I’d appreciate getting some fresh opinions on this situation.
In June 2006, ex-SO and I bought a condo in a HCOLA area for $335k. With 5% down. I know. Part of the financing was a 15-year “balloon” ARM for about $50k, which was the less expensive alternative to PMI at the time. I hear this type of loan no longer exists since the recession. We currently owe $281k between the two mortgages.
In 2011, ex-SO and I broke up (amicably), I moved across the country to take a job with a 30% salary increase, and we started renting out the condo. Quite frankly it’s a terrible rental property investment - we're breaking even on our mortgage and HOA fees, but that's it.
We looked into refinancing in early 2011 and again in early 2013. The answer was that we don’t have enough equity to make this happen, especially now that it’s no longer our primary residence.
We tried to sell this spring, but the offers we got were so low ($285k-$305k) that after two months we decided we’d be better off continuing to rent it out. So we have a tenant back in there on a lease that ends in May 2014.
Back to that second mortgage. We were aware all along that was in our best interest to pay it down, and we did pay off quite a bit of additional principal over the years. Of the $281k we owe, $30k of that is the second mortgage, which is currently at (get ready) 7.25%. Obviously this is a shockingly expensive loan in this day and age, and it’s annoying to me that we still have such a high balance on it after all this effort. BUT, $30k also looks to me like a number that two people making a combined $170k or so can completely destroy in 2-3 years.
Our plan, however, is to put the place back on the market again soon, perhaps even next spring if our tenant decides to move out at the end of his lease.
My question is, does it make sense to try to aggressively pay this loan down if we might be rid of the place entirely in a year or two? Does it make sense to divert money that I'd otherwise use for retirement savings to do this? I get the idea that 7.25% is in the range of what you can expect for average index fund investment returns.
The ex-SO will probably be on board if I go to him with a solid plan. Let me know if I can provide any other information that would help.