Home down payment, or student loans?

[notalotofcents]

My husband and I just sold one house, and bought a new one to fit our growing family. We bought the new house with 100% financing (10 year arm, 6.125%). Our loan advisor at the bank told us that when we sold the smaller house, we could take the profit from that sale and do some kind of adjustment to our mortgage payment that would result in lower monthly payments. It wouldn't be refinancing our mortgage - he said the fee would only be about $250, with no closing costs.

Anyway, we've sold the smaller house, but now are not sure what to do with the profit (about $35K). Should we re-adjust our mortgage? Should we try to re-finance our mortgage (I thing interest rates may have fallen in the meantime) using this as a downpayment? Or - should we use this to pay off some student loans with an interest rate of 6.8%?

It seems to me that we should go after the higher interest rates, especially since we don't get any tax break on the student loan payments. But is there a penalty in not applying this money back to our new house??

Thanks for any help!

[lovcom]

I didn't do the math as I don't know all the particulars, but I suspect that maybe the way to go is to refi into a low rate fixed mortgage, using the 35k to leverage into a lower payment. Get out of that ARM? I hate them. Usually. Otherwise, take the 35K and pay down your debt.

[puck36]

I would have to agree with lovcom. I would get out of the ARM and get into a fixed rate mortgage for 15 or 30 years, unless you are going to paid off the mortgage in less then 10 years. If not your rate may go up. If you are not going to pay off the mortgage in 10 years, refi and use the $35k to pay down the mortgage. If you are going to pay off your mortgage in less then 10 years than use the $35k to pay off any and all other debts.

[Snave]

Are you sure you don't get any tax break on the student loan? When my wife and I got married she had some student loan debt. I thought you could right off the interest if your income was under a certain amount and then it was fazed out. II think we were a little above the limit and couldn't write it off, but I do remember having this conversation with our accountant. You may want to check on this. I could be totally wrong - I have been before!

[notalotofcents]

snave -

You're right. Up to a certain income level (maybe around 60K), the interest from student loans is tax deductable, but I've exceeded that level.

Thanks.

[Snave]

Well at least the college loans have helped you get above the income limit. Isn't that what getting an education is suppossed to do - help you get a better job. Unfortunatley it doesn't help you here. I would then have to agree with everyone else about a 30 year loan. We had a 5 year ARM up until recently. We moved and when we did, went to a 30 year fixed. For us, the 5 year was good at the time b/c we knew for sure (4 moves in 10 years) we would not be in the house. I think everyone gets scared about the ARM products and they are good if you know what you are doing. Where people got in to a bind is that they didn't know what they were doing and tried to use the lower rates to take on more house. So, if you know for sure you will be out in 10 years, you could use the ARM, but with the rates where they are, I wouldn't pass up the 30.

[jIM_Ohio]

Originally Posted by notalotofcents

My husband and I just sold one house, and bought a new one to fit our growing family. We bought the new house with 100% financing (10 year arm, 6.125%). Our loan advisor at the bank told us that when we sold the smaller house, we could take the profit from that sale and do some kind of adjustment to our mortgage payment that would result in lower monthly payments. It wouldn't be refinancing our mortgage - he said the fee would only be about $250, with no closing costs.

Anyway, we've sold the smaller house, but now are not sure what to do with the profit (about $35K). Should we re-adjust our mortgage? Should we try to re-finance our mortgage (I thing interest rates may have fallen in the meantime) using this as a downpayment? Or - should we use this to pay off some student loans with an interest rate of 6.8%?

It seems to me that we should go after the higher interest rates, especially since we don't get any tax break on the student loan payments. But is there a penalty in not applying this money back to our new house??

Thanks for any help!

Without seeing all assets and all bills, tough to suggest where that 35k helps you most.

Here are some observations/questions:

1) retirement savings- how much?
2) emergency fund- how much is it?
3) other debts? what are they and what are the interest rates?
4) monthly budget- anything need fixing?
5) loan advisor got paid already, but he gave you bad advice.
6) what is value of mortgage? What is amount of payment? Is this a 6.8% interest rate? Does the payment pay down principal?
7) what are your credit scores?
8) I think mortgage rates for good credit can get you 5.375% right now. You are getting robbed by the current mortgage.
9) I think you need a broad financial plan:

a) save for retirement (10% of gross income minimum)
b) pay down mortgage (meaning make payments which pay down principal)
c) pay off student loans in less than 10 years
d) pay off other debt