Pay off primary property or investment property first?

Member since 2022 · 42 posts · 14 votes

Hey BP I’m debating about paying off my investment home first or primary property first.
(A little background)

Our primary home has a balance of $327,000 at 2.9% interest

While our investment home has a balance of $88,000 at 6.4% interest

I plan on paying off both back to back by recycling whatever extra income I have, but was weighing the pros and cons of which to pay off first. Thank you in advance

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Blake McWilliamsBusiness Member

Realtor · Effingham, IL · Member since 2021 · 57 posts · 33 votes

Hey @Ian Hutton! Personally, I would pay off the higher rate first. With your primary, assuming its a fixed loan, a higher percentage of your payment is going towards principle pay down (less wasted dollars). Honestly with an interest rate like that you could even not pay off your primary and put any excess capital in a high yields savings account and be financially further in the long term.

All in all though whichever method you choose congratulations on the steps towards financial freedom!

Cheers!

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Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
1y
@Ian Hutton Man I'd love that debt. Why are you wanting to pay them off? Is there a certain reason? Are you still considering building more of a portfolio or are you happy with where you're at and you just wanna pay off the debt?
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Blake McWilliamsBusiness Member
Realtor · Effingham, IL · Member since 2021 · 57 posts · 33 votes
1y
Hey @Ian Hutton! Personally, I would pay off the higher rate first. With your primary, assuming its a fixed loan, a higher percentage of your payment is going towards principle pay down (less wasted dollars). Honestly with an interest rate like that you could even not pay off your primary and put any excess capital in a high yields savings account and be financially further in the long term.
All in all though whichever method you choose congratulations on the steps towards financial freedom!
Cheers!
618-508-1808
RE/MAX Key Advantage4.427 Reviews
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Jules Aton
MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
1y
I'm assuming you are maxing out your retirement vehicles. My plan would be pay off higher rate first. Keep primary mortgage @2.9%, paying the minimum. If you have extra money that you haven't earmarked for additional RE I would do TSM index funds for a truly passive investment.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
1y
Neither. Your primary has an incredibly low interest rate, and your rental (I hope) is getting positive CF, which means your tenant is paying it off for you. Why would you take your cash, and spend it on a property you don't need to spend it on, instead of using that cash to increase your properties,...and income.
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Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
1y
Assuming you have no plans to buy another rental, then pay off the one with the highest interest rate first.
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Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
1y
If you are determined to pay one off, then pay off the lowest balance first. This eliminates ALL the interest on that property, and uses the monthly payments you were making on it to help reduce the debt on the other quicker. Thus paying less total interest on both properties.
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Gustavo Delgado
Houston, TX · Member since 2015 · 261 posts · 170 votes
1y
Im on the neither camp. Your primary's rate is low and instead of plowing down $88k on the rental, look for another property for your portfolio. Especially if the rental is cash flowing and paying its self off.
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Ian Hutton
OP
Member since 2022 · 42 posts · 14 votes
1y
Hey everyone thanks for the feedback, I did forget to mention I plan on buying more properties (which is why I’d like to reduce my debt) let me know if that changes any answers, but sounds like paying off the 88k 6.4% interest is the way to go
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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
1y
Quote from @Ian Hutton:

Hey everyone thanks for the feedback, I did forget to mention I plan on buying more properties (which is why I’d like to reduce my debt) let me know if that changes any answers, but sounds like paying off the 88k 6.4% interest is the way to go

If you plan on buying new properties do not pay off any debt. You will just be trading 6.4% for 7.5%~. why do that??
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Ian Hutton
OP
Member since 2022 · 42 posts · 14 votes
1y
Quote from @Jay Hurst:

Quote from @Ian Hutton:

Hey everyone thanks for the feedback, I did forget to mention I plan on buying more properties (which is why I’d like to reduce my debt) let me know if that changes any answers, but sounds like paying off the 88k 6.4% interest is the way to go

If you plan on buying new properties do not pay off any debt. You will just be trading 6.4% for 7.5%~. why do that??

My thought behind it was to simply get rid of debt and take on less risk
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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
1y
Quote from @Ian Hutton:

Quote from @Jay Hurst:

Quote from @Ian Hutton:

Hey everyone thanks for the feedback, I did forget to mention I plan on buying more properties (which is why I’d like to reduce my debt) let me know if that changes any answers, but sounds like paying off the 88k 6.4% interest is the way to go

If you plan on buying new properties do not pay off any debt. You will just be trading 6.4% for 7.5%~. why do that??

My thought behind it was to simply get rid of debt and take on less risk

sure, if you are deleveraging across the board but if you are going to turn around and buy a new property with leverage that does not make sense. If you want less leverage simply put down the funds you would use to pay down the 6.4% rate on the new property so you are at say 60% loan to value on the new house. Rates are simply higher now then when you got the 6.4% so in a way that 6.4% is an asset (the primary REALLY is an asset at 2.9%).
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Ian Hutton
OP
Member since 2022 · 42 posts · 14 votes
1y
Quote from @Jay Hurst:

Quote from @Ian Hutton:

Quote from @Jay Hurst:

Quote from @Ian Hutton:

Hey everyone thanks for the feedback, I did forget to mention I plan on buying more properties (which is why I’d like to reduce my debt) let me know if that changes any answers, but sounds like paying off the 88k 6.4% interest is the way to go

If you plan on buying new properties do not pay off any debt. You will just be trading 6.4% for 7.5%~. why do that??

My thought behind it was to simply get rid of debt and take on less risk

sure, if you are deleveraging across the board but if you are going to turn around and buy a new property with leverage that does not make sense. If you want less leverage simply put down the funds you would use to pay down the 6.4% rate on the new property so you are at say 60% loan to value on the new house. Rates are simply higher now then when you got the 6.4% so in a way that 6.4% is an asset (the primary REALLY is an asset at 2.9%).

Thank you that makes a lot of sense lol I was literally just listening to a podcast about this. I think that does make sense to do as cash flow to help build and acquire more properties is my main goal right now
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