I have been renting my first home out for 3 years. The rent I collect 1950/month which is two times the mortgage payment. I only owe $45,000 and I'm considering paying off the house within the next 2 years.
What are your thoughts here. Is this a good idea? My thought is from a piece of mind perspective. Paying off the house would mean I own it free and clear. I'm conflicted however, because I want to buy another rental soon.
@Frazz Wick I’d keep the low interest rate and use the money to buy another deal. You’re making twice the amount you need which means if the housing market slows you can always lower your rent some to attract tenants and still be fine.
Also if you want further peace of mind build up some additional reserves in your bank account for this property prior to buying the next building. If you have $5000 in reserves that’s likely 5 mortgage payments or more you can make if something happens and you get stuck paying the rent for a little bit.
Houston, TX · Member since 2015 · 261 posts · 170 votes
2y
don't pay it off and keep the low rate as long as your property is paying itself. if you don't know what to do with that extra money put it in a high yielding CD
Similar situation here. I am keeping low interest rate mortgages and not accelerating paying off. I figure if I had a chance to take a mortgage at that rate again I would.
@Frazz Wick I’d keep the low interest rate and use the money to buy another deal. You’re making twice the amount you need which means if the housing market slows you can always lower your rent some to attract tenants and still be fine.
Also if you want further peace of mind build up some additional reserves in your bank account for this property prior to buying the next building. If you have $5000 in reserves that’s likely 5 mortgage payments or more you can make if something happens and you get stuck paying the rent for a little bit.
If you want to buy another rental, use the money you'd put to paying off that mortgage early (and any extra money from the rent) towards a down payment. The house will be paid off soon enough and the current interest rates are much higher, so using money to pay off a loan at 3.5% only to take one out at 7% doesn't make sense.
Real Estate Agent · NH & MA · Member since 2021 · 457 posts · 291 votes
2y
Keep the low rate and apply the additional money you have towards the next property you buy as that will have a much higher rate. Similar to personal finance where if somebody has a high rate debt (think credit cards) you pay this off first as it will make the biggest impact on your finances, and then work your way down the ladder