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Pay off mortgage?
Posted by: etelle, May 23, 2013 03:16PM
I retired last year at age 61, and am now considering paying off our 4.25% mortgage. For some reason I'm hesitating to do this, even though I've always heard that retirees should have their mortgages paid off.

Is it better to do that, or hold on to cash which may appreciate at a higher rate when interest rates go up?

My husband & I have enough money to live on and have an adequate well-diversified investment portfolio.

I looked at refinancing today, and was surprised that rates aren't really much better than what we already have.

Thanks.

Re: Pay off mortgage?
Posted by: Alan S., May 23, 2013 06:29PM
Assuming your liquid assets would be sufficient with the payoff and it would not force you into claiming SS benefits too early, a 4.25% guaranteed return for the payoff is pretty good. You won't do any better with typical safe investments. But your net cost is less than 4.25% if you are itemizing mortgage interest in an amount that exceeds your standard deduction. If you cannot itemize the mortgage interest, the payoff will save you more than if you can itemize it.

As for the general statement that you should not carry a mortgage in retirement, that is a general statement and does not apply to many people, as there are always exceptions. For example, if you do not have proper health insurance before Medicare, you need to hold more liquid reserves until Medicare kicks in.

Re: Pay off mortgage?
Posted by: cpw, May 23, 2013 07:34PM
"....when interest rates go up?" It'll be awhile to beat 4.25%, even if in the 28% bracket. And there's great satisfaction in not having to write the bank a check every month.

Re: Pay off mortgage?
Posted by: Bill Brown, May 27, 2013 04:26AM
I've "always heard" a lot of stuff. That doesn't mean the stuff is accurate.

Some points to consider:

1. Equity in a home, if any, is very illiquid. That means you cannot easily and quickly convert it to cash to meet an emergency or to take advantage of an opportunity.

2. IF you are itemizing your deductions, your mortage balance is costing you about 3.17% after taxes. If you can invest the cash you would use for the payoff at a higher after tax rate, then you have another argument against paying off your mortgage.

Re: Pay off mortgage?
Posted by: Drewremedy, June 4, 2013 05:44PM

The imputed return on delay of SS and some of the file and suspend strategies available to married couples is perhaps even more worthy of your attention and some math or lay it out on graph paper.



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