Pay off mortgage? (yes this old question)

[AreWeThereYet0]

Hi,
I am curious to see what your thoughts might be on my situation. I am fully maxed out on 401K, Roth IRA, HSA and am contributing to a non tax advantaged account as well. Over 1M invested. 42 and hoping to retire in 8 years. I have 86K left on the mortgage and about 108K in cash. The mortgage is 15 year at 3% and I have 8 years left. Should I pay off the mortgage, invest or continue rolling around in my piles and piles of cash? (j/k) I do like having the large emergency fund, which is what the 108K is, but it has gotten to be a very large amount of money. I don't even make that much per year, so I think it's more than plenty. I look forward to your thoughts on the matter. Thank you.

 

[treeofpain]

You will get a variety of responses here.

We paid ours off. One way to view it is a guaranteed zero-risk 3% return on your money. Where else can you get that right now?

And the feeling of zero debt is pretty nice as well.

 

[RetireAge50]

How about split the money 3 ways, 36k towards mortgage, invest 36k, and keep 36k.

 

[JDARNELL]

How about split the money 3 ways, 36k towards mortgage, invest 36k, and keep 36k.

What does this do for you? I have been struggling with the partial approach for something I am working on.

 

[pb4uski]

Hi,
I am curious to see what your thoughts might be on my situation. I am fully maxed out on 401K, Roth IRA, HSA and am contributing to a non tax advantaged account as well. Over 1M invested. 42 and hoping to retire in 8 years. I have 86K left on the mortgage and about 108K in cash. The mortgage is 15 year at 3% and I have 8 years left. Should I pay off the mortgage, invest or continue rolling around in my piles and piles of cash? (j/k) I do like having the large emergency fund, which is what the 108K is, but it has gotten to be a very large amount of money. I don't even make that much per year, so I think it's more than plenty. I look forward to your thoughts on the matter. Thank you.

IF you would be using $86k of the $108k in cash to pay off the 3% mortgage then I would pay off the mortgage assuming that the cash is earning not much.

 

[COcheesehead]

The problem isn’t the mortgage, it’s the cash earning nothing.
I have never been a fan of emergency funds. Too many other options than having cash just sitting there. I am 57 and never had an emergency fund, though I have had emergencies. Increase the credit limits on your credit cards, add margin to your brokerage, anything that can buy you 30-60 days to deal with an “emergency.” You can always sell assets within that time frame, heck 24 hours is even good.
Personally I would keep the mortgage and put the cash to work.

 

[pb4uski]

+1 I've never had an emergency fund either. Between credit cards and being able to liquidate taxable account investments in an emergency that was all that I needed.

 

[scrabbler1]

I would never tie up that much cash in an account earning basically zilch. I realize this isn't a specific thread about emergency funds, but I have set up my EFs in layers, or tiers. The first tier is a fairly small excess amount (about $700 over pretty low minimum balances to avoid fees) in my local bank's checking account earning zilch - it's very liquid and very easily accessed. The next tier is an intermediate-term muni bond fund earning around 2%-2.5%. This fund has checkwriting privileges so it has some added accessibility. I keep about $40k in there.


Pay off the mortgage, AreWeThereYet0. You will rebuild your cash which I hope you will invest elsewhere.

 

[armor99]

Hi,

I am curious to see what your thoughts might be on my situation. I am fully maxed out on 401K, Roth IRA, HSA and am contributing to a non tax advantaged account as well. Over 1M invested. 42 and hoping to retire in 8 years. I have 86K left on the mortgage and about 108K in cash. The mortgage is 15 year at 3% and I have 8 years left. Should I pay off the mortgage, invest or continue rolling around in my piles and piles of cash? (j/k) I do like having the large emergency fund, which is what the 108K is, but it has gotten to be a very large amount of money. I don't even make that much per year, so I think it's more than plenty. I look forward to your thoughts on the matter. Thank you.

Ask yourself this question... if you suddenly lost your job, would you rather have the cash, or a paid off house? No wrong answer... just preference...

 

[Closet_Gamer]

We chose to pay off our mortgage at about the same point as you in not too dis-similar circumstances.

History says that it was financially a bad choice. As the long term math always suggests, you would likely get a higher rate of return just investing it. But compared to other risk-free rates of return, its a pretty good option. Have to think about your overall risk profile/AA as well. Where does this fit?

All that said, I've never regretted for one minute paying off our house. For me, it was in the "one thing off the list" and "once you've won, stop fighting" categories. I like being out of debt and not owing anyone, anything. I like the fact that when the world went to hell a few months ago, I had zero fear about having a roof over my head if it went all the way to a depression.

 

[Dash man]

I’ve never lost a good night’s sleep worrying about not having a mortgage. We paid ours off in the middle of the last financial crisis.
The future of the stock and bond markets are pretty uncertain right now, and saving cash doesn’t pay much. I think your best bet is to pay off the mortgage.

 

[Keim]

Has anyone EVER heard anyone say they regretted paying off their mortgage?

 

[sergio]

Has anyone EVER heard anyone say they regretted paying off their mortgage?

I know of at least one case:

Guy buys a house paying cash. A few months in, it turns out the house was structurally dangerous and would need to be either torn down and rebuilt, or fixed. The cost to fix was nearly the same as the cost of the house - redoing the foundation, rebuilding the roof, etc.

In a situation like that someone could theoretically consider walking away and letting the bank deal with it. Same thing if there's a catastrophic flood or some other one-in-a-million-years event that insurance wouldn't cover.

 

[W2R]

I paid off my house back in 2006, three years before I retired. I would have paid it off in late 2005, but Katrina hit New Orleans on 8/29/2005. Like a fool I had not put aside an emergency fund and had no credit cards or HELOC (duh!!! yes, I know ). But better late than never, right? So, I built a small emergency fund quickly from my somewhat meager cash balance by delaying that last $14K lump sum payment to pay off my house, until 2006. I was still working so by 2006 I had saved up some other, additional funds to pay off the house.

But no matter how I paid it, it's been paid off for 14 years and I never have to pay Chase Mortgage another dime, ever again. Not one thin dime. When I moved to a nicer home in 2015, I sold in cash and bought in cash instead of arranging a mortgage. I think that the fact that I could pay in cash helped considerably in the negotiations for my present home since it was a hot "seller's market" at the time. The seller needed the money ASAP and did not want to deal with the possibility that plans for a mortgage could fall through.

I love having a paid off home in retirement. It gives me more of the serenity that I prefer as I grow older, even in today's crazy world. The "sleep at night" factor is not just a phrase, it's a fact.

When the market plummets like it did earlier this year, I just hang tight. I never have to worry about making my mortgage payments (so I am less likely to panic and sell low).

I think a lot depends on you and what appeals to you the most. I'd suggest spending a half hour thinking about what life would be like if you paid it off, and then another half hour thinking about what life would be like if you used the money for investments or spending while still making mortgage payments each month. Then go with your instincts.

 

[RunningBum]

Has anyone EVER heard anyone say they regretted paying off their mortgage?

I don't know how it turned out, but there was a person here a few years ago who wanted to retire a few years before 59.5, but had most of their savings tied up in 401K, and maybe a pension starting at 65. Accessing the 401K early didn't seem to be an option.

They wanted to use much of what little taxable money they had to pay off the mortgage that was going to extend way past 65. A few of us tried to convince them that that this would get rid of their biggest expense but leave very little left for all of their other expenses. A much better way would be to leverage their mortgage to make their money last through that bridge time. Once they 59.5 or 65 or whenever, making the mortgage payment was going to be no problem.

Like I said, I don't recall how that turned out but I expect they would've regretted paying it off then.

 

[Vacation4us]

I just paid off my house on 6/4/20. Feels great. Plan to retire 11/2/20. As long as your house will be paid off by your retirement date you can’t make a bad decision in my book. Since your cash isn’t earning 3% paying off the mortgage might be the smart move. You can always rebuild the cash with the extra funds you won’t be paying the bank.

Either way it’s a good problem to have.

 

[mystang52]

How about split the money 3 ways, 36k towards mortgage, invest 36k, and keep 36k.

What does this do for you? I have been struggling with the partial approach for something I am working on.

I like this 3-way split approach. It makes a significant dent in the principle, yet leaves OP with significant liquid cash for emergencies, or whatever. With 8 years currently due on mortgage, it'll be paid off that much quicker. In another year or two OP can always revisit and may decide to pay off the balance in full.

 

[mckittri2000]

Paying off the mortgage was one of our first steps to early retirement. It's not what you make, it's what you spend.

 

[pb4uski]

I dunno. We paid off our mortgage in December and have been mortgage free in the past and I never had that feeling of euphoria that some pay-off advocates claim. Perhaps since our mortgage was on autopay and most of our bills are on autopay I don't notice so much that we no longer have a mortgage payment.

 

[COcheesehead]

Has anyone EVER heard anyone say they regretted paying off their mortgage?

2009 my neighbor tried to tap his equity and the bank said no. What’s that saying about putting all your eggs in one basket?

 

[Sunset]

IF you would be using $86k of the $108k in cash to pay off the 3% mortgage then I would pay off the mortgage assuming that the cash is earning not much.

+1
OP - pay off the mortgage there is no benefit to having it since it's costing you money at 3% while you might earn 1% on similar money.

I view a mortgage as a negative CD, so I'm always willing to trade in my CD and pay off my mortgage once the mortgage costs me a bunch.

The rest of your money invested is already in stocks, etc, which might go up/down so it's not like you need more investments when you are really borrowing the money at 3%.

This will still leave you with an emergency fund, plus your CC's.

 

[BigMoneyJim]

There will never be a consensus answer on this. It just really depends on a lot of things which really boil down to what makes you feel more warm and fuzzy.

For me, taxes and insurance are half my mortgage payment, so paying the house off only cuts my ongoing housing expenses in half, and I'd rather have that money in the stock market than in equity.

On the other hand, my house is a cookie-cutter commodity house on a 1/4 acre lot well-sited for commuting to places work, and not where I imagine myself being in retirement. (Even though I am now retired and the pandemic has caused me to delay my plans to move where I'd like to be retired.) I imagine if you know you're in your "forever" property, the value proposition may be different.

Also, I've proven to myself over the past 20 years I can now manage my money well and not let large piles of assets burn a big hole in my pocket. Some people may want or need the "forced savings".

 

[RobbieB]

I would put half the cash on the mortgage and keep the other half as cash.

 

[target2019]

Send an extra month or two of principal. Pay off in half or one third the time. You can always stop or even accelerate the extra payments.

 

[Rowej]

I paid ours off two days ago, so being a recent event, I can tell you I feel elated and no problem sleeping. If anything ever happened to my job, it would not take nearly as much to live on. Made double payments for the last 7 years to pay off in 16 years.