Payoff 2nd for $56K to save $425 a month

[netboy]

Bought my home at the peak in 2006 for $233k. my 2nd is $56k at 8.75% interest. The 2nd will not work with me at all since my home is now worth only $140k. I have a way to pay off the 2nd but it eats up all my savings and leaves me only $10k in savings. My 401K will be untouched. Paying the 2nd saves me the $425 payment. should I pay off the 2nd now?

I;m currently working on refinancing the 1st which will save me $180 month so hope that goes through. It's thru the govt HAMP program.

thanks

[littleroc02us]

I'm going through the exact same situation. I also bought in 2006 for 230k @ 9% on my second. I owe 42k. I am paying twice a month trying to knock it down in a year and a half. It will save me $370 when it's paid off. The value of my house hasn't dropped much because I live in an area that is going up every month. I can't wait for that day when the second is paid off. Then we are going to look possibly at moving to a different house that will be a little better for raising a family.

[JoshuaHeckathorn]

Similar situation for me too, except I bought in 2005 and still have some equity (albeit a small amount now) in my place. I've decided to pay off the remaining balance on the 2nd right away, but I'll still have an adequate cash EF even after I pay it off. If you're nervous about only having the $10K in savings, try accelerating your payments for awhile until you reach a more comfortable point. Either way, I think it's best to pay it off as fast as possible unless your employment situation is questionable and you're concerned that it will be more important to have access to the cash in the near future.

[jpg7n16]

What is your family situation like? Are you the breadwinner? Married? Kids?

I ask these to determine what level of emergency fund you need. The range should be 3-6 months expenses - with the more cushion you need pushing you to the 6 month max. Since you have a home, you're tied to a substantial obligation, so you should at least keep 4-5 months, even if you're single.

How much do you make (household)? What are your average month's expenses? How much do you presently have in savings?


Your priority should be to make sure you have enough of an EF for a person in your life situation. Is 10k enough? I'd have to see the other questions 1st.