Where to spend surplus cash?
by Mortgage Rates on Tuesday, October 12th, 2010 | 1 Comment
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What extra cash are you talking about?
Your “emergency fund” needs to be able to cover any and all expenses for at least 6 months to a year.
You got extremely lucky to get the house. The 10% down was financed by your second mortgage… so in reality you didn’t put anything down at all. or if you did you immediately took it out with the second mortgage…
Since your house has lost value you are walking a dangerous line.
Total outstanding debt on the house 1st and 2nd combined: $505,900.
Estimated value of property 520K. Established equity: $14,100.
While you are paying down the 1st loan and making a dent into the principle your “interest only” second is eating up your equity over time.
On top of that you have another $15K loan for a car. Which is a total waste… the car doesn’t increase in value over time.
My advise: pay off the second mortgage immediately and pray that your house holds it’s value and that you are getting some much needed equity into the picture. By paying off the second you immediately add that much equity dollars into the mix and if you ever need to refinance that 7 year ARM you will need every penny of equity that you can get.
Keep at least 6 months to a year worth of living expenses in your cash accounts. This is what you need to be able to keep your obligations going while you look for a new job, etc.
With the rest… pay off that second mortgage to increase the equity in your house.
Once the car is paid off… keep it and put one years worth of car payments into a savings account to cover any major repairs on the car that you now completely own and don’t forget to look for cheaper insurance. You don’t need full coverage anymore…