Case Where Accelerated Payments Don't Pay

Campbell, a retired Times staff writer, is a Phoenix-based free-lance writer

QUESTION: I am 51 years old, self-employed with a good income--no family, no dependents. When I die everything will go to the church. So, when I retire, I don't feel I should own too much in tangible property. I bought my house in 1969 for $35,000 on a 30-year mortgage at 6 3/4%. My payments are $285 a month. So I now have about 10 years left on it and owe about $16,000. It is now worth between $85,000 and $95,000.

I am going to sell it when I reach 55 and rent an apartment from then on out. Is it worth my time and money to pay it off faster, or just keep saving the additional payment I would make? I am in mutual funds at 8.5% to 9% and some stock growth funds. Or do you have any other suggestions?

ANSWER: Don't do a thing differently from the way you're doing it now. While normally I'm a big advocate of accelerating the payoff of a mortgage, it's a strategy that has its greatest impact when begun early in the game--not 20 years into a 30-year mortgage. Any acceleration beginning now wouldn't reduce the payoff to any great extent, and it certainly wouldn't make sense to pour additional money into a 6 3/4% mortgage when, as you are doing, it can be earning 8.5% to 9%. Stick with your mutual funds.

Two Realty Brokers but One Commission

Q: Why should I pay two brokers for selling my house? The guy I listed with didn't lift a finger--it was sold by a broker in another agency that I don't even know.

A: What's this two broker business? You're paying one selling commission--the one agreed upon with the "listing" agent. The "selling" agent, through multiple listing, happened to make the sale. They split the commission, that's all. If the listing agent let somebody steal the ball out from under him, it's no skin off your nose.

Why Waste One-Time Tax Deduction?

Q: Our home is paid for, but we want to build a new house in another state, which would cost much more than our present house will sell for. Both of us are over 55 years old. Can we build the new home and pay as we go and put our present home on the market after we move and still take advantage of the tax-exempt privilege?

A: There's a puzzlement here: Why on earth would you want to take advantage of the $125,000, over-55, exclusion from capital gains if your replacement home is going to cost more than the one you're selling--which automatically defers any tax liability?

The capital gains exclusion is a one-shot deal when you're hanging it up and going into a rental or are "buying down" to a less expensive house. Sure, you could do it the way you suggest (as long as it's been your principal residence for three of the last five years), but why waste it when there's no tax consequence?

Extra Loan Payments With Separate Check

Q: Some time ago, you said that when making extra monthly payments to principal on your mortgage you should write a second check for this. Is that really necessary? I have a friend in the mortgage business who laughed at the idea.

A: If the mortgage lender's computer is sophisticated enough to handle an extra monthly payment lumped into the same check with the regular payment then it's all right, I suppose.

But, from painful first-hand experience, I've dealt with computers that were still counting on their fingers and, when the amount of the check didn't gibe with what it expected, they spit the check out, it had to be hand-processed and I encountered late charges. I prefer the two-check approach.

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