Just bought a 195k home under conventional 30 year 3.75% 185,250 loan with 5% down. Since there is only 5% down im required to pay Private Mortgage Insurance of $100 per month. Also have student loan debt totaling 37k at around 6.7%. No cc debt.
Have $15k sitting in bank to whittle down one of the 2. Would I be better off just putting that down on the student loan or should I pay it on the house to build more equity in order to drop that PMI sooner?
Fri Apr 12, 2013 4:51 pm
oldguy Senior Member
Cash: $ 714.80
Joined: 21 May 2006
It depends on how you invest your income stream - if you use a no-load SP500 index that historically averages 11%/yr and you are investing for the longterm - then the answer is to prepay neither.
Eg, say you have an extra $200/m of income plus $10,000 of savings put into an 11% fund for 30 yrs - that is $700,000. So you probably wouldn't want to derail a $700,000 plan just to prepay a $37,000 note?
OTOH, if you are concerned more about the shortterm, you would prepay the $37,000, but keep the 3.75% loan for the full 30 years, it's a 'keeper'. The PMI will drop off in a few years, no need to buy out of it - remeber, the $100/m is the fee for you to reatin the use of the other 15% of the down payment ($29,250). Keep that $29,250 invested at 11%, that trumps killing the PMI early.
Fri Apr 12, 2013 5:35 pm
coaster Senior Advisor
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If that student loan is a private loan with an indexed rate, I'd get free of it ASAP.
Sat Apr 13, 2013 5:20 am
elwinmerle New Member
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Given the enticing offers that some credit card companies make to keep their customers, it is very easy to accumulate loads of credit card debt without realizing the consequences until later.