Two mortgages. One is for 200K at 6%. The other is 100K at 3%. Which should be paid off first?
by Mortgage Rates on Monday, October 25th, 2010 | 5 Comments
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Personally, I agree with your wife.
In finance, everything is not quite what it seems: Pay off the $100,000 mortgage at 3%, but before you do so, file a request to have the $200,000 mortgage reduced to 3%: REFINANCE!!! Dangle the $100,000 over them like a carrot until you get what you want and then switch the tables on them. But, you want to get rid of one monthly payment at all cost.
Nothing worse than disagreeing with a woman, especially if she is your wife. But in this case you are right and she is dead wrong. Unless you can re-finance at a more favorable rate, you should pay off the loan with the highest interest rate first. The reason is simple. You pay less interest in the aggregate and your house is paid off faster and you save money in the long run.
Why would you pay off the lower rate loan and continue to pay on the higher rate?
Think of it this way: you have 300K worth of loans. Some costs you 3% and some costs you 6%. Pay off the 6%!
If you had two credit cards and one charged you 2% and one charged 30% which would you pay off first?
It’s more important with mortgages since the dollar values are so high.
It would be worth a trip to the bank and have the mortgage officer do the math for you.
Get a small monkey of your back first and put everything to attack the big monkey.
I am with your wife on this one.
After tax deductible on your mortgage ,the rate is jus 4.5% if you are in the 25%. If your tax bracket is bigger, the interest rate is 3%. So don’t compare . If you guys lost jobs or business, at least you have a place to fall back on with no mortage instead you guys lost both of them.