SHOULD I REFINANCE OR PAYOFF 2ND MORTGAGE?

The question

I saved up 50k to payoff my line of credit but not sure if i should just keep the money in the bank and refinance. I was offered a 20 year fixed at 3.875% closing cost will be about 1k. the payment will be small more but im fine with that, i pay an additional 200 into the principle on my mortgage now. This is my current mortgage now

Account Overview as of 01/08/2012
Loan type and term:
30 Years Square fixed
Original principal balance:
$ 308,000.00
Contractual remaining term:
25 years, 1 month
Interest rate:5.75%
Current principal balance:
$ 281,468.03

then I have a line of credit that i owe 52k. the rate is 4.25% I have to 185$ of interest every month minimum. The reason i have this line of credit,was to payoff a 2nd mortgage i had at 8.8%. should i just payoff the line of credit and keep paying the additional 200 into my principle on the 1st mortgage?? or should i save the 50k in the bank and refinance? or I could payoff the line of credit and still refinance??
If you reckon you can get me a better deal, then please email me!!!(TONY45POWER) this is loan will be longisland NY.
thanks

Best answers:

can i get a student loan after bankruptcy

If it were me I would pay off the line of credit & refinance the first at 3.875% for 20 years. If you do an Am schedule on both you will see the benefits. It probably would have been better if you had been paying the extra towards the line of credit. If you are only paying interest it will never get paid down.

Tony,

I am a mortgage broker from Canada and I don’t know the rules for your state, but I would suggest the following:

***Regarding the $ 50k you have saved:
Pay off your line of credit with the funds that you have saved. Don’t close the line of credit, but keep it open so that you have it for emergencies in the future.

If you chose to invest the $ 50k that you have saved, then you would need to get a better return than 4.25%. In fact, you would probably have to make a better return than 5.5% because of the tax you would pay on the return.

If you can generate a better return on this money. Then pay off the line of credit and then borrow the funds again for your investment so that you can write off the interest costs against the income you are receiving.

***Regarding your current mortgage:
If you want to refinance your mortgage, then you have to calculate the actual costs to determine if it’s worth it.

If you can get a better rate and the costs to refinance will be recovered in 18-24 months then refinance. If not, then don’t!

For example. If it will cost you $ 5000 to refinance (legal fees, appraisal fees, broker fees, etc.) then you need to get an interest rate that is 1.2% lower than your current rate. (I calculated this by taking the cost $ 5000, dividing by 18 months and multiply by 12 months (to annualize the cost) then divide by the mortgage principle ($ 281,468) resulting in 0.0118 or 1.18%)

Best of luck.

Steven Crews

http://www.home-equity-loan-strategies.com

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How do i adjust a business’s accounts to pay a redemption premium on a debenture?

The question

8% Debenture issued 1 Jan 2010, Value of loan = £50,000,000
£4,000,000 Loan interest is currently in the profit and loss (Statement of C Income)

The business will repay the loan in 2012 at a premium over its current carrying value, the premium on redemption means that the loan carries an effective rate of interest of 10%.

How do I account for this in my profit and loss and balance sheet?

Thanks in advance.
I reckon the question is simpler than that, but i appreciate the working done.
The carrying value of the loan is £50 million, interest paid is £4 million is included in profit and loss.
The debenture was received on Jan 2010.
The business will repay the loan in 2012 at a premium over its current carrying value, the premium on redemption means that the loan carries an effective rate of interest of 10%.

There is no mention of discounts. Surely if a business pays a loan back quicker, the lender would expect a premium due to the fact they’re losing a potential interest payments for further years.

I suspected that I’d have to either –
1) change nominal rate from 8% to 10% and therefore the loan interest has to be increased from £4 million to £5 million.

2) Or add 10% premium to the carrying value of the loan therefore its increased to £55 million and an 8% annual payment is made which is £4.4 million, so I’d increase loan interest by £400,000.

Those are my predictions a

Best answers:

If the term of this bond is only 2 yrs, (from 1 Jan 2010 to 1 Jan 2012), and the effective rate of 10% was the market rate when issued, then the proceeds from the loan were 48,264,463, a discount of 1,735,537. The discount should be amortized over the 2 yrs, at 867,768.50 per yr on a S/L basis.

Interest expense each year will be 4,000,000 plus 867,768.50, or 4,867,768.50.

The carrying value on the Balance Sheet at the end of 2010 will be 50,000,000 less the unamortized balance of the discount, 867,768.50, for a net liability of 49,132,231.50.

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