Chat Plus: Pay Off the Second Mortgage or Save the Cash?
Here's a question remaining from last week's Real Estate live chat:
Northern Virginia: We bought our home in 2006 for $775,000. While we are in good standing with our mortgage, we are "underwater." (Homes of similar age/size/condition in our area are currently selling for about $600,000-$650,000.) We want to relocate out of the area but do not have the funds to make up the difference. We assume it will take three to five years for us to break even, maybe more. We determined that in three years, we could pay down our second mortgage enough to account for the current drop in value. Do you think this is our best option to accelerate our ability to move? Or do you think it's better to save our money for the future sale, closing, etc. and pay any possible difference at that time instead?
E.R.: Of course, a lot depends on the interest rate you're paying on that second mortgage, but with all the uncertainties remaining in the economy, I still take comfort in building up cash. And, given the decline in your home's value, you would not be able to access home equity credit should the need arise.
It pays to plan for the unexpected. You might need some of that cash to tide you over in case a layoff or illness hit, for example. And your relocation plans might change. This is one of the many instances in which it's wise to look at housing options within the broader context of your overall finances. Are your emergency savings adequate? Is too much of your wealth tied up in real estate or the stock market? If you have the money in the bank, you can, as you indicate, use it to pay off the mortgages when you eventually do sell. If you pay off the second mortgage early, you've boxed yourself in.
Posted by: laura33 | August 25, 2009 12:31 PM | Report abuse
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