My husband and I are now six years from
retirement, and we are trying to figure out the
best use of our money. We have enough to pay off
the mortgage without dipping into our IRAs, and
we'd sleep better if we didn't have a mortgage
hanging over our heads. Is this a good idea?
A: Given the economy's
continuing weakness, the fact that you have cash
that's not tied up in IRAs and how close you both
are to retirement, I think it's a fine idea to pay
off your mortgage.
Here's why: You should always try to get the
best return possible on your money. So you
shouldn't keep the loan unless you can find
another investment that, before taxes, can
reliably earn more than the 6.48% that you're
currently paying on it. With the stock market
still volatile and certificates of deposit and
other relatively safe investments paying less than
the rate of inflation, I wouldn't count on
What's more, paying off a mortgage loan is
risk-free-no matter what happens to the general
economy, you'll be left with an asset that you can
live in or rent out.
A downside is that you'll lose the mortgage
interest tax deduction if you pay off your loan.
But as a new report from the National Association
of Home Builders points out, those benefits
largely go to those buyers who are younger than
45, who typically have the largest mortgages and
the most itemized expenses.
Meanwhile, if you pay off the loan, you'll
have plenty of company. According to the latest
American Community Survey released by the U.S.
Census, there are approximately 50.7 million
owner-occupied homes with a mortgage in 2009,
compared to about 51.6 million in 2008. Folks are
paying off second mortgages and home equity lines
of credit, too. Those have dropped to about 12.1
million in 2009 from roughly 13.3 million the year
Of course, you do have other options. You can
refinance your relatively expensive current loan
to today's lower interest rates-but doing so will
incur thousands of dollars in closing costs. Or,
while you are both still working, you could simply
add extra principal payments to your current
mortgage and pay it off more quickly.
But if you pay off your mortgage completely,
you'll not only sleep soundly, you'll be in a
position to get a reverse mortgage should you need
to tap into your home's equity at a later date.
The way reverse mortgages are structured, the
older you are when you take out a reverse
mortgage, the more you'll be able to withdraw
while still remaining in your home, since your
life expectancy declines with each passing year.
That's a good fallback should you outlive the
funds you manage to put away before