Photo credit: revdancatt
Sounds like Mark has embraced the concept of ‘good debt’ pretty quickly; I wonder where he intends to live when he converts his current home to a rental? I am also wondering why he is planning to ‘flip’ it in 2 -3 years for another?
I must admit, I came from a culture where debt is frowned upon. This apply to mortgages as well. I’ve never hear of the concept of a good debt until recently. What kind of debt do I have?
For starters, I don’t carry a credit card balance so I don’t have any credit card debt. The only time I did carry a balance is when it was 0% many years ago right after college. I was a poor student!
I had brief moments where I have an auto loan. The first one only lasted 9 months and the latest auto loan is paid off using a HELOC I obtained from my home which is a much lower rate and it is tax deductible.
Here is my current debt situation:
1) Primary mortgage on my current residence. The balance is about $92K @ 4.75%. It is an ARM that will reset next year but I’m only planning to keep this property for 2-3 years. The cost of refinancing is not too attractive for that time frame. Alternatively, since this is an ING Orange Mortgage product, I can just pay $750 to get the current rate for another 5 years. Currently it is at 4.5%. The ARM is tied to the 1 Year Constant Maturity Treasury Rate + a margin of 2.5%. It is currently at 0.62%. If it resets today, it will be lower than 4.75%. That’s why I’m not too keen on refinancing.
2) HELOC on my current residence. I took out a $25K credit line from my local credit union. I used about $10K to pay off the auto loan and about $7K for investments. The rate that they are charging is Prime Rate -1% which is currently at 2.25%. This is definitely a steal and I’m repaying this slowly.
3) Future primary mortgage. I’ll be taking up more “good debt” end of this month. I just identified a property from a builder and completed the purchase agreement and obtained financing for it. The mortgage amount will be at $183K @ 4.999% fixed for 30 years. There is actually an interesting story behind this deal which deserves its own post. I will get to it, I promise.
I planned to convert my current residence into a rental very soon. There is some up front cost like minor repairs and replacing the 15 year old heating / cooling system. I will just rent it out for 2-3 years and will plan to sell it during that time frame to avoid some tax liability. That will eliminate debt (1) and (2) but I will be purchasing another property at that time, hopefully.