Should I pay off my mortgage?

R

Rob

Recycles dryer sheets
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Nov 22, 2004
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Hi All,
I am going back and forth over whether I should pay off my mortgage. Here are the factors that are involved.

First, I am 71 years of age and live Washington state. I have about $68,000 remaining on my home loan at 4.5% interest. The house sold for $247,000 5 years ago, and I put 75% down. I have a bank account about $95,000, and investments of $210,000 with TIAA (CREF stocks, bonds and TIAA real estate). My pension with social security comes to about $6000/month before taxes. That income increases anywhere from 1 to 2% a year. I can comfortably live on $65,000 a year at the moment. I'm single.

If I were to pay off my mortgage, my bank account would drop to about $25,000, but I'd save $242 that I pay on interest. If I ever needed more money in an emergency, I suppose I could use the house to get that loan, but I just don't see that happening.

I plan on selling the hose in the next 2 or three years and move to a townnhouse with less yard work

I really welcome feedback. Paying the mortgage of $645/month (including property tax and interest) is not difficult, but am I better off paying it off?

Thank you very much.

Rob
 
I wouldn’t, your savings will be too low after the payoff especially if you plan to move in 2 years.
 
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If you have any notion that you'll buy the townhouse before closing on the sale of your current house, you probably don't want to short yourself the cash. Otherwise it probably doesn't matter too much unless you like more cash on hand for emergencies.

I paid off a balloon loan once a few month before selling and it got a little too interesting for me to get the proof that I'd paid off the loan and had the deed in my name, but for two years you should be ok.
 
Oh no... not again!

Actually in OP's situation, I might. I presume that the bank account is earning much less than 4.5% so he would be ahead by more than $2k a year.... he can then divert the amount that he is currently paying for mortgage payments to rebuilding his cash, but even at $25k he has 4 months + of expenses.
 
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Were you able to itemize your taxes last year?

The new tax law changes everything. I used to say no no no to paying off a mortgage because it cuts into your funds needed for emergency or large expenses. Plus the old mortgage interest deduction. But the new tax plan eliminated the itemization of mortgage interest for many people. That has changed the math.

Between mortgage interest and charitable deductions I used to be able to itemize and come out ahead. Not any more. The new higher standard deduction wipes all that out.
 
Sounds like over the 2-3 years until you sell the house you will have paid about $6-9k in interest. But it is only about 4% of your income, so is not a big hit all in all. I would probably not pay it down, but debt can be a bothersome thing, and you will come out ahead by paying it off. But there is no compelling argument that I see to pay it, or not pay it off.
 
4.5% - 3% inflation = 1.5% effective loan rate, that's cheap money, why take on more risk that will come by paying it off?
 
Maybe W2R will come along and tell you how nice and how there is much less stress when switching houses if you have extra money to work with.

Hold on to the 100K and keep all your options open, so you can move from one house to another with the least amount of hassle.
 
Rob said:
If I were to pay off my mortgage, my bank account would drop to about $25,000, but I'd save $242 that I pay on interest. If I ever needed more money in an emergency, I suppose I could use the house to get that loan, but I just don't see that happening.

I plan on selling the hose in the next 2 or three years and move to a townnhouse with less yard work
Click to expand...
Nobody sees an emergency coming.

You will be selling in 2-3 years anyway. When you sell it won't matter if you have a mortgage or not.

Just keep the mortgage for the next few years.
 
Normally I'm in the "pay it off" camp, but since you plan to move in the near future, I'd keep that cash on hand for flexibility, and have it in a no penalty CD to offset a good chunk of that interest cost.
 
pb4uski said:
...Actually in OP's situation, I might. I presume that the bank account is earning much less than 4.5% so he would be ahead by more than $2k a year.... he can then divert the amount that he is currently paying for mortgage payments to rebuilding his cash, but even at $25k he has 4 months + of expenses.
Click to expand...

I agree with this. Unless OP is going to invest the $68K (different question), the correct analysis is to compare the 4.5% mortgage rate against whatever the $68K is earning in the bank... probably very little.

I'd payoff the mortgage. Then use your $7K/yr excess cashflow, plus the $8K/yr you were paying on the mortgage, to rebuild the $68K. It should take a little over 4 years. You'll save about $13K interest over that same period. The $15K/yr new savings plus the remaining $25K should provide adequate liquidity for emergencies or if you decide to buy the townhouse prior to selling your current house.
 
Rob said:
Hi All,
I am going back and forth over whether I should pay off my mortgage. Here are the factors that are involved.

First, I am 71 years of age and live Washington state. I have about $68,000 remaining on my home loan at 4.5% interest. The house sold for $247,000 5 years ago, and I put 75% down. I have a bank account about $95,000, and investments of $210,000 with TIAA (CREF stocks, bonds and TIAA real estate). My pension with social security comes to about $6000/month before taxes. That income increases anywhere from 1 to 2% a year. I can comfortably live on $65,000 a year at the moment. I'm single.

If I were to pay off my mortgage, my bank account would drop to about $25,000, but I'd save $242 that I pay on interest. If I ever needed more money in an emergency, I suppose I could use the house to get that loan, but I just don't see that happening.

I plan on selling the hose in the next 2 or three years and move to a townnhouse with less yard work

I really welcome feedback. Paying the mortgage of $645/month (including property tax and interest) is not difficult, but am I better off paying it off?

Thank you very much.

Rob
Click to expand...

If that's your only debt, I would pay it off and bank the $645 per month. If you don't feel comfortable doing that, pay down half your principal and reduce your interest expense.

We paid our home off in less than 10 years by making extra principal payments. We are glad we did that.
 
Since you plan to move soon, I would hold on to the cash now and just wait to deal with this when you move.
 
Think of it this way, you will have it pay off in 2 years, why go through the hassle now, plus you have to figure where to store your house deed. My sister paid off 2 houses already, judging by what she told me where she stores them. I’m getting a little nervous. Not worth the headache.
 
Thank you very much for your responses. I am a little more secure in not paying off the house now, selling it within 2 years, downsizing to a smaller house, and then using the money on the sale of this house to buy another house.

Thanks again.
 
Rob said:
Thank you very much for your responses. I am a little more secure in not paying off the house now, selling it within 2 years, downsizing to a smaller house, and then using the money on the sale of this house to buy another house.

Thanks again.
Click to expand...

how about moving sooner ( repaying the mortgage ) and downsizing leaving you close to cash positive in the process .

just a thought

good luck
 
Susie also said you need at least $5million to retire, didn’t we have a thread on that.
 
i dislike having a mortgage period ..

BUT the OP already has the mortgage and some plans for the mid-term future .

which makes my normal inclinations ( pay off the mortgage quickly ) not so useful to the OP .


moving ( downsizing ) in 2 years may involve certain circumstances ( needing to stay in the area/house for another 2 years for example )

the Fed has clearly telegraphed at least one more interest rate hike ( i would guess at least 3 more including December )
 
Fedup said:
Susie also said you need at least $5million to retire, didn’t we have a thread on that.
Click to expand...

Yes, we did. Susie has zero credibility these days... if she ever had any to begin with.

The one thing I agree with her on is that 15 year mortgages are preferable to 30 year because of the lower interest rates.
 
Toss up n my opinion. Since you intend to sell in 2 years, I would probably opt to keep cash on hand. But since your main income is pension and adjusted annually so you don't have to necessarily wait out downturns in market, maybe you could go ahead with payoff. I know my DW will want lots of cash on the statements for her comfort level....

Since I plan on using a lot of after tax monies leading up to medicare, and then 60-70% of income will be retirement plan withdrawals, I will probably carry a $100k mortgage when I retire and relocate so I can hold on to the post tax cash accounts for safety against market downturns.
 
Since your plan is to sell and move in only two years time, I vote No.

Use the proceeds from the sale of this home to buy your planned condo for cash. You will be in the same "no house payment" position without depleting your cash reserves.
 
I'm normally in the pay it off camp. However, since you plan on moving in 2 to 3 years I wouldn't bother paying it off.
 
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