Is it better to pay off a 3% mortgage or invest the money elsewhere?

[oyarde]

You CAN have your property taxes included in your mortgage payment (it goes into an escrow account which makes the payment when it is due so you basically make them an interest free loan) but you don't have to. I didn't have mine set up that way. Some people like that option as a "savings account" so they don't have to come up with the money to make the bi-annual payments all at once.

I have used it on two properties , but none of the others.

[jbauer]

You CAN have your property taxes included in your mortgage payment (it goes into an escrow account which makes the payment when it is due so you basically make them an interest free loan) but you don't have to. I didn't have mine set up that way. Some people like that option as a "savings account" so they don't have to come up with the money to make the bi-annual payments all at once.

Yup, I've never escrowed property taxes and insurance. No reason to give them an interest free loan.

[misterx]

The fact you even ask this question is reason enough to ban you as far as I am concerned. A 3% mortgage is very low interest and I would keep paying the minimum until it is paid off. If you can't find a way to make more than 3% interest on your investments then go ahead and pay your mortgage off, you are going to need that house. Do you have any more inane questions? Feel free to post them to http://www.idiot.com/.

I would agree if he wasn't paying mortgage insurance. That makes it less clear cut. Once he gets his principal down and stops paying that it is a no brainer. Where else are you going to get such cheap money?

[osan]

You CAN have your property taxes included in your mortgage payment (it goes into an escrow account which makes the payment when it is due so you basically make them an interest free loan) but you don't have to. I didn't have mine set up that way. Some people like that option as a "savings account" so they don't have to come up with the money to make the bi-annual payments all at once.

I guess it goes on a state-by-state basis. It was so in NJ - I was given no option in the matter.

Learn something new every day, I suppose... though I find it interesting that a lender would not insist on it because if you fail to pay the tax and the property is seized, the lender could be SOL. I suppose those risks may also be state dependent, but I know in several states such improperly seized properties go up for little more than the taxes owed and I cannot imagine that in all cases such properties are mortgage-free.

[ord33]

The letter came today. I think from my best guestimate that around 60k will be in an IRA & 275k will come tax free. I am seeking investment strategies. Any and all advice is welcome. Thanks!

Here is what I would do. Without a doubt, I would first pay the mortgage down to an 80% LTV or whatever the stipulations are in your loan to remove the PMI. The PMI you pay is not deductible, while the mortgage interest is deductible. Other than for "peace of mind" reasons, it doesn't make sense to me to pay down your residence at a 3% interest instead of your $140k investment property loan at 4.5%. Take the extra profit from the increased NOI from the investment property and put it as extra toward your residence if that gives you a better peace of mind. That is what I would do in regards to the housing portion. You said you had $55k to get rid of the PMI and $140k to payoff the investment property. The remaining $80k of the $275k you can invest how you best see fit that will produce a reasonable return without too much risk. If you are young and you and your wife don't already max out an IRA, then that would probably be part of my strategy. You don't mention your age, so I don't know how risk averse you should be at this stage of your life?

If you (and your wife) are near a retirement age, then I might totally restructure everything I just said since I sure wouldn't want that high of a mortgage payment on my residence near retirement age when that $22/hour goes away and my wife's income goes away.

[fr33]

I would pay off the mortgage. But all this advice is subjective depending on our situations, goals, and state laws. I saved up until I could pay cash for my house and I don't want a mortgage on it. So then under this circmstance and my state laws they cannot take away my property under the homestead act if I fall on hard times and go bankrupt.