AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

Hi Scott,

Currently my second mortgage is at 6.76% with balance at $17,000.  Tax bracket at 28%.  Should I pay it off or should I keep the mortgage?  401k and IRA are maxed out and I have mutual fund contribution on the side. We are in our mid 30s with 1 kid and potentially another one in the future.

Thank you in advance! 

I don't know what Scott will say, but my opinion: pay off the second.  If you did not have the second, would you borrow money at 6.76% to invest in mutual funds?  Probably not.  You have a chance to "invest" $17k at a risk free return of 6.76%.  This is almost double what you could get today in a risk free CD or Treasury security. 

Exactly so! You'd look high and low to find a 6.76 percent return today and here it is, from a source you trust (yourself).

Scott 

Thanks!

Now I am wondering how much principal payment we should do for the first mortgage. It is over $150k at 5.25%.  We have been paying 1 additional payment, toward principal only, per year.  Should we be more aggresive now - may be paying 2 or 3 additional payments (all towards principal)?

It depends on many things, not all of which were in your original post.  Such as: whether you have any other debt, whether you have college savings for your child(ren), how long you are going to stay in the house, how long you have to go on the mortage, your risk tolerance, your tax bracket, etc.  If you like the house, plan on staying awhile, and have no other higher interest debt, why not go ahead and pay your mortgage off agressively?  You would save a lot of interest by doing so.  On the other hand, you have a good rate and you are relatively young, so if the conditions in the previous sentence do not all apply to you, then perhaps other goals should take precedence.  It sounds like you are in a great spot financially - congratulations!

Try this link to see how much you could save.  Of course this is all before taxes.  If you are itemizing your deductions, it's not quite as attractive.

http://www.youngmoney.com/calculators/loan/mortgage_payoff

 For now, apply no extra payments to your first mortgage.  Why "invest" at 5.25% when you have an opportunity at 6.76%?

For now, apply any and all extra payments toward your second mortgage.  When your second is paid off, apply the amount of those payments and any extra payments you were making to your first mortgage.  Retiring your second mortgage also reduces your monthly obligation in the event of an emergency.