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No. of Recommendations: 4
We took out an 50k unsecured loan for a pool on a 20 year, fixed 7.99% interest-rate last year. I want to pay this down the best way possible to avoid the high interest.

If you didn't want to pay 'high' interest of 7.99%, then why did you take out the loan? Why did you not save for the pool and pay cash for it? (Since I paid over 8% on my first mortgage loan, I find it hard to call 7.99% fixed a 'high' interest rate, although in today's world of interest rates, it's certainly not low.)

I thought about just increasing the payment every month, taking money out of my portfolio to pay it off, or trying to refinance my mortgage and wrap the pool debt amount into the newmortgage.

Well, to avoid paying any more interest, taking money out of your portfolio is the best option. But you will also need to account for any taxes you will pay on that withdrawal - so unless you've got a fair amount of capital loss stocks that you can sell to get the taxable income down (and if you're taking from a retirement account, that won't work), you're going to have to withdraw more than $50k. If your portfolio is all in an IRA or 401(k) type account, you'll probably need to withdraw around $65k to account for the Federal taxes - more if your state taxes retirement account withdrawals. If your portfolio is in a taxable account, and the stocks you are selling have doubled in value, then you're probably going to have to take out about $55k - more if your state taxes capital gains. If that's going take out a big chunk of your portfolio, then that's probably not a good option.

As far as not having enough equity in your home to refi after you've put the pool in - that's one of the problems with adding a pool - they can cost significantly more than they add in value - which is one of the reasons why people shouldn't borrow to put a pool in. Have you actually checked with a realtor or someone else who is familiar with real estate prices in your area to see how much your home (with the pool) is worth?

So that kind of leaves making extra payments. If you've had the loan for a year, and made 12 payments without paying any extra principal, your balance should now be down to $48,941 or so. So those 12 months of $417.91 payments have paid off just over $1000 in principal. If you do a little more than double up on the payments, and pay $950/month until it's paid off, you can have the loan paid off in another 64 months (5 years, 4 months). If you want to pay it off in 24 months, so you can retire in 2 years without having to make payments on the pool (in addition to your mortgage) when you're retired, then you'd have to increase the payments to probably around $2.2k/month. If you want to pay the loan off in 12 months, so you can retire in 1 year, you'd have to make payments of around $4.3k/month. Can you afford to do either of those so that you can retire without having to make payments on the pool when you're retired?

I am 63 years old on a temporary furlough, and want to retire in the next 1-2 years..

Do you have a plan to actually produce enough income so that you can still pay your mortgage, the pool loan, any other loans and living expenses, and not take more than 4% from your portfolio value? If not, maintaining your current lifestyle in retirement is going to be an issue.

Financial decisions that you make have real consequences. Wanting a pool badly enough to have borrowed money for it only 2 - 3 years before you also wanted to retire is one of those decisions that may very well impact your retirement want - and not in a good way.

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