Can't sleep: need help figuring out what has to give

**creditcardfree** · 04-26-2010, 12:57 PM

I would not borrow from retirement. I would not refinance your home to a 15 year loan, if you can't afford the payment. Do not sign those loan papers!!

If you are saving at least 10-15% for retirement and have extra cash each month, simply send in a seperate check to your mortgage company and mark it 'principal payment only'. This will lower the amount you are borrowing, shorten the time you borrow as well as the total amount of interest you pay.

**Ima saver** · 04-26-2010, 01:03 PM

I agree with creditcard free. I would not refinance at this time.

**jIM_Ohio** · 04-26-2010, 01:17 PM

what is current budget
what is current house payment?
what are current loan terms? when will it be paid off?

what are new loan terms?
what is new loan was different (30 yr fixed for example)

give us more info please

**jefffou** · 04-26-2010, 01:33 PM

Have you looked at refinancing into a better 30-year mortgage? I would think you could beat your current rate by quite a bit with little upfront cost, no?

That seems like the obvious path, but I could be wrong!

**wincrasher** · 04-26-2010, 01:40 PM

You would save more money by just paying additional principal each month with your existing loan.

Get an amoritization calculator and see what you can save by adding $100, $200, or $300 to your payment each month.

**ver** · 04-26-2010, 01:52 PM

Thanks. That was what I was thinking too. Our situation is more complicated and I didn't want to bore anyone. The reason we're short $900/month is that we're also buying another home (the refinancing is a rental). Also going for best loan interest rate of 4.375 over 15 year fixed. To answer jlM-OHIO questions: Our monthly budget is about $6,000 expense and $5,100 income (with new loans kicking in). For the rental, we used to pay $1,375 a month for 30 year fixed (we've paid 8 years so 22 years to go), and now would be $1,549/month for 15 year fixed. For the other house (our home-to-be)the payment is $1,254/month for 15 year fixed. The income from the rental is included in our monthly income above (We put 75% occupancy to safeguard against periods without tenants). In addition, we have $10,000 cash for covering emergencies or 10 months of making up for $900 a month gap. For our retirement: We have the $78,000 and also a piece of land that we can't sell now because it's light industrial and no buyers at the moment and we will have income of rental house. Here's more details than you wanted. The question we don't know the answer for yet, is how much would we lose if we pulled out a chunk of our retirement investments. We are wondering if it's better to count on our income from rental (the whole amount) 7 years earlier and invest our retirement savings into it now (the stock market is so volatile anyway, maybe investing in a house is smarter). Or the alternative is to pay for another 7 years (and higher mortgage loan interest rate) and save our retirement savings as is. I'm not sure if I'm clear on that but that's the way I see it.

**ver** · 04-26-2010, 01:55 PM

Just read the other messages. Thanks for input. I should ask about 30 year mortgage but then we would have to wait another 30 years before we could depend on that income. We would be 75 years old. Scary!!!

**creditcardfree** · 04-26-2010, 02:32 PM

Honestly, I think you are making a mistake buying another rental property. You are not saving nearly enough for retirement and buying a rental property is likely to hinder that goal. That is what is more scary...not enough retirement income!

Right now in your mid-40's you have plenty of time to earn income in the stock market for retirement. Since late last year the stock market has really only been going up. And when it goes down, you keep buying, since those stocks are now on sale. More shares for your dollar. Sure it will go up and it will go down, but 20 to 30 years is plenty of time to earn a good retirement income.

**ver** · 04-26-2010, 02:59 PM

Originally posted by creditcardfree View Post

"Honestly, I think you are making a mistake buying another rental property. You are not saving nearly enough for retirement and buying a rental property is likely to hinder that goal. That is what is more scary...not enough retirement income!"

Just a clarification: we are not buying another rental property, the home we're buying will be our residence, (we are currently renting).

**jefffou** · 04-26-2010, 03:01 PM

Ver,

A few thoughts.....

This situation would be way to tight for my wife and me.
I hope your are charging enough rent to cover that $1,375 (not to mention a larger $1,549)
Take away your rental income, and you're in trouble.
I'm not sure you should be buying into an additional $1,254 per month right now. Not in this market. If your rental income sources dry up just a little, you may be forced to sell your new home at firesale prices. You've built up a little equity after 8 years. I wouldn't want to jeopardize that here.
I would seriously consider moving into the rental, instead of purchasing a new home.
At the very least, I would finance both properties at 30-year terms just to cash flow and give yourself a little breathing room just in case life happens....and it will.
At this point, I wouldn't be concerned with long-term interest costs. When backed into a corner, one should consider cash flow (and how to better it), instead of worrying about 30-year interest cost totals.
Finally, get your mind off the retirement plan. Consider it locked away. Find another way.

**ver** · 04-26-2010, 03:49 PM

THanks jefffou. I'll show all this to my hubby. BTW the rental is in DC and we currently live in the NorthWest!

**creditcardfree** · 04-26-2010, 05:04 PM

Originally posted by jefffou View Post

Ver,

A few thoughts.....

This situation would be way to tight for my wife and me.
I hope your are charging enough rent to cover that $1,375 (not to mention a larger $1,549)
Take away your rental income, and you're in trouble.
I'm not sure you should be buying into an additional $1,254 per month right now. Not in this market. If your rental income sources dry up just a little, you may be forced to sell your new home at firesale prices. You've built up a little equity after 8 years. I wouldn't want to jeopardize that here.
I would seriously consider moving into the rental, instead of purchasing a new home.
At the very least, I would finance both properties at 30-year terms just to cash flow and give yourself a little breathing room just in case life happens....and it will.
At this point, I wouldn't be concerned with long-term interest costs. When backed into a corner, one should consider cash flow (and how to better it), instead of worrying about 30-year interest cost totals.
Finally, get your mind off the retirement plan. Consider it locked away. Find another way.

This is great advice, especially concerning cash flow. I did mistype in my post. I'm clear that you have one rental property. Good luck!!

**Dandi Lion** · 04-26-2010, 07:01 PM

If you are already losing sleep over this situation then that should tell you something. I was running amortization schedules today on my mortgage which I just refinanced in January. We went from a 15 to a 30 yr mortgage, more than doubled the mortgage to $225,000 but only increased our payment by about $40. Crazy, I know, but we paid off the equity line, credit cards and personal loans and boy do I feel great about it. Anyway, I ran the schedules to see how much interest I would save and how many years I could shave off the mortgage by prepaying extra principle. $150 extra a month will get my mortgage down to 23 years and will save close to 100K in interest. I planned this going into the refinance knowing I could control the prepayments. If I'm a little short one month I won't prepay as much. When we are a little flush with cash a little more will be prepaid. This is why I don't feel so bad going into a 30 yr because I know I will prepay and pay it off long before. Good luck!

**cyclone1** · 04-27-2010, 08:28 PM

Go with a 30 year, you can't beat those low interest rates right now of <5%!

Can't sleep: need help figuring out what has to give