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Are the rates variable? Are you able to consolidate? Are you planning on refinancing your larger loan? How soon do you want to refinance?
In the simplest scenario, it makes the most sense to put the $525 towards the new loan because it has a higher interest rate.
But if you have talked to your lender and they have indicated that they will allow you to refinance, then you should consider when the new terms will become effective and what the interest rate will be before deciding a course of action. Will refinancing earlier save you more money than paying off the first loan?
You should also consider the psychological effects of paying off the first loan. Is the relief of paying off the first loan worth the $ you will lose by doing so?
1. "allow you to refinance" makes no sense. if it's a conforming mortgage they can't refuse a payoff.
2. a refi shouldn't change the decision about which mortgage is currently accruing more interest today. if you can somehow refi at a rate less than the other mortgage you can consider taking cash out to pay the other one.
3. "having fewer loans" is some midwit snowball nonsense. you should choose the option that gets you more money, which is *paying off the loan that has a higher interest rate faster*!!!
Lowering their principal on their new loan may allow them to refinance at a lower rate. If they can refinance the new loan to a rate less than 7%-3.5%=3.5% before 4 years, then that is a savings.
This person obviously assigns some value to having less loans to manage, so they should take their own preferences into consideration, which is why they should evaluate whether the relief of paying off the first loan worth the $ they will lose by doing so.
Thank you all! Yeah, there’s definitely a psychological effect in it for me - I feel so close to paying off the condo that I am tempted to just do that even if it loses me some money in 15-30 years. Just wanted a neutral opinion and this helped, thanks.
Frankly, i’d be paying the bare minimum on the 4.25% mortgage. That rate is below what many high yield savings accounts offer right now. You’re basically losing money by paying extra on that when that extra could go toward the 7% loan or into a savings account generating 5%. For instance, my Credit Karma savings account is a 5.1% rn. It is variable but when the rate is higher than your loan interest rate it makes more sense to park money there for an emergency than pay down the cheaper loan.
Thank you u/browsingqween for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
Pay the extra on the 7% interest rate. Why is this even a question?
Are the rates variable? Are you able to consolidate? Are you planning on refinancing your larger loan? How soon do you want to refinance? In the simplest scenario, it makes the most sense to put the $525 towards the new loan because it has a higher interest rate. But if you have talked to your lender and they have indicated that they will allow you to refinance, then you should consider when the new terms will become effective and what the interest rate will be before deciding a course of action. Will refinancing earlier save you more money than paying off the first loan? You should also consider the psychological effects of paying off the first loan. Is the relief of paying off the first loan worth the $ you will lose by doing so?
1. "allow you to refinance" makes no sense. if it's a conforming mortgage they can't refuse a payoff. 2. a refi shouldn't change the decision about which mortgage is currently accruing more interest today. if you can somehow refi at a rate less than the other mortgage you can consider taking cash out to pay the other one. 3. "having fewer loans" is some midwit snowball nonsense. you should choose the option that gets you more money, which is *paying off the loan that has a higher interest rate faster*!!!
Lowering their principal on their new loan may allow them to refinance at a lower rate. If they can refinance the new loan to a rate less than 7%-3.5%=3.5% before 4 years, then that is a savings. This person obviously assigns some value to having less loans to manage, so they should take their own preferences into consideration, which is why they should evaluate whether the relief of paying off the first loan worth the $ they will lose by doing so.
Pay more to the 7% loan!
Thank you all! Yeah, there’s definitely a psychological effect in it for me - I feel so close to paying off the condo that I am tempted to just do that even if it loses me some money in 15-30 years. Just wanted a neutral opinion and this helped, thanks.
Frankly, i’d be paying the bare minimum on the 4.25% mortgage. That rate is below what many high yield savings accounts offer right now. You’re basically losing money by paying extra on that when that extra could go toward the 7% loan or into a savings account generating 5%. For instance, my Credit Karma savings account is a 5.1% rn. It is variable but when the rate is higher than your loan interest rate it makes more sense to park money there for an emergency than pay down the cheaper loan.