Is there an advantage to paying off a mortgage to a troubled lender? (insurance, loan)

[mrgoodwx]

Besides the obvious advantage of paying less interest, are troubled lenders providing any incentives for those who pay off mortgages early? I was just curious, as I owe about 10% of the value on my house to Wachovia, but could pay it off now if I wanted to. I'm not much into economics, but someone told me troubled lenders may accept even less than the owed amount to get a loan off the books. But...the same person also told me that it probably wouldn't apply in my situation, since my credit score is >800, and they would most likely rather keep reliable checks (and interest) coming their way. Any comments on this? Thanks...

[bentlebee]

IMO it is smart to pay it off now and if you want get another mortgage for a better rate...., even if the values go down at least you don't have to worry so much...I have no mortgage and still feel good in todays market.

[whatshouldido]

It far better in the interest of the lender to keep you paying interest. If you pay off the loan, they get nothing after that. If you were distressed, they might have a need to work something out with you. You are considered "A" paper to them, and only strengthen their portfolio. Plus, there is the possibility you could default, in which case they could take your home, all 90% of which you own. Never say never. If I were you, I'd go ahead and pay it off. Then, no one can ever take it from you for any reason (except the government in an eminent domain situation, of course). I doubt if the interest you're paying at this stage of your amortization schedule is giving you that much of a tax benefit.

[rcarrillo]

Also, keep in mind that sometimes if they do this they will make a notation on your credit. Usually stating "account settled for less than full balance" or something similiar.

Same thing if you had a collection or account you were paying less at and needed to negotiate less on. Whether for good or bad reasons, you owed this bank money and you paid them less than you were supposed to.

[mrgoodwx]

Thanks for the input, folks. rcarrillo...I never really thought about the point you made. I can't be sure, but I really don't expect to ever need to apply for credit of any type in my lifetime. All in all, I think I'll probably just go ahead and pay the mortgage off before the end of the year. Whatishouldo is correct that the interest write-off at tax time has become pretty small anyway.

[rcarrillo]

The interest tax rate is small, and even if its there it is NEVER as big as the interest you actually pay. So why pay $1 in interest to get 75 cents of write off? Not the best financial strategy...

Even if you don't expect to use credit, everyone should have learned now to plan for the unexpected. If you want to pay less, just check with the bank first to make sure it won't be reported negatively on your credit. You never know when a medical emergency or something else might have you applying for credit and not being able to get it because you wanted to save a few bucks now. Its like people that took ARMs to save a few dollars but had no plan on what to do in 2-3 years... just hoped for the best.

[mrgoodwx]

rcarrillo...you're certainly right about the tax write-off being a lot less than the interest. I fully intend to pay cash for my next house...which will be the first time I've been in position to do that. And...that's true about the unexpected. My wife and I both had unexpected health issues (and expensive operations) this year. I'm grateful that I have excellent health insurance, but you never know how that's going to evolve in coming years either. Thanks...