Does it make sense to pay off a mortgage if you are underwater?

[Anonymous]

We owe about $1.2 million on our house which Zillow now values at $854K (we bought in 2007). We have a first mortgage at about $900K at about 5% and a second mortgage of about $300K at about 3% (the second mortgage just readjusted down to 3% and will stay there now indefinitely. Assume we have about $300K to either pay down or invest (separate from retirement, emergency fund, etc.) Does it make sense to pay down the mortgage at all? If so, should we try to pay the first mortgage down first. If we do that would it make it more likely we could refinance the remainder closer to the 3% rate. $300K still does not get us to the Zillow value. Should we just hang on to the money and invest it elsewhere assuming we will get a greater than 5% return in a mutual fund. Should we at least pay it down by $100K since that last $100K does not get us any deductibility?

Thanks!

[Anonymous]

Woah, woah, woah. First things first. Are you moving (or think you might be moving) in the next 10 years? If no, then don't sink more money than necessary into your house. Second, why are you using Zillow for your valuation. They are notoriously bad at estimating house values in our area. If you really need to know how much your house is worth pay a hundered dollars and have it appraised. But really, you don't need to know the value unless you are planning on moving soon (see the first point). As for which is the better investment (mortgage at 3% or other investment) I'd go with putting that money into a mutual fund of some sort. You should be able to get better than a 3% rate of return in the long term.

Again, this is all predicated on whether you are sticking around for a whil or you need to pick up and go.

[Anonymous]

We are staying put. When i take a second to think that makes sense that we could make more investing than paying off even the bigger mortgage. We need to get some advice early in new year re best investment vehicles

[Anonymous]

PP here. Good. You don't need to worry about being underwater right now. But do set up a meeting with a financial planner (one that charges by the hour and isn't in the practice of selling investments) to work through what makes sense financially for your investment portfolio. GL!