 Mortgage
mess nixes retirement nest
|  Dear
Dr. Don,
I purchased my first home six months ago. The
only loan afforded to me was a no-doc loan and I needed 80/20, with
no money down. The first rate is at 7 percent, borrowing $219,000
interest only, and it's a 30-year fixed. The second mortgage is
12.125 percent borrowing $50,000 interest only, and it's also a
30-year, fixed rate mortgage.
There is no penalty to prepay or make extra principal
payments. I have called around and no one will refinance me because
I haven't been in the home long enough. I figured out my home will
be paid off by the time I am 75 years old. That is crazy! I have
no saved money and no money for retirement.
What do I have to do to pay my home off by the time
I am 55 or 58 years old? I am 45 years old now, so that is in 10
years. How much extra each month do I apply to which loan to get
this house paid off?
Is this to my benefit to pay down the loan as quickly
as possible? No one will give me a straight answer, and I really
need help and advice.
I need to put money away for retirement and
do something with this second mortgage of mine. Can you help me
or help me figure out how much to pay extra (principal only) each
month? Thank you for your help.
-- Geri Gestalt
 Dear
Geri,
I can understand why you want out of your interest
only, no money down, no-doc mortgages, but you're only six months into it. Why
did you wait until after closing to put on your thinking cap and figure out what
it all means to your financial future?
Although you didn't provide me with the income side
of your personal finances, making this a no-doc reply, at age 45
your goal of paying off $269,000 in mortgage loans over the next
10 to 13 years doesn't sound particularly realistic.
You absolutely should make it a priority to get out
from under a 12.125-percent second mortgage. Assuming you're correct
about the no-penalty provisions of the mortgage, you should make
all the additional principal payments you can afford on this loan
to bring down the loan balance, thereby increasing your equity position
in the home.
Refinancing isn't cheap, but it's less expensive to refinance
a second mortgage than it is to refinance the first mortgage. Focus on your refinancing
options with the second mortgage. There are seasoning
issues when it comes to private mortgage insurance, but I'm not aware of any seasoning
issues concerning refinancing -- except trying to avoid a prepayment penalty.
Since your mortgages don't have prepayment penalties, you're free to do some shopping,
although finding a no-doc home equity loan will be a bit of a challenge. You didn't
explain why you needed a no-doc financing, but if you can provide the lender's
required documentation you'll get a better rate on the loan.
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