rate you're comfortable with.