Don't pay off mortgage by cutting into savings Tax deductibility of the interest is a major reason

MAILBAG

November 10, 1996|By Michael Gisriel

Dear Mr. Gisriel:

I have a large principal balance due and a substantial number of years left on the mortgage on my house. Do you recommend increasing my savings for retirement or paying off the mortgage sooner?

Joan Ball

Baltimore

Dear Ms. Ball:

The ideal solution would be to increase your retirement fund and try to pay off your mortgage early. But if I had to choose, I would recommend that you continue to build your savings or invest a portion of your savings in an IRA, which is 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 of your house is also tax-deferred. And, if you are 55 years old or older when you sell your house, you would qualify for a one-time $125,000 capital gains exclusion from tax.

Because of the tax deductions you can take for paying interest on a mortgage, I would recommend that you keep the mortgage and make the regular monthly payments rather than either short-change or take money out of savings and pay off the mortgage.

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

Dear Mr. Gisriel:

How can I find a lender to refinance an investment property or a rental property that is in a good neighborhood? I'm having trouble finding a lender to refinance investment property.

Jeanette Jenkins

Columbia

Dear Ms. Jenkins:

Unfortunately, there is no easy answer on where to go for a rental or commercial refinance in today's mortgage market.

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

Contact the bank with which you already have a relationship or a neighborhood savings and loan, or a local bank that keeps its mortgages and does not sell them. This is known as a "portfolio" bank.

Another option might be to refinance or obtain a home equity loan on your personal residence and then use the money to pay off the existing mortgage on your rental property.

This strategy would result in a lower interest rate and the mortgage payments would also be tax-deductible.

Questions?

Michael Gisriel is senior vice president of Fountainhead Title Group of Columbia and host of the weekly radio show "All About Real Estate" on WCBM from noon to 1 p.m. on Sundays.

Send real estate questions to Michael Gisriel, c/o Mailbag, Real Estate Section, 501 N. Calvert St., Baltimore 21278.

You can also leave questions on Sundial, The Baltimore Sun's telephone information service, by calling (410) 783-1800 and entering the code 6170 after you hear the greeting. For more local Sundial numbers, see the notice on Page 2A.

Pub Date: 11/10/96

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