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Should I wipe out savings,to pay of rental house?
Old 05-13-2011, 07:48 AM   #1
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Should I wipe out savings,to pay of rental house?

I'm having a hard time with this.I'm 42 and single,own two homes free and clear,with no other debt,aside from one rental property that I owe $140,000 on.I have enough in savings to pay off my first mortgage and will have a $150,000 HELOC available for emergencies,which currently has an $8700 balance.My goal is to pay off this mortgage as quickly as possible,but the thought of draining all my cash leaves me a bit uncomfortable,even though I have access to borrowed money.Thanks......
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Old 05-13-2011, 08:44 AM   #2
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Imo, you should have 6 months expenses saved in cash. Use the rest to pay down the mortgage if you'd like.
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Old 05-13-2011, 08:44 AM   #3
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Depends what the rate of the mortgage is on that house (and what the rate is on the 8700 balance on the HELOC).

Assuming it's low enough, likely you won't want to pay it off. There's better places to put that money to get a better return. Plus there's tax benefits to keeping it as well, especially on a rental (mortgage expenses helps offset the rental income).

You may want to just pay off that HELOC and leave the first mortgage.

Having that much cash sitting (150Kish) around isn't doing you much good though. Are you super risk adverse, and don't want to invest it? Are you saving up for something in particular? Think about your goals, your risk tolerance, etc. to decide what to do with that savings.
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Old 05-13-2011, 08:47 AM   #4
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Depends. What kind of interest are you paying? can you make more than that by investing the $140k? Are you renting out one and own three total or do you own two and rent one? Not a bad age and buying climate to become a land baron if you want....
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Old 05-13-2011, 09:14 AM   #5
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I want to get rid of my mortgage asap too. I could pay it off tomorrow, but I don't want to reduce my liquidity that much. So I take market gains from my taxable accounts and make extra principal payments. Why not just do that?
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Old 05-13-2011, 09:14 AM   #6
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The first mortgage is a 5.5% 30 yr fixed,with 19 years remaining and the HELOC is prime + a half (3.75%),with 14 years left in the draw period,and fully due in 2045.I recently paid this down by $30k.My risk tolerance is somewhat low,regarding stocks and bonds.My cash is mostly in CD's,paying 2.9%If I pay it off,I'll have two rentals,cash flowing at $1800 total,before taxes,ins and maintenance.I can live pretty good on that,combined with my self employment income.Thanks for the replies...
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Old 05-13-2011, 11:06 AM   #7
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To some degree, the amount by which I'd be willing to drain my liquidity would depend on an honest assessment of my job security (or security of my income stream if retired or self-employed). The more "certain" I felt about it, the more I'd be willing to dig into savings to pay off a much higher rate loan. While I might want 12-24 months of living expenses if I felt insecure about my continued employment (especially in this bad job market) or my income stream, if I were very comfortable with my security I might take it down to as little as 3 months.
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Old 05-13-2011, 11:11 AM   #8
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Quote:
Originally Posted by liveitup View Post
and will have a $150,000 HELOC available for emergencies,which currently has an $8700 balance.My goal is to pay off this mortgage as quickly as possible,but...

the thought of draining all my cash leaves me a bit uncomfortable,even though I have access to borrowed money.Thanks......
Don't underestimate the importance of liquidity.

Across the many, many threads on this subject, one poster kept throwing out that HELOC as the source of liquidity. Fast forward a bit, and we were seeing posts from people saying that their HELOC was frozen, they couldn't get to the funds. Ooops!

Insufficient liquidity can be a disaster. But if you run the numbers, you'll probably find that holding a reasonably sized mortgage does not present any disaster scenarios whatsoever, and over the long run is unlikely to make any large difference either way, financially.

-ERD50
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Old 05-13-2011, 11:24 AM   #9
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... the HELOC is prime + a half (3.75%),with 14 years left in the draw period,and fully due in 2045.
I'm impressed at a $150K HELOC, let alone what seems to be a lengthy draw and a generous interest rate. Even here in the land of unreasonably high real estate values I've never been able to set up more than a $50K HELOC limit. Is it just one line of credit secured by just one property? Where did you acquire this?
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Old 05-13-2011, 12:06 PM   #10
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The first mortgage is a 5.5% 30 yr fixed,with 19 years remaining and the HELOC is prime + a half (3.75%),with 14 years left in the draw period,and fully due in 2045.I recently paid this down by $30k.My risk tolerance is somewhat low,regarding stocks and bonds.My cash is mostly in CD's,paying 2.9%If I pay it off,I'll have two rentals,cash flowing at $1800 total,before taxes,ins and maintenance.I can live pretty good on that,combined with my self employment income.Thanks for the replies...

I'd hate to depend 100% on the HELOC if I used all my cash.

Is it possible to consider a no cost refi to a 15 yr note to reduce the rate while paying down some of the balance keeping some of your cash? I see that PenFed has a no cost 5yr ARM @ 3.5% special promo.
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Old 05-13-2011, 12:10 PM   #11
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I'm impressed at a $150K HELOC, let alone what seems to be a lengthy draw and a generous interest rate. Even here in the land of unreasonably high real estate values I've never been able to set up more than a $50K HELOC limit. Is it just one line of credit secured by just one property? Where did you acquire this?
Nords,
The loan was with Wachovia (now Wells Fargo).WF still has a similar product,with a 10 year draw,15 or 30 year repayment period,with lines up to $500,000.Here's a link...

https://www.wellsfargo.com/equity/solutions/wfhea/
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Old 05-13-2011, 01:26 PM   #12
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Nords,
The loan was with Wachovia (now Wells Fargo).WF still has a similar product,with a 10 year draw,15 or 30 year repayment period,with lines up to $500,000.Here's a link...
https://www.wellsfargo.com/equity/solutions/wfhea/
Thanks. Wow, I've been approved for a HELOC bigger than our home's mortgage, and at an interest rate lower than I'd be able to get as a landlord of a rental property. I bet I could shave a few bucks off our rental's mortgage payments.

But then I'd move the loan's security from our rental home to our residence. I wonder if I could still deduct the HELOC interest off Sched E (dollar-for-dollar reduction of our rental income) or if I'd have to move it to Sched A (dollar-for dollar reduction still).

I probably shouldn't strap on this weapon... spouse hates it when I start tinkering with our mortgage payments because things just aren't busy enough already.

I need to go do some math.
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Old 05-14-2011, 02:00 AM   #13
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Thanks. Wow, I've been approved for a HELOC bigger than our home's mortgage, and at an interest rate lower than I'd be able to get as a landlord of a rental property. I bet I could shave a few bucks off our rental's mortgage payments.

But then I'd move the loan's security from our rental home to our residence. I wonder if I could still deduct the HELOC interest off Sched E (dollar-for-dollar reduction of our rental income) or if I'd have to move it to Sched A (dollar-for dollar reduction still).

I probably shouldn't strap on this weapon... spouse hates it when I start tinkering with our mortgage payments because things just aren't busy enough already.

I need to go do some math.
Yet another brick wall We do know on this board what you do all day ;-) As a suffering spouse myself, I can imagine the dialogue......
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Old 05-14-2011, 03:52 PM   #14
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Sadly, while a legitimate offer, the 30-year fixed-rate home-equity loan was at 9.24%. Our rental's current mortgage is a 30-year fixed-rate 4.625%.

I was really eager to close that 4.625% loan before BofA came to their senses, and during the process I learned enough to never want to buy their stock or any other of their financial services.

But I was hoping that a 2nd on a personal residence would carry better terms than a first on an investment.

So I guess we won't be refinancing a property this year after all. Gosh, I hope I don't run out of things to do and feel all bored & unfulfilled........

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Yet another brick wall We do know on this board what you do all day ;-) As a suffering spouse myself, I can imagine the dialogue......
Oh, I'll still enjoy reporting the results of my due diligence!
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