Pay off mortgage or savings acct?

IMO the #1 reason to not pay off mortgage is to avoid being house rich and cash poor. Some early retirees may have much of their wealth tied up in 401K/tIRA accounts they can't yet access, so they need available cash to bridge the gap. And some older retirees may have large enough SS+pension benefits to pay monthly mortgages, but making a bulk pay-off could short them cash reserves.

Yes, there are HELOCs, but I don't think that's a good idea if you're pretty sure you'll need the money. Do your own research, because I don't have a HELOC. My impression, which may be wrong, is that HELOC rates are often variable. I don't know if fixed HELOC rates are higher than 1st mortgage rates. Right or wrong, make sure a HELOC doesn't result in a higher rate than your current mortgage. Do HELOCs also have a fee to open? If so, consider that.

If cash flow isn't an issue, do whatever you want. I'd probably pay off the mortgage, because it'd be hard to beat the rate with a iron clad guaranteed investment. Sure I could compare the mortgage rate with my overall expected investment returns, but I'm taking a little more risk there.

One other factor, I probably wouldn't take a large capital gain to sell off investments to pay off a mortgage. There are a lot of variables in that, so I'll just stick with "probably".

As far as celebrating paying off the mortgage...I wouldn't, because I agree it's just a financial decision and not an emotional one. But I'm not going to rain on anyone else's parade.
 
RunningBum said:
Some early retirees may have much of their wealth tied up in 401K/tIRA accounts they can't yet access, so they need available cash to bridge the gap.
Click to expand...
This was me. Paying off the mortgage would have triggered more taxable withdrawals or pulling from Roths (which I wanted to postpone, because we all know the first 100 years in a Roth are the hardest). Recently we (sadly) ran into quite a bit of after tax money. This should have triggered a reexamination of the mortgage payoff question, but it didn't. Or maybe a passing thought, and then I realized how close I was to being done with the mortgage 'naturally' (from cash influx to paying off as originally agreed was only 8 months).
 
pb4uski said:
... I think it is more situational than a blanket statement. I fully agree with your last sentence and that is why I paid off our mortgage in December 2019 and made a commensurate adjustment to our AA... effectively avoiding paying 3.375% vs giving up earning 1.7% earned on the cash used to payoff the mortgage (and that yield has since declined to 0.6%).
Click to expand...

This statement kind of sums things up in my mind.

While we'd have to sell the home to truly realize the benefit, I believe the value of the home will grow beyond the current 0.6% we can earn in savings for some period of time. This would also provide a "cost avoidance" number to consider, basically the interest expense avoided for the same period.

Any "savings" from this would go towards paying property taxes.
 
I admit to cognitive dissonance about my mortgage of 3.68%. I can see that the long term investment math argues for keeping and paying it long term. However, like most here, I got to FIRE by being goal-oriented and debt averse, so having a mortgage is a psychological irritant that doesn’t quite fit the picture emotionally.

When I find myself thinking about it too much, I try to remind myself that the mortgage is a permissible use of government-incentivized leverage, a savvy use of arbitrage, and a corner of my portfolio in which inflation works for me rather than against me. Also, I remind myself that one day, one way or another, it will be gone, so I can relax and focus on other things.
 
Scarab, if you will be buying ACA health insurance you may want to keep the $100,000 liquid to help pay for living expenses until you turn 65. It can help keep your income below the ACA premium tax credit limit.
 
Scarab said:
This statement kind of sums things up in my mind.

While we'd have to sell the home to truly realize the benefit, I believe the value of the home will grow beyond the current 0.6% we can earn in savings for some period of time. This would also provide a "cost avoidance" number to consider, basically the interest expense avoided for the same period.

Any "savings" from this would go towards paying property taxes.
Click to expand...
You lost me here. House appreciation has nothing to do with the mortgage question, nor does it provide a "cost avoidance". The only thing you should compare to the interest expense avoided is the return rate lost on the money you paid your mortgage against.

It sounds like you really want to pay off the mortgage. Go ahead, but I'd consider the warnings some have given here about being house-rich and cash-poor.
 
Happyras said:
Oddly, I recently had the same thoughts and made a 100K principle payment toward our mortgage at 2.625%. It felt like a good alternative to the CD's available, but I did also bought twice as much in no-penalty CD's at 1.3% in 5 separate accounts. We have enough at risk in equities, and doing some toward the mortgage seemed reasonable, but not to pay it all off, I wanted to keep some free cash for opportunities or bank of Dad loans. BTW I am approaching 66 which tempers my risk tolerance.
Click to expand...



Where did you get 1.3% CD’s?
 
That's a no brainer. Pay off mortgage. I paid mine off in year 11 of a 30 year mortgage. Then I poured more monthly into mutual funds. FIRE'd 13 years later.
 
PERSonalTime said:
Where did you get 1.3% CD’s?
Click to expand...

Marcus on line had offered no-penalty CD's at 1.3% for up to 9 months. Currently, their savings is at 0.6% and they offer no-penalty 7 month now at .75%. Since we have a lot of cash flow from installment sale of our business, I am once again faced with this same question on paying off, CD or taking high risk/Bank of Dad loans etc.

My thought remains that while we could pay it off, it is so nice to have liquidity if we want to buy another home, or refinance our kids mortgage to help them out.....or buy the big dip coming soon!
 
Get a HELOC, pay 50k .. and you can still get your cash back w a revolving line of credit
 
It depends on many factors -and it's more than just math.
1) Would paying off the mortgage leave you so cash poor that you would have difficulty handling an emergency?
2) Would paying off the house give you peace of mind? (it did me)
3) Would paying off the house simplify your monthly finances? (remember to have a fund for insurance/property tax)
4) If you died, what would be easier for your estate/heirs?
 
Advice From Mr. Bank

Hi! My name is Mr. Bank. My recommendation would be to give me your cash and also pay me monthly for your mortgage. That way I have it all and when the stock market crashes, I will continue to have it all and leave you high and dry. Do exactly the same when you get another mortgage when the market recovers. 👍
 
^^^ Strange. :facepalm: Very strange.

I guess if you don't have anything useful to contribute then you just post a bit of crap.
 
Caveated with the other cautions about having enough cash, I'd be in the "pay it off + HELOC" camp.

There is zero chance you will find a risk-free rate of return higher than your mortgage interest rate (even net of tax benefits) anytime in the next few years.

(Full disclosure: I am super debt adverse. I paid off my mortgage in my early 40s. Don't regret it, tho I do fully recognize my net worth would be higher today if I had just kept the mortgage for the long haul. I also think I would have had an ulcer worrying about protecting my family through the various economic craziness.)
To me that is always the right reference point in these things.
 
We still have a 83k mortgage with a house worth 400k and a beach condo worth 200k. Are there any tax benefits to keeping a mortgage?
Like not being able to take gifts to charities off your taxes if you get rid of it?
Last year was the first year we were not able to take our charitable deductions off of our taxes. Not exactly sure why.
Let’s have some discussion on the tax implications.
We’ve been retired for 10 years and haven’t had to take any money from retirement accounts.
 
I would agree with others that recommend paying off your mortgage as the likely best course given your situation (age and how close you are to retirement).
Before enacting your plan, I would double check your calculated retirement budget, emergency fund/bucket, and any projected expenses on your home.

I did retire our mortgage last year (about 8 years early). We did replace our furnace and water heater in the year prior. This year we needed to replace the roof and gutters and several trees, so I was very glad that we had made sure to have extra in the emergency fund to cover some big expenses.

The other psychological benefit that I found was that once I no longer had any debt, I became very motivated to not accumulate debt again. It made it easier to save (with money left over after paying for home insurance and tax on our home). I agree with getting the HELOC before you retire, but hopefully you will not want to use it (just have it around for security).
 
sassnco said:
I would agree with others that recommend paying off your mortgage as the likely best course given your situation (age and how close you are to retirement). Before enacting your plan, I would double check your calculated retirement budget, emergency fund/bucket, and any projected expenses on your home.
Click to expand...


Yes, I continually review everything like the budget/bucket/expense topics you mentioned, and more. Paying off the balance would be a great feeling, but of course we need to ensure we have enough reserves to get us through the unexpected.
 
kbst said:
We still have a 83k mortgage with a house worth 400k and a beach condo worth 200k. Are there any tax benefits to keeping a mortgage?
Like not being able to take gifts to charities off your taxes if you get rid of it?
Last year was the first year we were not able to take our charitable deductions off of our taxes. Not exactly sure why.
Let’s have some discussion on the tax implications.
We’ve been retired for 10 years and haven’t had to take any money from retirement accounts.
Click to expand...

You probably couldn't take chariable deductions off of your taxes because you didn't have enough in itemized deductions... it is common under the new tax law that more people use the standard deduction.

Let's say that the annual interest on your $83k mortgage is $3,500. The standard deduction for a married couple under age 65 in 2020 is $24,800. So you would need over $21,300 of deductble medical expenses, property taxes, state income taxes, charitable contributions, etc to get any benefit from itemized deductions.

And if one or both of you are over 65 then those amounts go up $1,300 or $2,600.
 
And remember that deductible medical expense are those above 7.5% of your taxable income.
 
Nick12 said:
That's a no brainer. Pay off mortgage. I paid mine off in year 11 of a 30 year mortgage. Then I poured more monthly into mutual funds. FIRE'd 13 years later.
Click to expand...

Ive actually done this twice now since retirement. After each pay off I start dollar cost averaging back into a mutual fund with the money that went to a mortgage.

Im probably done with this though, at 66 my next move will be a downsize I think.
 
Well for one I don’t think anyone should retire with any mortgage debt so that tells you my opinion where to use it.
 
You must log in or register to reply here.

Similar threads

B
Pay off mortgage if means entering 22% tax bracket?
Replies
15
Views
604
bmcgonig
bmcgonig
Finance Dave
Big purchase, how to pay?
2
Replies
31
Views
4K
dmpi
D
T
All Your Worth (Book Review)
Replies
5
Views
709
walkinwood
walkinwood
Tranquility Base
Borrowing Against Investment Portfolio For Home Purchase
Replies
15
Views
490
pb4uski
pb4uski
D
Sold Position - How to send the IRS a check?
Replies
9
Views
797
Sunset
Sunset

Latest posts

Back
Top Bottom