paying mortgage
paying mortgage
My primary residence mortgage balance is $122K with 4.125% and the rental (investment) balance is $37K at 5.5%. This is simple math (not going with higher rate), which one should I pay $20,000 additional ? Not sure how to factor in rental / taxes etc. Help

 Posts: 331
 Joined: Sat Aug 16, 2014 8:20 am
Re: paying mortgage
Could you provide more info?
Other debts?
Current emergency fund?
Other savings / investments etc?
Other debts?
Current emergency fund?
Other savings / investments etc?
Re: paying mortgage
Depends on your circumstances but likely a wash due to being able to deduct the rental interest and practically not (unless you are over std deduction, which even then it is a small value) being able to on the home mortgage.

 Posts: 509
 Joined: Fri Dec 11, 2015 12:40 pm
Re: paying mortgage
Rental mortgage expenses are a wash since it reduces your income on the rental by the same amount. I would pay primary if it was me.

 Posts: 73
 Joined: Tue Aug 01, 2017 3:25 pm
Re: paying mortgage
Doing some potentially flawed math here.. the more intelligent can weigh in whether this works or not. Let's say your overall tax rate is 25% and you don't itemize. So 5.5% x .75 = effectively 4.125% interest after tax on the rental? If my math works, your rates are the same, so primary residence is the way to go due to higher balance.
This feels flawed..but I can't be sure.
This feels flawed..but I can't be sure.
Re: paying mortgage
It doesn't matter what the balance is. You pay the interest rate on whatever amount you have outstanding.omgbirdman wrote: ↑Tue Sep 11, 2018 2:11 pmDoing some potentially flawed math here.. the more intelligent can weigh in whether this works or not. Let's say your overall tax rate is 25% and you don't itemize. So 5.5% x .75 = effectively 4.125% interest after tax on the rental? If my math works, your rates are the same, so primary residence is the way to go due to higher balance.
This feels flawed..but I can't be sure.

 Posts: 73
 Joined: Tue Aug 01, 2017 3:25 pm
Re: paying mortgage
Yes, but since the principal amount is higher on his principal residence, the interest being generated on it is higher.riverguy wrote: ↑Tue Sep 11, 2018 2:28 pmIt doesn't matter what the balance is. You pay the interest rate on whatever amount you have outstanding.omgbirdman wrote: ↑Tue Sep 11, 2018 2:11 pmDoing some potentially flawed math here.. the more intelligent can weigh in whether this works or not. Let's say your overall tax rate is 25% and you don't itemize. So 5.5% x .75 = effectively 4.125% interest after tax on the rental? If my math works, your rates are the same, so primary residence is the way to go due to higher balance.
This feels flawed..but I can't be sure.
Re: paying mortgage
Are you factoring in that the interest on the rental is deductible on the Schedule E?omgbirdman wrote: ↑Tue Sep 11, 2018 2:11 pmDoing some potentially flawed math here.. the more intelligent can weigh in whether this works or not. Let's say your overall tax rate is 25% and you don't itemize. So 5.5% x .75 = effectively 4.125% interest after tax on the rental? If my math works, your rates are the same, so primary residence is the way to go due to higher balance.
This feels flawed..but I can't be sure.

 Posts: 73
 Joined: Tue Aug 01, 2017 3:25 pm
Re: paying mortgage
Yes, that is why I am multiplying the 5.5% by .75 (assuming a tax rate of 25). This should be the the effective amount of interest paid after considering tax savings. Unfortunately, because it also happens to be the rate of the principal residence mortgage, I guess it isn't exactly clear.Braje wrote: ↑Tue Sep 11, 2018 3:03 pmAre you factoring in that the interest on the rental is deductible on the Schedule E?omgbirdman wrote: ↑Tue Sep 11, 2018 2:11 pmDoing some potentially flawed math here.. the more intelligent can weigh in whether this works or not. Let's say your overall tax rate is 25% and you don't itemize. So 5.5% x .75 = effectively 4.125% interest after tax on the rental? If my math works, your rates are the same, so primary residence is the way to go due to higher balance.
This feels flawed..but I can't be sure.
Re: paying mortgage
Welcome to the forum!
But even if your primary mortgage is not taxdeductible, it's probably better to pay down the rental. If you are in a 22% bracket, your aftertax return on paying down the rental is 4.29%, which is still higher than the primary mortgage balance.
And if the rates are equal, it is better to pay down the mortgage with the lower balance. The reason is that it gives you more options. Once the rental mortgage is gone, you get back the money you were paying on the rental. If you want to continue to earn that rate, you can use the money to pay down the primary mortgage. But you also have the option of using the money for some other purpose if you have a better use for it, such as contributing more to your IRA or college fund, or just investing it if rates have risen or the mortgage has become deductible.
Paying down an X% loan is a riskfree return of X%; the return is taxable if the loan is taxdeductible,
But even if your primary mortgage is not taxdeductible, it's probably better to pay down the rental. If you are in a 22% bracket, your aftertax return on paying down the rental is 4.29%, which is still higher than the primary mortgage balance.
And if the rates are equal, it is better to pay down the mortgage with the lower balance. The reason is that it gives you more options. Once the rental mortgage is gone, you get back the money you were paying on the rental. If you want to continue to earn that rate, you can use the money to pay down the primary mortgage. But you also have the option of using the money for some other purpose if you have a better use for it, such as contributing more to your IRA or college fund, or just investing it if rates have risen or the mortgage has become deductible.
Re: paying mortgage
Thanks all for replying... really to appreciate it. Will go with primary  $122K at 4.125%.