To Pay Off the House ... Or Not?

[Rosalita]

I've just been "out-sized" from my job. A relief actually as the commute and direction the company was going in, were making life somewhat miserable. But enough of that. I'm planning to take the summer off, keep my eyes open for other opportunities (maybe!), but primarily enjoy life and not working for a while. This is the first time I've not worked (since school).

Here is my question that perhaps some of you could provide your thoughts on, I have $600k invested in equities, $60K in CD ladder, $150K in 401K, $200K in cash (waiting to be invested, sitting in MMF), a house in another country that supports itself with tenants, a house here that has $170K left on the mortgage (is valued at $800K); and my annual living expenses, including mortgage, is about $30k with vacations included -- should I pay off my $170K mortage, or at least put $50-60K on the principal to get it down? My mortage interest rate is 5.1% locked in for 15 years. Paying off the mortage would reduce my living expenses by approx $10K annually.

I understand that this more of a personal decision since there are many arguments for investing that $170k to create a greater return, than you would save paying off the mortgage - but I'd be interested in opinions.

Thanks,
Rosalita

 

[brewer12345]

I think the main reason to pay it off would be to reduce cashflow strain. It doesn't sound like you are under any real strain, so I would probably hold off at least until you decide what you plan on doing. If you go back to work, keeping the mortgage is a no-brainer. If you don't go back, then you might pay it off, relocate, etc. In the meantime, it is nce to keep your options open, especially with a below-market rate.

 

[REWahoo]

Search "pay off mortgage" and you'll find many discussions on this subject, like this one: http://early-retirement.org/forums/index.php?topic=2731.0

My opinion is do whatever lets you sleep better at night.

 

[MasterBlaster]

Well here's the arguments in a nutshell.

If you can get a long term rsik-adjusted rate of return greater than the mortgage then you should invest the money and keep the mortgage.

there are some nuances with deductable taxes on a mortgage versus capital gains rates but the main comparison is with expected rates of return and mortgage rates.

 

[thefed]

How many years left on the mortgage?

Inflation alone tells me I'd rather pay off the 170k one month at a time for the next 180 months.

That last payment will cost you 50% of what it would today, in inflation adjusted dollars.

Set aside tha 170k, invest conservatively, and you have a winning scanario....IMHO.

 

[2B]

Cash is king when you're unemployed and not yet FIREd. I found myself in a sticky situation where I got "right sized" with a paid off home mortgage, several 100Ks in an IRA but only a few months of living expenses in available cash. We ended up selling the house to relocate for a new job. I now have a mortgage but a comfortable amount of money available if needed. I know this isn't my retirement home so I'm not rushing to pay it off. I do plan on paying cash on the final homestead.

 

[VoyT]

I'm a fan of paying off the mortgage, but in your case, I'd counsel waiting until you decide what to do. I don't think it's a good idea to take a big chunk out of savings at this point.
So keep your options open for now -- and enjoy that break!

 

[Rich_by_the_Bay]

Rosalita,

I just paid off my mortgage, but it was an ARM recently bumped to 6.5% and on its way north.

If I had a 5.1% fixed mortgage, I would hold on to it. If it makes you feel any better, take the money you were going to use to pay off the mortgage, and put it into a 3 year CD paying 6% (e.g. Pentagon Federal). The CD will be worth $202,472 for a net yield of $32,474 and the mortgage would have cost you $27,359 in interest by my calculation. In just 3 years you are ahead over $5000 by keeping the mortgage, taxes aside. Who knows how much more beyond that.

It is nice to have the "mortgage monkey" off your back but your numbers seem to favor holding on to it. Hope that helps.

 

[Rosalita]

How many years left on the mortgage?

Inflation alone tells me I'd rather pay off the 170k one month at a time for the next 180 months.

That last payment will cost you 50% of what it would today, in inflation adjusted dollars.

Set aside tha 170k, invest conservatively, and you have  a winning scanario....IMHO.

There are 10 years left on the mortgage. Another upside of course is the tax deduction if I keep the mortage.

 

[Rosalita]

Great insight and feedback everyone. Many thanks for your thoughts. I think I will hang onto it for now.

Rosalita