Author Topic: Pay off Mortgage or Cut My Losses  (Read 1193 times)

billchuck5

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Pay off Mortgage or Cut My Losses
« on: June 25, 2015, 07:48:12 PM »
Hereís 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 Samís 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, Iím 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. Iím 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 itís 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. Itís been fairly low maintenance, but still, Iím 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 thereís 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!

waffle

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Re: Pay off Mortgage or Cut My Losses
« Reply #1 on: June 26, 2015, 09:10:13 AM »
Just my first impression. Unless it is possible to basically double the rent that you charge I would get rid of it. Since you say the market is only 2k for rent you would still be negative over 700/month. I'd unload it as soon as possible.