Paying off mortgages: primary home vs rental properties


Me and my wife are debating whether or not to pay off our homes sooner. We both agree that we should plan to have them all paid off by the time we retire 20 years from now. But there is the question of whether we should put our savings towards paying off the homes sooner as the threat of increasing rates looms closer. Here are some details about our properties.

I have two rental properties and a third primary home in the California Bay area. All properties were purchased using 10/1 ARMs:

  • Rental 1: $144k outstanding loan, 3.87% APR, 9 years into a 10/1 ARM. This property is cash flow positive and generates about $500 free cash after all expenses. There is a lot of equity in this property.

  • Rental 2: $450k outstanding loan, 3% APR, 7 years into a 10/1 ARM. This property just about breaks even. There is a decent amount of equity in this property.

  • Primary Home: $950k outstanding loan, 3.25% APR, 3 years into a 10/1 ARM. Primary residence. Price has not moved up much since I bought it.

We do not really plan to invest in much more real estate at this time as we feel we are too heavy in real estate already and the Bay area market seems to have peaked. If we do not put our savings here, it would probably end up in the stock market S&P500 ETF. We really don’t want to be in a position where we have to sell these either. Our retirement plan is to live off the two rental properties we have while hopefully living in a paid off home.

I would love to hear advise and thoughts from the experienced folks in this forum on what you would do if you were in our shoes and why.



Now would be a great time to refinance those ARMs into fixed financing so you don’t have to worry about the interest rates skyrocketing.

Agreed, I would start by trying to get any of those interest rates to be fixed since they are all pretty low! Since you mentioned that you don’t plan to invest in any other properties currently, I would look at how much the cashflow of each property would increase if you paid off Rental #1 or Rental #2. That way you can prioritize one over the other if cashflow is the goal! Also the time you estimate that you can pay off rental 1 or rental 2 in total is a factor too! It would feel good to knock out that smaller loan and own rental 1 free and clear, but would it boost your cashflow the most right now?

Overall great work though, sounds like you’re in a great position! I live in Santa Cruz so not far off from the Bay, and I invest in Philadelphia where cashflow is much more attainable!