Author Topic: Reader Case Study - Refinance House or Pay Student Loans  (Read 4689 times)

lafa33

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Reader Case Study - Refinance House or Pay Student Loans
« on: November 04, 2013, 11:47:08 AM »
Dear Mustachians,

I'm trying to get our (wife and me) debt under control. After reading some of MMMs posts it seems the best place to focus is the mortgage on our house or our student loans since we donít have any credit card debt.

Assets: We have about $20K in company stocks (place I work for).

Liabilities: We have about $20K in student loans (one loan (S10K) at 3.25%, other loan (10K) at 5.15%). Required payments per month are $121 and $106. We also have two mortgages on our house. One is an adjustable loan (adjusts once per year, current rate 3.375%, loan amount $230K), current required payment per month $1250 (half goes to principal half goes to interest). The second is a Home Equity Loan (rate is 8.725%, loan amount $50K), current payment required per month $490 (some goes to principal most goes to interest). Total amount still due on the loans is $280K. House is valued at $325K.


Specific Question: Should we cash in our stocks, pay down the principal on the house and refinance the rest. Paying $20K to the principal will make our loan to value ratio 80%. Iíve tried refinancing the loans into one loan as they stand now but no company can do it because the second loan was not part of the original purchase price.

Or should we use the 20K to pay off the student loans.


House specifics:
The house is 2200 sq ft finished with a 700 sq ft unfinished basement.
Our family is made up of 2 adults, 2 young children (kindergarten and 2nd grade), 2 cats and the occasional dog that comes to stay with us (foster dog).
I live less than a mile from work, kids school is 4 miles from our house.
If we rented we could find a place close to work for about $1200.


Thank you for your input.
« Last Edit: November 04, 2013, 04:19:28 PM by lafa33 »

nnhubbard

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #1 on: November 04, 2013, 12:20:56 PM »
Would love to know some advice about this as well. In a similar situation.

dadof4

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #2 on: November 04, 2013, 12:21:26 PM »
Getting rid of that 50k loan at 8.7% is your first priority.

I'm not aware of a problem to refinance two loans in to one loan, regardless of time the second loan was taken. I just re-fied through Amerisave (just one mortgage), and I see the option to use a loan opened a later time on their search tool:

http://www.amerisave.com/rate-results?WebSearchID=58605491

Rates are worse than refinancing one loan or a second loan taken at the same time as first loan, but they're still there. It might even be possible to refinance now, and do it again down the road at even better terms.


lafa33

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #3 on: November 04, 2013, 12:51:07 PM »
Hi dadof4, thank you for the link. I put in all the info requested by AmeriSave without any luck. AmeriSave said my loan to value ratio (LTV) is too high and to try selecting a lower loan amount.

AmeriSave can refinance the loans starting at 80% LTV ($260,000.00).

TrulyStashin

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #4 on: November 04, 2013, 01:11:44 PM »
Is there a reason you're not considering selling the house?  It's very expensive!   

Could you, for instance, sell the house and rent somewhere much less expensive while you pay off your student loans?

Catbert

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #5 on: November 04, 2013, 01:26:09 PM »
Wow.  Do whatever you can to get rid of that 8+% loan.  Sell the company stock (see what the tax consequences are and maybe even split between 2 tax years if necessary) and pay it down.  Try to re-fi.  YOUR HAIR IS ON FIRE!

lafa33

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #6 on: November 04, 2013, 01:40:19 PM »
Dear TrulyStashin, we tried selling over the summer and did not get a bite although we did get many views just no offers.

To your second point, should we try and sell at any price? What price point should we consider?

TrulyStashin

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #7 on: November 04, 2013, 01:53:30 PM »
Have you done the math to figure out the bare minimum you'd need to walk away without paying anything at closing?  At $325,000, a realtor will take $19,500 in commission (in my city they get 6% -- you might try negotiating a lower rate) leaving you with $305,500.00 which gives you about $25K in hand after closing (provided no other closing costs).

Given the math, you could go as low as the mid- to high-290's and still get enough to be even.  Not desirable but sometimes it's best to just stop the bleeding.   Especially if the house is large and therefore costing you a lot in utilities and maintenance.

Try to make this a cold-hearted, rational decision as you would any business deal.  What is the best business decision?

TrulyStashin

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #8 on: November 04, 2013, 01:55:31 PM »
You'd also need to consider where you'd live if you sold.  Can you tell us more about the house -- how big; how long are your commutes; how many in your family etc?  And also, what other housing is available close to your work location(s), cost, etc?

dadof4

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #9 on: November 04, 2013, 04:09:43 PM »
Hi dadof4, thank you for the link. I put in all the info requested by AmeriSave without any luck. AmeriSave said my loan to value ratio (LTV) is too high and to try selecting a lower loan amount.

AmeriSave can refinance the loans starting at 80% LTV ($260,000.00).
Exactly. Sell the stock, pay off part of 50k loan. Refinance.

If you can't refinance, you still sell the stock and pay off part of the 50k loan. Then you aggressively pay down the rest with whatever is left of your income.


lafa33

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Re: Reader Case Study - Refinance House or Pay Student Loans
« Reply #10 on: November 04, 2013, 04:21:35 PM »
You'd also need to consider where you'd live if you sold.  Can you tell us more about the house -- how big; how long are your commutes; how many in your family etc?  And also, what other housing is available close to your work location(s), cost, etc?

Hi TrulyStashin,

House specifics:
The house is 2200 sq ft finished with a 700 sq ft unfinished basement.
Our family is made up of 2 adults, 2 young children (kindergarten and 2nd grade), 2 cats and the occasional dog that comes to stay with us (foster dog).
I live less than a mile from work, kids school is 4 miles from our house.
If we rented we could find a place close to work for about $1200.

I also added the above to the original post.
Any other input would be great.