No debt problem? Interest-only loan can fund retirement
Q: We had a huge debt problem and very bad credits few years ago - my wife scores were 563, 577, 592, and mine were 596, 604 and 612 - will remember those numbers forever. We had to do bad credit mortgage refinance with Ameriquest to take a significant amount of money out of home equity. We got 2 year ARM at 7.93% that just went up to 9.93%. The loan amount is $300,000. We want to refinance, my wife credit scores are 665, 684, 690, and mine are 677, 681, 702. We will definitely sell our home in 5 - 6 years and retire somewhere else. All our debt problems are solved. We want to salvage as much as we can for retirement, as of today we have little money in IRA and 401k. My wife employer matches first 6% for 401k plan. We are considering interest-only mortgage, so we can use the savings to fund her 401k to the max. Appreciate the feedback.
A: Do it. As long as you have 20% equity in your house meaning the house can be appraised at minimum $375,000, you can get 5/1 or 7/1 adjustable rate mortgage for around 6.75% - 7.00%. Also consider 30 year interest only fixed mortgage which you can get at about the same rate today. Shop around, use a broker or check Countrywide and Washington Mutual. You will be paying $1,970.79 a month in principal and interest at 6.875%, but only $1,718.75 if you choose interest only option. Compare with your current monthly payment of $2,617.21 at 9.93%, that is whopping $900 less which can be used monthly to fund IRA and 401k. It is nice to have no debt problems and being debt free.
This is another good example of the much maligned interest-only mortgage. See paying off school debt with the help of interest only loan.
Thu Apr 27, 2006 11:04AM | Copyright: www.bad-credit-advisor.com | More in Relieving Debt |
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