Readers debate paying off their mortgages

October 23rd, 2009, 1:00 am · 2 Comments · posted by Mathew Padilla

Randy Johnson, president of Independence Mortgage Co. in Newport Beach, author of “How to Save Thousands of Dollars on Your Home Mortgage” and a mortgage broker since 1983, answers questions…

Louis in Irvine asks:
Q. I am a married 74-year-old retiree. I took out a 40-year adjustable-rate loan in 1987. My current interest rate is 5.5%.with a $536 monthly payment. I could pay off the $73,431 left but have chosen to continue the current monthly payments. Is it wise to continue the payments or pay off the balance? Another possible option might be to refinance. Any thoughts?

A. If your money is only earning a probable 1.5% today and if you pay off your 5.5% loan, your income drops by $1,100 per year but your expenses drop by $4,000. You can improve your cash flow by $2,900. However, I would do that only if you will not need that $73,000 again.

You should also note the tax considerations. Your itemized deductions with mortgage interest included may not exceed your standard deduction. That means you are not actually getting any benefit from the deductibility. But you will have to pay taxes on the interest income regardless. Check with your tax adviser to get the specifics on your situation.

Chickie in Fullerton asks:
Q. I refinanced my mortgage to a 15-year loan. I have nine years left. I am 72 and would like to end it earlier than that. Can I do this by paying extra money on the principal? Will it automatically shorten the years left?

A. I hope by “end it,” you mean end the mortgage, not YOURSELF. The answer is a very definite, “Yes, you can, and I encourage you to do so.” Any extra money sent in goes to reduce the principal amount. Say you had an original loan of $200,000. At 6% your payment is $1687.71 per month. After six years, you would still owe about $140,000. Increasing your payment to $2,500 per month shortens the life of the loan to 5.5 years instead of nine. For readers who have similar questions, you can find calculators that will help at numerous Web sites.

Congratulations on making good decisions and asking a good question.

That’s it. If you want Johnson to answer a question, email it to Mathew Padilla at mapadilla(at)ocregister.com. Include your name or nickname and the city you live in — that information will be published with your question. Johnson will answer up to three questions each week, so keep checking back for a response.

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