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My goal was to pay off my second mortgage by the end of this year, however, I missed out on 1.5 months worth of rental income from one of my spare bedrooms during the May/June time frame.  The missed income will cause a slight draw back to my repayment goal.


To make up for this short fall, I’ve come up with an alternative plan for repaying my second mortgage to reduce the interest portion of each subsequent payment, effectively more money is going towards the principle.


My second mortgage balance at the time of this writing is $6,457.


I’ve outlined two possible repayment scenarios and they are as follows:

Debt Repayment Options
Now, my savings account is earning a laughable 0.75% interest while my second mortgage is bearing a 8.375% interest rate, it makes sense to pay off the loan rather than let it sit in a (low yielding) savings account.  From this perspective, it’s a no brainer.

In option A, I’m throwing every bit of money I have at my second mortgage balance where as with option B, I’m sticking with my current repayment plan of paying an additional $1,000 buck towards the principle while making regular payments.

With Option A, I’ll have the second mortgage paid off in August saving about $232.00 in interest costs.


However, the question now becomes how risk adverse am I?

If I clean out my savings to pay back my loan, I’ll have no money to tackle any problems that life may throw at me.   The flip side of this is I’ll be able to save the money I would be using for payments.  Effectively, I’ll be able to start rebuilding my savings in a little more than a month.

The question becomes a lot easier to answer and I choose the option A repayment plan.

Yup, I cleaned out my savings account to hit my repayment goal by the end of this year.

I really wished I didn’t miss out on the May and June(part of) rent, but such is life and I have to roll with the punches.


Creative Commons License photo credit: cote



{ 1 comment }
  • Peili August 25, 2011, 1:32 pm

    Jeezus 8.375%??? Unless your interest deductible was worth keeping, your choice seems spot on. Savings interest isn’t even keeping up with inflation, so sad.


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