Another "pay off mortgage early" question

[Drake3287]

Long story short, recently retired at 56 and have just over two years left on our mortgage. Balance is $30,000 and if I went the full term I'd be paying out something like $1,400.00 in interest during this period. Although the mortgage interest is very little now, I can certainly use anything I can get in the way of a tax write off.

I have a very comfortable level of cash sitting in the bank, one account is only making 0.20% interest and if I kept that same $30,000 in this account I'd make something like $150.00 in interest over this two year period.

Seems like spending this $30,000. to pay off the mortgage will save me $1,250.00 in the long run. Make sense to you?

Our house value is approximately $600,000 and we easily live off my current retirement, plus I have a good sum in cash and investments.

Thanks!

 

[REWahoo]

If it were me I'd pay it off. Opposing opinions will follow shortly...

 

[Meadbh]

I would pay it off and have a mortgage burning party.

 

[FIREd_2015]

Long story short, recently retired at 56 and have just over two years left on our mortgage. Balance is $30,000 and if I went the full term I'd be paying out something like $1,400.00 in interest during this period. Although the mortgage interest is very little now, I can certainly use anything I can get in the way of a tax write off.

I have a very comfortable level of cash sitting in the bank, one account is only making 0.20% interest and if I kept that same $30,000 in this account I'd make something like $150.00 in interest over this two year period.

Seems like spending this $30,000. to pay off the mortgage will save me $1,250.00 in the long run. Make sense to you?

Our house value is approximately $600,000 and we easily live off my current retirement, plus I have a good sum in cash and investments.

Thanks!

I'm in a similar situation except my balance is twice yours and I'm getting 0.85%. So I'd also be interested in hearing what opinions others have on this.

 

[ERD50]

Or Plan C: Refinance for 30 years (if you can get a low rate), and then invest the money for the long term.

-ERD50

 

[youbet]

Long story short, recently retired at 56 and have just over two years left on our mortgage. Balance is $30,000 and if I went the full term I'd be paying out something like $1,400.00 in interest during this period. Although the mortgage interest is very little now, I can certainly use anything I can get in the way of a tax write off.

I have a very comfortable level of cash sitting in the bank, one account is only making 0.20% interest and if I kept that same $30,000 in this account I'd make something like $150.00 in interest over this two year period.

Seems like spending this $30,000. to pay off the mortgage will save me $1,250.00 in the long run. Make sense to you?

Our house value is approximately $600,000 and we easily live off my current retirement, plus I have a good sum in cash and investments.

Thanks!

Since it doesn't seem to be of any real significance to you financially, do whatever entertains you or makes you feel good for having done it. Some folks go absolutely insane with glee when they get a mortgage paid off and others yawn. At today's low interest rates, it's unlikely that either paying off the mortgage or not paying it off will be of any significant financial consequence one way or the other. It's how it impacts you emotionally.........

For me...... I'd leave the mortgage in place, withdraw $30k from the 0.2% account and buy $30k worth of EFA and see what happens over the next few years. Of course buying EFA fits with getting to my target AA and may not fit your plans.

 

[ziggy29]

IMO the $30K balance is small enough in your financial situation that I wouldn't sweat the minute financial details. I'd just pay it off and celebrate.

 

[pjm-7]

I ER'd last year at age 56. I was able to pay off my mortgage (about twice your current balance) before I gave my notice. It is a very good feeling being rid of all debt. One less payment to have to deal with. The psychological benefit for me is huge!

 

[W2R]

If it were me I'd pay it off. Opposing opinions will follow shortly...

+1

I completely agree, on both counts.

 

[harley]

I'm a mortgage arb fan, so I'd go with ERD's plan C. But if you don't want to do that, I'd go ahead and pay it off. You aren't getting any tax break for it, probably less than the standard deduction. Might as well go into retirement without that extra bill to pay.

 

[Drake3287]

Thanks for some of the suggestions. As for just investing the extra $30,000. instead, I'm already pretty well invested and also have a good cash savings.

Basically I guess I'm just saving myself the $1,250. in interest by paying it off early along with the nice feeling of no longer having a mortgage.

 

[bclover]

Since it doesn't seem to be of any real significance to you financially, do whatever entertains you or makes you feel good for having done it. Some folks go absolutely insane with glee when they get a mortgage paid off and others yawn. At today's low interest rates, it's unlikely that either paying off the mortgage or not paying it off will be of any significant financial consequence one way or the other. It's how it impacts you emotionally.........

For me...... I'd leave the mortgage in place, withdraw $30k from the 0.2% account and buy $30k worth of EFA and see what happens over the next few years. Of course buying EFA fits with getting to my target AA and may not fit your plans.

+1

 

[bclover]

Thanks for some of the suggestions. As for just investing the extra $30,000. instead, I'm already pretty well invested and also have a good cash savings.

Basically I guess I'm just saving myself the $1,250. in interest by paying it off early along with the nice feeling of no longer having a mortgage.

there's your answer. 1200 would not be enough of an incentive for me to do anything especially if you can comfortably make your mortgage.

The "nice" feeling is worth a bunch.

Now me, I've paid off one mortgage and then sold that house to buy my dream house, along with a new mortgage. not a darn thing changed, I have the exact same lifestyle I had with and without a note, so I'm one of those folks who never understand why having no mortgage supposedly is all of a sudden going to make my life nirvana

 

[Walt34]

Basically I guess I'm just saving myself the $1,250. in interest by paying it off early along with the nice feeling of no longer having a mortgage.

That's about it, really, in your situation. Me, I'd pay it off but we like having zero debt.

 

[Texas Proud]

You never said what the interest rate is.... if it is really low I would just keep paying the mortgage...

The problem is that if you pay it off, your cash balance goes down by $30K.... and you will want to replenish it at some time... which means you sell higher earning assets.... which means the savings is not what you stated...

Now, that is my 'analysis'.... in reality it probably does not make a difference either way.... if you feel like paying it off, then do so.... if you do not... then don't... no bad decision either way....

 

[rodi]

I was in your position last year. I paid off the mortgage - and took out a HELOC (which I haven't used) because that gives me a way to snag back the cash if I need it.

For me - it made the budget simpler for retirement calculations and I sleep well at night. Intellectually, I see the mortgage-arb thing has value... but it was a small enough value and I like simple.

 

[Bogie]

In about 1999 I had a bunch of company stock that was at an all time high and told a co-worker I was going to pay off my mortgage. He thought I was crazy because the company stock was expected to double again in the next or so. My thought was that if the stock price crashed I couldn't bear having to make a mortgage payment every month and having that reminder that I could have been mortgage-free. So I paid off the mortgage and the stock dropped 85 percent from there over the next couple of years and has not yet even reached half of what it was back in '99. Best investment decision I ever made.

 

[youbet]

Sounds like your market timing on selling the stock was very fortunate.......... But totally independent of paying off the mortgage.

 

[pb4uski]

Thanks for some of the suggestions. As for just investing the extra $30,000. instead, I'm already pretty well invested and also have a good cash savings.

Basically I guess I'm just saving myself the $1,250. in interest by paying it off early along with the nice feeling of no longer having a mortgage.

True, but the savings are probably more like $1,063 after taxes assuming a 15% marginal rate and itemized deductions exceeding the standard deduction.

 

[Meadbh]

How much is the nice feeling worth?

 

[ERD50]

How much is the nice feeling worth?

It depends what gives you a 'nice feeling'.

I like the feeling of having my money liquid and working for me, rather than locked up as home equity.

-ERD50

 

[unno2002]

[FONT=&quot]If the house could use more insulation, photovoltaics, solar hot water, graywater system, etc., I’d put money there. I keep looking for places to “invest” money that will reduce or eliminate an otherwise ongoing expense. [/FONT]

 

[JoeWras]

I like this topic because it proves that this board is not "group think." Someone recently quit/took-a-break because they complained about group think.

I'm in the pay-off camp. I like less complexity in life. I like not being on some lien book. I like owing my 5/8" plywood with asphalt shingles over my head.

But I see the other side, including the fairly extreme (in my mind) arbitrage folks. I really like to read their strategies because it gets me thinking, even if I'm not going in that direction. Maybe some day I will. Who knows? It works very well for many folks.

For the record, my story is much like Bogie's. I sold company stock at a high and partially paid down the mortgage. Lucky? Yes (although I should have sold more). Peace of mind? Massive. I think it has affected my health positively. But that's me. Some people actually thrive on the opposite (risk-reward strategies).

 

[Andre1969]

True, but the savings are probably more like $1,063 after taxes assuming a 15% marginal rate and itemized deductions exceeding the standard deduction.

I was thinking along the same terms, although a bit more extreme. I'm in the 25% marginal bracket, and state/local taxes are around 8%. So that $1250 in savings is really only around $837 after tax breaks. Of course, then there's the tax on the $150 in interest from the CD.

If it was applied to my current situation, I'd rather take the $30K and invest it, rather than tying it up in paying down the remainder of a mortgage that was mostly principal-payments at this point. But, the original poster said there was enough invested, so it was a matter of keeping the money in the CD versus paying off. So at that point I'd probably pay it off and get it done with, for the peace of mind.

And, even though the tax break is nice, you're still paying a buck, just to get 15 cents back (or 33 cent in my case).

 

[mathjak107]

the issue in retirement is whether or not paying that mortgage will be dependent on your portfolio or outside sources.

it would stink having to pay for a mortgage you didn't need to carry by selling off equities in to a down market. it would also hurt selling off equities to pay the mortgage in an up market.

things can reverse in the decumulation stage from how they worked in the accumulation stage.

those paying off the mortgage with pension money would not be effected by this .