The Mortgage Brothers Show

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Which Mortgage Is Best to Pay Off First?

04-08-2011About MortgagesEddid Knoell

It is not uncommon for Arizona homeowners to have a first mortgage and a second mortgage on their homes. Second mortgages are generally equity loans that homeowners take out to pay for medical bills, home improvements, college tuition, vacations, retirement and other personal expenses. Before you take a second Arizona mortgage on your home, you should think seriously about how you will pay it back if your home value declines, you lose your job, become ill or disabled or experience some other financial hardship.

You should have a nest egg put away for at least six months mortgage payments and your other monthly living expenses. Otherwise, you could find yourself facing foreclosure. Unfortunately, due to the economy and declining home prices the past few years, many Arizona homeowners have not been able to afford their mortgage payments and have lost their homes to foreclosure or about to lose them.

Read Your Load Documents Carefully

Read your loan papers carefully. Most borrowers don’t understand their loan terms or forget what they signed. Borrowers sometimes don’t realize they might have a prepayment penalty on their Arizona mortgage loans. So before you decide to pay off your mortgage, you need to make sure you don’t have a prepayment penalty on your first or second mortgage. If you do have a mortgage with a prepayment penalty, then pay the mortgage off that does not have the penalty first whenever possible. Typically, prepayment penalties only apply for the first few years or less. If you have an adjustable rate mortgage, pay that off first because it may reset to a higher rate that you cannot afford. That is what occurred with sub-prime borrowers causing the sub-prime lending crisis and many foreclosures. When it comes to paying off two fixed rate loans, choose the one with the highest interest rate to pay off first.

Reducing Your Debt

There are other ways you may want to reduce your monthly debt. Talk to your credit card companies and negotiate a lower interest rate. Pay your credit card balances in full each month to avoid finance charges and interest. Consolidate your credit card debt with a low interest rate card. Refinance your car loan or ask your bank for a car loan modification. Make extra payments on your loans. Make all your loan payments on time to avoid late fee charges.

If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@azmortgagebrothers.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

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Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.

Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.

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