Mortgage, Loans… Lots of money but what to pay off.?

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I’m now in the money and need some advice on what I should do…

I have a 30yr fixed 5.875% mortgage on 380K,
6.25% on 50K in student loans payable over 45 years (no tax break due to phase out at my earning level).

Right now I’m accelerating the $ 500 per month student loan payments by $ 4000 per month to clear the loan in a year.

Question: I want to buy a bigger house in a few years and dont know if I would be better saving the money for a deposit or paying down the mortgage I have. I know it’s a bigger interest rate but on a much bigger principle. However I’m also thinking that I wont get %5.875 interest rate in a few years so might as well just save and have a larger deposit on the next house?

Any thoughts?

Thanks.

6 Comments
  1. Reply
    roger v
    May 2, 2011 at 4:57 am

    That is one that I think only you can answer. I would save up for the home and put the money down no doubt. Your student loans are so cheap why would you want to pay them off so soon. I would just pay a little more on the student loans but mostly save up for the house.

  2. Reply
    greenstep51
    May 2, 2011 at 4:59 am

    I would first pay down any non-tax deductible debit as you are with the student loans. If you have no other debit you should save it. You would retain your tax savings plus the added interest on your savings.

  3. Reply
    NetRambler
    May 2, 2011 at 5:06 am

    If you can earn a rate of return higher than what you are paying on your debts, it makes since to invest it until you are ready to buy. If not, you will save more money by paying down your debts than you would earn in a money market account or CD.

    The problem with most high rate of return investments is the risk involved. If often the safest investment is to pay off high interest rate debts. If you pay off your student loans, you are effectively earning 6.25% (guaranteed risk free) on your money. If you pay down your mortgage you will earn a guaranteed 5.875% effective rate of return.

    Also paying on your mortgage will help with the downpayment on a new property if you are selling and buying at the same time. It is also risky trying to guess what interest rates will do in a few years time. I usually try to deal with what is known today rather than speculate on what will be in the future.

  4. Reply
    Bob
    May 2, 2011 at 5:23 am

    I’d get rid of the student loan and pay only the regular payment on the mortgage. The mortgage rate is lower and the interest is deductable.

  5. Reply
    cridler
    May 2, 2011 at 6:10 am

    Keep killing student debt and then put that money on the mortgage. Debt is bondage get out and get free. As to the tax savings on the mortgage interest if you are in the 32% bracket you for every $ 1000 you give the bank in interest you save $ 320 in taxes. wouldn’t you rather give the government $ 320 and pocket the the 680?

  6. Reply
    Caleb
    May 2, 2011 at 6:40 am

    I think a debt consolidation company can provide you with the best debt management plan. Here is the source for your reference http://ezconsolidation.com

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