Money Matters
billiburrows
member
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
would this effect credit rating or mortgage rate?
We bought our home 6 years ago with the hope that we would live here and fix it up, flip it, and move out within maybe 3 years. and here we still are. still hoping to move out soon but we can't guarantee that will happen. since we were hoping to live here temporarily we took out 2 mortgages. i think it was one for 80% and one for 15%. the one for 15% is at a higher interest rate (i think 8%).
here is the question. should we pay off the second mortgage at the higher interest rate since we have the cash? if we were planning on living here for a while it would make sense (and would have made sense to do initially had we realized we'd still be living here 6 years later). at this point i'm worried about if we pay it off (i think its like $12K) how that may effect anything with trying to buy a new house. for instance getting a mortgage...would it look better to have $12K cash in the bank instead of paying off this mortgage? what else could be effected? credit rating??? what are your thoughts? what would you do?
thanks for your help!
Re: would this effect credit rating or mortgage rate?
To really answer your question, I need a little bit more information. If you were to pay off the second mortgage, would you have any cash left in savings? I would make sure you have at least a 3 month emergency fund. If $12K is all you have in savings, then I would work on saving up some more before you pay it off.
If you do have that plus an e-fund, then I would definitely pay it off. 8% is a pretty high interest rate. When you are purchasing a home, many banks like to see 3-6 months payments reserves in your accounts (this can include retirement accounts that you have access to). Also, assuming you would sell your house for enough to cover both mortgages, the bank wouldn't be too concerned about the second mortgage on your credit report. I would personally be more concerned about the amount you are paying in interest that you could potentially be investing.
As far as your credit rating, it shouldn't affect it much that I am aware.
I don't think I'd be buying a house without the contingency on the sale of my current home. What you might want to do is start looking at apartments and get an idea of one you might like. Put your house up for sale. Once you have an accepted contract, then start looking for houses and if you don't find one, move into one of the previously selected apartments. At that point, you could still have the contingency on the sale of your prior home, but more sellers will accept it because you're already under contract. That's how we just did it on the house we sold and bought.
Otherwise, you run the risk of owning two houses with two mortgage payments.
As for the second mortgage.....if you're seriously looking to sell, I'd keep the cash in reserves and actually get the house listed.
Edit: I say this because they may be able to tell you right off the bat if you could even buy a home without selling your current one. That way you don't waste your time looking at houses you can't buy. They may have other options as well!
People - please stop looking at your house as a money maker (flipping and making money )or a cash cow (pulling out equity to fund your life). What do THEY want to see from you to qualify for a mortgage?