My wife and I have two houses: one her parents live in and has only 4.5 years of mortgage payments left, the other we live in and is only 2 years into a 30 year mortgage. She has been making extra payments on the 4.5 year house for many years, hence it'll be paid off about 10 years early. Most of the monthly payment is now principal, and I estimate if she continues the extra payments it will only pay it off in about 4 years. Both mortgages are a similar interest rate. Should we put those extra payments towards the 2nd house ? Does it even make any difference ?

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    Are you in the US? Do you itemize? If not, your mortgage is the gross interest rate, but the rental interest offsets rental income. This can make a difference. – JoeTaxpayer Jan 5 '15 at 13:05
  • @JoeTaxpayer OP seems to be from Atlanta, so US I presume. – DumbCoder Jan 5 '15 at 14:08
  • @JoeTaxpayer what makes you think they have rental income? Poster said her parents live in the house. Maybe they're paying rent and maybe not. – Jay Jan 6 '15 at 19:49
  • @Jay - I did ask if they were in the US. In the US, if I own a house and family lives in it, as Tim described, there's imputed rent regardless of money transfering. And for a rental house, there's depreciation, etc. It's a rental whether or not he wants it to be. Or at least the IRS would say so. – JoeTaxpayer Jan 6 '15 at 20:12
  • @JoeTaxpayer Hmm, I don't think that's true. IRS publication 527 goes into excruciating detail about determining when you are using a rental property for "personal use", and says that you cannot deduct expenses incurred during personal use, including rules for pro-rating things like insurance and mortgage. Personal use is explicitly defined to include use by a parent or grandparent. (Section 5 of this pub.) I don't see anything in this pub about imputed rent. Of course that might be in some other IRS pub, but it seems paradoxical to say that you have to pay taxes on imputed rent but can't ... – Jay Jan 6 '15 at 21:40

What are the interest rates? if they are from 10 years ago they could be very high. I would check with a credit union for a 5 year loan at 2.8% interest. Pay off both mortgages with it. And pay the 5 year loan over 5 years or less. I wouldn't pay it early because at 2.8 its almost a free loan due to inflation and the return you can make on your extra money buying low risk assets.

  • Both rates are similar, about 3.8 percent. – Tim Jan 8 '15 at 13:00
  • Ok that's a great number. Personally I have 4% on two mortgages on two houses, I am in my 3rd and 2nd year on them. I will not pay one cent over minimum. Last year I made 17% on my investments and I just saw this year I made 9.69% In don't expect to make 4% on my investments every year but I don't have to. In 10 years I might make more than 4% on CD's or inflation will be 2% to 3% Compounding for decades. This really doesn't effect you because you do not have much time left on these mortgages but more for other people to read. Lets not forget that your interest in a write-off too. – Mark Monforti Jan 9 '15 at 18:51

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