Q.

We own a rental property which is free and clear and is pre-capital gains tax. It is worth about $550k. We also own another property which has a fixed rate mortgage of $445k. The net income from the rental property is $850 a month. The mortgage is $2,900 a month and will cost us $120k in interest by 2011 when the fixed rate period runs out. Are we better off selling the rental property and paying off/paying down the mortgage? Or should we wait until the fixed rate period runs out before doing that? With the economy being what it is are we running a risk that by the time we want to sell the interest rates will be so high that we won?t be able to sell and mortgage that we have will be also at a very high rate. Will we get caught in a vice between high interest on both ends which will encumber our ability to pay it off at the time when the fixed rate runs out?

Only you can decide which way rates are heading but there seems to be a growing feeling among economists that rates will be falling by next year. If you try to pay money off the fixed rate loan you may face heavy penalties so I suggest you hang in there for the moment unless you have a strong belief that rates will rise and property prices will fall.