Thoughts and ideas - Student loan, mortgage

[supercar]

Hi all,

I just wrote a huge post and when I tried to preview it, got an error screen and lost everything I typed … ☹

I recently joined the forum and have been reading some of the posts. There is a lot of great information here and I appreciate all the posters and moderators for maintaining the site so neat.

I know almost all of you unanimously vote no to converting a student loan into a home loan considering the secured and unsecured debt factor. But please read through my case and let me know if it might be ok for my case.


Personal Profile
Age: 26
Salary: $ 80,000 ($8,000 - $15,000 bonus)
Savings: $0
Checking: $0
401K: $10,000

Current Debt situation

Home Value $165,000 - $170,000

Mortgage balance – $90,000 (4% APR 5/1 ARM started 2009)
Credit Card balance - $17,000 (0% APR on $8000 till May 2012 and
0% APR on rest until Aug 2012)
Federal Student Loan - $30,000 (7.25% APR deferred until May 2012)
By the end of my college next May – I will add another $15,000 more in student loans. These will be deferred until May 2012




Thoughts

Current interest environment gives me a 10 year fixed mortgage at 3.25% and 3.4% APR
I’m thinking because student loan is above 7%, I should take a cash out of about $30,000 and pay off the student load first, because that interest keeps accruing even though I don’t have to make payments until next year.

So,

Home Loan - $122,000 at 3.4% APR 10 year fixed loan
This would be a monthly payment of around $1,200

Home insurance and taxes would be around $400 per month.

I’m currently paying about $1,000 per month towards the credit cards.

The above sum to $2,600. My each paycheck come out to be around $2,500. So, these are around one paycheck.

I don’t live in the house, I work in a different state. So, my living expenses including residence would be around $2000 per month.

This would leave me with a buffer of just about $500 every month. This would be the case at least until next September /October by when my card payments should be gone.

Does this look ok? Am I missing something big? Should I do a 15 year mortgage to be safe? Should I just stay where I am at a 5/1 ARM 4 % APR and payoff the mortgage quicker instead of changing and taking a risk to save money? Btw my monthly payment now is around $650.


Which option would you chose if you were in my shoes?

[Frugal]

Maybe I am missing something, but you said that your loans that are federal come due when you finish school in May 2012. Usually, there is a six-month deferment before you have to make a payment on a Direct Subsidized Stafford loan. These are what I am trying to still pay off. I got the six month automatic deferment after graduating with my BA.

Hate to be negative, but your level of credit card debt seems high. Personally, I would work on paying that off.

[supercar]

I am paying it off a $1,000 each month. If I continue my payments I will be out of the credit card debt before the 0% APR period finishes.

[riverwed070707]

What I want to know is if you're making $80k a year why you're still taking out $15k in SLs every year and racking up CC debt. I definitely would not roll those loans into a mortgage and I'd be putting every extra penny I have to pay off those other loans (even if they are 0%) so you can start socking away at your SLs when you graduate. Even at $1000/mo you aren't going to have those CC balances paid off by the time your intro rate runs out.

You are making a phenomenal income for a college student, but you also aren't contributing what you should be to retirement What will your income be like once you graduate?

[riverwed070707]

Originally Posted by supercar

I am paying it off a $1,000 each month. If I continue my payments I will be out of the credit card debt before the 0% APR period finishes.

How do you figure? You have a $17k balance and 12-13 months before the intro rate runs out...

[bjl584]

So you want to wipe out your student loans by putting them on a home loan? You may get a better interest rate that way, but have you tried calling to get the interest rate on your loans lowered?

Debt is debt, whether you pay back Peter or Paul. Moving debt around won't help unless you can play the interest rate game and be disiplined enough to take advantage of lowered rates.

There may be tax implications as well. You will have to look into what will give you a better write off.

How long are you planning on owning your home? If it is less than say 5 years, then putting your SL's on a home loan will eat up a lot of your equity. Something to think about.

If I were in your shoes, I would try to get the rate lowered on the SL's. Then I would just tackle the debt. I don't think that I would go the home loan route.

[supercar]

I have been working for about 4 years now. Accumulated a bit of equity throughout and bought a home in the end of 2009 which wiped out most of my savings etc. Then I went on a gambling spree which added credit card balances of about 30,000. I have put a check to that ... thankfully and have been paying off every penny I have extra towards the cards. That's how I got the cards total from 30,000 to around $17,000 now. (it's not a over spending problem, it was bigger problem and I realised it a tad later than I would have wanted). Also, because my home monthly payments have only been $600 till now.. (5/1 ARM).

I am doing a finance MBA and have always been interested as well as at least a bit well acquainted with the industry. My home purchase in 2009 was because I envisioned the bottom was behind us. But the idea of re finance now has been prompted my the raking of debt by the rise of the debt ceiling and the probable interest rate hikes to play against growing inflation in the next decade.

If the rates go up, I would be mad at myself for not taking the opportunity to lower my rate.

[supercar]

I forgot to answer one of the questions... I would pay off most of the card debt with the bonus this year end.

[Hector]

Originally Posted by riverwed070707

What I want to know is if you're making $80k a year why you're still taking out $15k in SLs every year and racking up CC debt.

OP, you did not answer this question.

[supercar]

Originally Posted by Hector

OP, you did not answer this question.

Its not 15,000 every year. I will be done with my MBA by next May and the $15,000 i would accumulate would be towards Spring 2012. The existing $30,000 in loan is for the past year. The rest of it I paid in cash.

After that it's all payback time. I'm hoping to be able to change jobs to a financial job after that from the current one.

[jpg7n16]

Originally Posted by supercar

I don’t live in the house, I work in a different state. So, my living expenses including residence would be around $2000 per month.

Lots of questions

About the house:
So what rental income are you hoping to make from the house?
have you considered selling it?
why do you own the home and not live in it? (aka what purpose does owning the home serve?)
what rates could you get on a 15 or 30 year fixed refi?

About the SL's:
Can you refi to a lower interest rate? (not using a home loan)
Are these deferred or subsidized? (or both)
Are you married? (asked here because your SL interest is not deductible if you're single with that high of an AGI)

About your retirement:
what match does your employer offer?
how much are you contributing right now?

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Given the limited info that I know right now, IMO - you should rent/sell the home. I'd stop paying $1000/month to the CC's. I'd probably use the $1000/month and my year end bonus to make the house rentable/sellable. Then once rented/sold, start back up on your debt repayment.

you should take the company match (no more, no less - for the time being). once you're out of 6%+ debt, you should up your retirement savings.

[supercar]

Originally Posted by jpg7n16

Lots of questions

About the house:
So what rental income are you hoping to make from the house? No rental income. My parents live in it.
have you considered selling it? No just bought it in 2009. Bought for my parents.
why do you own the home and not live in it? (aka what purpose does owning the home serve?)Written above.
what rates could you get on a 15 or 30 year fixed refi?10 year is 3.25%, 3.4% APR. 15 year... 3.675%, 3.75% APR

About the SL's:
Can you refi to a lower interest rate? (not using a home loan) NO.
Are these deferred or subsidized? (or both)Deferred mostly and partly subsidized about $7500
Are you married? (asked here because your SL interest is not deductible if you're single with that high of an AGI). No. I'm single.

About your retirement:
what match does your employer offer?5% matching. I'm just doing the 5% for now.
how much are you contributing right now?I'm contributing just the 5% for now.


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Given the limited info that I know right now, IMO - you should rent/sell the home. I'd stop paying $1000/month to the CC's. I'd probably use the $1000/month and my year end bonus to make the house rentable/sellable. Then once rented/sold, start back up on your debt repayment.

you should take the company match (no more, no less - for the time being). once you're out of 6%+ debt, you should up your retirement savings.

For the note below... no selling or renting is not an option. I had bought it for my parents and it will be for my parents. They deserve/need it. Not an option for my personal financial screw up I did.