I am looking for someone or something to answer this question for me. I have a home mortgage at 5.75% with 28 years on it fixed, and I also have a student loan at 4.125% with 25 years on it fixed. The mortgage is around $200k, and the student loan around $30k. I need to know if it is better to pay off the student loan first, and then use that extra monthly payment to pay off or down the mortgage, or is it better to pay down the mortgage since it is at a higher interest rate. Both payments are tax deductible, and I am in the 28% tax bracket. I have no other debt. I am working on creating a savings account to cover expenses in case of an emergency, and I contribute the max each year to my ira account. I can not get a 401k. I have 2 young children, that I need to start saving for their college, but have not done so yet.
Anyone know of a good calculator that will let me plug in my numbers to see where I can obtain the best results with any extra income? Thank you.
2007-01-25 09:19:40 · 9 answers · asked by scictt2006 2 in Business & Finance ➔ Personal Finance
In general, you always want to pay your most expensive debt off first, however, in your case, you have excellent rates on both loans, and you're not really in a position to be concerned about paying off the debt in a hurry. You have other priorities, so just pay the minimums. The last thing you want to do is tie up money you may need to use for retirement/childrens education in the equity of your home (which does not affect the market value of your home in the least) and then have to resort to a home-equity loan at a higher rate than you are currently paying for the mortgage if you need the money down the road. Additionally, both your rates are low enough that if you invest any money beyond what is required to make the minimum payment, you will come out significantly ahead in the long-term.
As far as saving for the kids for college, you need a knowledgable financial planner to look over your total assets and income to put together some projections. Your income, which you didn't mention, is what will have the most significant impact on anything you would like to do. Future inheritences can also play a role in long-term planning.
2007-01-25 10:00:31 · answer #1 · answered by Josh 3 · 1⤊ 1⤋
I don't think you need a calculator to make your decision. I know you want to pay down your debt but I think based on your scenerio you would be much better off funding your emergency fund and then opening up a brokerage account to supplement your IRA for retirment. If you have additional funds available the next thing you should do is to start funding a 529 plan for your children's college education. Making additional payments on such low cost debt that could otherwise go to the options listed above considering your other obligations isn't the best use of your funds. The only reason I put opening a brokerage account before the 529 plan is because putting away $4k into an IRA may not be enough to build a sufficient retirment account...if you're 30 yrs old and continue to contribute $4k per year you would have about $750k when you're 65....sounds like a lot but if inflation increases at 2%/year it will have an equivalent purchasing power of approx $350k in todays dollars so you'll need to supplement your IRA contributions by investing in a non-tax advantage regular brokerage acccount. Your kids can always borrow to go to college but you won't be able to go back in time and fund your retirment...hopfully you can fund both but prioritize your retirment first.
2007-01-25 09:57:10 · answer #2 · answered by SmittyJ 3 · 0⤊ 1⤋
Pure debt reduction, pay down the mortgage first. Higher interest rate. 5.75% isn't high, especially since you can deduct it. If you are planning on paying for or helping pay your kid's college expenses, then your real challenge is to set aside enough to grow to what you anticipate you'll need. Pay the mortgage & student loan down as scheduled, using the extra to set up the college fund.
2007-01-25 11:38:32 · answer #3 · answered by Sam Fisher 3 · 0⤊ 0⤋
You have excellent rates.
It's better to pay down the mortgage first. This is the big driver for your credit report.
They really don't care about student loans unless you default - and the mortgage has a higher interest rate and the rule is to pay the higher interest rate - first and fastest.
College - 529 accounts and all banks and credit unions can set them up for your and your invest the proceeds for education. You don't pay taxes on this income that you put into 529 accounts.
www.irs.gov
forms, schedules and instructions, plus search section for questions.
They have educational 529 account info, but your banks have it too and it's not too late to make deposits based on 2006 income.
If your line 38 of your 1040, (AGI) is less than $52,000 you can file electronically for free, www.irs.gov - click on free filing.
GOD bless us always.
CPA-retired
2007-01-25 09:30:02 · answer #4 · answered by May I help You? 6 · 0⤊ 0⤋
The financial statement is very important to know to all . Most of the people don;t have any idea about the mortgage , loan . But now even this services are available as a loan calculator mortgage calculator.
2014-08-03 01:50:19 · answer #5 · answered by Abswar 2 · 0⤊ 0⤋
I have a good book that will give you a plan to get out of debt and what to pay off first, etc.
First step, have a small emergency fund, then pay off all debt besides the house. Then fully fund your emergency fund (3-6 months of expenses), then put 15% of your income in retirement, then fund the college and then pay off the mortage and then build wealth and give!
The book is: The Total Money Makeover by Ramsey. He explains in the book why todo it that order and why debt is not good and why interest rates don't matter. He has been there done it, etc.
We are using his system and getting out of debt faster than we ever thought possible.
2007-01-25 09:29:21 · answer #6 · answered by mldjay 5 · 0⤊ 2⤋
call your cpa, or a financial analyst
I would pay down the house first and keep the student loan current. I would also get a better job to afford to pay off both loans faster.
2007-01-25 09:26:32 · answer #7 · answered by Patrick G 4 · 0⤊ 2⤋
Since you are looking for creditors, might as well be cautious about the people you deal with. In crisis, there will be people who will take advantage of the situation and try to fool you.just some piece of advise.
2016-05-23 23:37:15 · answer #8 · answered by Anonymous · 0⤊ 0⤋
Try this webpage: http://finance.yahoo.com/calculator/index
Here is another webpage: http://www.kiplinger.com/tools/
Another one is http://moneycentral.msn.com/home.asp, though I don't like it that much.
The other option would be to hire a cpa to do your analysis.
2007-01-25 09:35:34 · answer #9 · answered by rain 2 · 0⤊ 0⤋