Pay off mortgage or invest

[beachgirl152]

Hi everyone! We are looking to retire in the next two years. We have a piece of land that will sell for roughly $100K. Is it better to pay off our mortgage or take that money and invest? We have 5 years/95K left on the mortgage at 3%.
What would you do?

 

[captain3d]

See all the other similar threads where everyone agrees that you should never pay off your mortgage

Right everyone?

 

[W2R]

Hi everyone! We are looking to retire in the next two years. We have a piece of land that will sell for roughly $100K. Is it better to pay off our mortgage or take that money and invest? We have 5 years/95K left on the mortgage at 3%.
What would you do?

This is a great question, and one that comes up frequently. The forum is not in agreement on whether to pay off the average mortgage or not; I suppose we are about 50:50 on this question. But you can judge for yourself: here are some previous threads that address the question of paying off a mortgage or not:

https://www.early-retirement.org/fo...f-the-mortgage-or-invest-the-money-30644.html

As for me, I paid off my own mortgage, because I felt like doing so brought me peace and reduced stress (in MY case). But paying off the mortgage is not always the most financially advantageous. Really there are a million answers to this question, and if you read through the threads in the link I provided, you'll be able to see why some people did, and some didn't.

 

[jazz4cash]

See all the other similar threads where everyone agrees that you should never pay off your mortgage

Right everyone?

That's a hoot!

 

[COcheesehead]

At 5 years you can buy:
agency bonds yielding almost 4%
investment grade corporates yielding over 6%
Tax free munis yielding over 3.2%
You may even have a tax benefit depending on your situation.
Its free money right now. Do not pay off the mortgage.

 

[Time2]

I'm all for investing rather than paying off a 3% mortgage.
However, I paid cash for the home I'm in in 1995.
What was I thinking!

 

[DrRoy]

At 5 years you can buy:
agency bonds yielding almost 4%
investment grade corporates yielding over 6%
Tax free munis yielding over 3.2%
You may even have a tax benefit depending on your situation.
Its free money right now. Do not pay off the mortgage.

+1.

 

[Andre1969]

I'm all for investing rather than paying off a 3% mortgage.
However, I paid cash for the home I'm in in 1995.
What was I thinking!

What were interest rates running back in 1995? I closed on my first home, a condo, in December 1994, and was paying 9.625%. I was young, didn't have a lot of credit history yet, and only put 5% down, so that explains part of my high rate, but I have a feeling the typical mortgage rate was a lot higher back then.

There's more incentive, for me at least, to put up more cash, and/or pay it down faster, when interest rates are high. My current mortgage is 2.785%, and while I'll admit that sometimes I do like the idea of paying if off early, I just need to remind myself that it's almost like free money, at that rate, and with inflation the way it is.

 

[Time2]

What were interest rates running back in 1995? I closed on my first home, a condo, in December 1994, and was paying 9.625%. I was young, didn't have a lot of credit history yet, and only put 5% down, so that explains part of my high rate, but I have a feeling the typical mortgage rate was a lot higher back then.

There's more incentive, for me at least, to put up more cash, and/or pay it down faster, when interest rates are high. My current mortgage is 2.785%, and while I'll admit that sometimes I do like the idea of paying if off early, I just need to remind myself that it's almost like free money, at that rate, and with inflation the way it is.

RE: high interest rate. Maybe that is what I was thinking.

I have added a lot of financial knowledge since 2014, before that, I knew to live frugal (since 1981) and invest in no-load mutual funds (since 1989).
I doubt a I even new the concept of invest or mortgage in 1995. Thanks to MMM and E-R and all the links within for any personal finance knowledge
I have gained over the last 8 years.

BTW, my 28 year old son will put $19,000 in his 401k and $6,000 into a Roth, that is 48% of his income. I have told him this market downturn has cost Dad a lot, but this is a great opportunity for him, BUY, BUY, BUY!

 

[jimbee]

Depends on when you'll want to spend the $100,000.

 

[pacergal]

It is a very personal question and much depends on "sleeping well" or piece of mind regarding your finances.

3% is a good rate, even at the small % banks give for savings, you could plop that $ in a regular savings acct, pay the mortgage with it over the 5 years and earn a bit of interest.
If you can afford the mortgage on your retirement budget, you could likely get more than 3% interest if you invest.

Personally, we have a mortgage again at 2.6%. Not paying it off, even though I have the money to do so. We have secure income (pensions) that cover it as part of our monthly budget. I sleep just fine.

 

[wanaberetiree]

I understand all rationale behind the "don't pay off the mortgage" concept, but for us, it was a huge emotional benefit after we did ours, and it felt not right away but several years after we did pay off the mortgage.

You decide

 

[pb4uski]

Hi everyone! We are looking to retire in the next two years. We have a piece of land that will sell for roughly $100K. Is it better to pay off our mortgage or take that money and invest? We have 5 years/95K left on the mortgage at 3%.
What would you do?

It depends. If you invest, will you need access to this $100k? Are you retiring before you are 59-1/2?

What would you invest in?

If you can comfortably make the mortgage payments, I would put the $100k into i-bonds... currently paying 9.62%... if you set up his/her/our living trusts which is easy to do for about $100 you could invest up to $50k a year for a couple.

 

[wanaberetiree]

It depends. If you invest, will you need access to this $100k? Are you retiring before you are 59-1/2?

What would you invest in?

If you can comfortably make the mortgage payments, I would put the $100k into i-bonds... currently paying 9.62%... if you set up his/her/our living trusts which is easy to do for about $100 you could invest up to $50k a year for a couple.

you can't buy $100k of i-bonds, can you?

 

[Markola]

The more recent wrinkles on this age-old debate to consider are:

1) 9% inflation. We hope it subsides but who knows? No one. Meanwhile, OP’s 3% mortgage P&I will not inflate one penny over the remaining 5 years. It will feel like it’s becoming cheaper.

2). Vanguard’s total bond index fund is yielding 3.42%, which we haven’t seen in a long time. One could park the land proceeds there for the 5 short years fairly safely and end up with both a paid off mortgage and some liquidity.

 

[CindyBlue]

We paid off the mortgage. We are still glad we did.

 

[Love This Community]

I have a 30K outstanding loan on my investment property at 3.25%. I have extra 30K. Instead of paying off the loan, I will be buying ibonds. Looks like a no brainer in my case unless I am missing something.

 

[pb4uski]

you can't buy $100k of i-bonds, can you?

It depends and is situational, and you need to learn the rules and be creative. We bought $135k since last fall. $10k each for our 2021 and 2022 allowances is $40k. $5k with our 2021 tax return refund (we made an additional estimated payment to increase my refund to $5k just prior to filing our tax return). $30k each held in our gift boxes as gifts for our spouse that can be delivered in 2023, 2024 and 2025... so that is $60k. Plus $30k as the 2022 allowances for his, her and joint trusts.