It may be wiser to keep mortgage than pay it off

REAL ESTATE MAILBAG

January 16, 1994

Q: Is it advisable to pay off a mortgage on my home by taking the money out of savings and paying off the $46,000 balance due, or leave it and pay monthly payments until the mortgage is paid off?

A: The tax deductions you can take for paying interest on a mortgage usually make it more valuable to keep a mortgage and make the regular monthly payments rather than take money out of savings and pay the mortgage off early.

The interest payments that make up most of the monthly mortgage payments are tax-deductible, as are the real estate taxes and all the points paid to your lender at closing.

I would recommend that you continue to build your savings, or invest a portion of your savings in an IRA, which is also tax-deferred, or in stock mutual funds, which have some risk but which might yield more than the interest from a typical savings account. The appreciation on your home is also tax-deferred. And if you are 55 or older when you sell your home, you would qualify for a one-time $125,000 capital-gains exclusion from tax.

Q: How can I find a place to refinance a rental that is in a good neighborhood and that has had the same tenants for the last half-dozen years? I cannot find a place to refinance it, and I am paying 9 1/2 percent.

A: There is no easy answer in today's mortgage market.

There is a national secondary market for mortgages tied to primary homes -- Fannie Mae, Freddie Mac and others buy mortgages in blocks from lenders, who take the money from selling loans and make new loans. But there is no corresponding secondary mortgage market for commercial loans or nonowner-occupied real estate loans; therefore, mortgage loans for properties such as yours are often hard to come by.

Contact your bank -- with which you already have a relationship -- or a neighborhood savings and loan that keeps its mortgages and does not sell them. Another option is to refinance or obtain a home-equity loan on your personal residence and use that money to pay off the mortgage on your rental property. This would result in a lower interest rate, and the mortgage payments would also be tax-deductible.

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