Pay off our house?

[neatokimmo]

I don't follow this argument. If you still had the money in savings or CD couldn't you just pay the mortgage with those funds?

At the time of payoff CDs were paying 1-2%. Savings accounts were maybe half a percent. We had a 15 year mortgage and I did the final payment in year 9 or 10.

Besides if things go south quick and you need help, having 100k in your savings guarantees no help. Having a paid off house is a gray zone for some programs.

 

[barkley]

just thought of another expense to consider if you do a payoff-umbrella insurance. i know insurance rates are astrinomical in some areas so researching how much this will cost (b/c it is HIGHLY reccommended to protect a paid off home) is a consideration.

Besides if things go south quick and you need help, having 100k in your savings guarantees no help. Having a paid off house is a gray zone for some programs.

this is VERY true. i administered public assistance programs wherein a house and it's value/equity was entirely exempt from consideration whereas having the payoff amount sitting in savings would create ineligibility.

 

[Jimsig]

You need to talk to a financial advisor (if you don't already have one) about your specific needs and wants.

They can run the numbers etc. so you can see exactly where you stand now and where you would stand if you paid it off now or if you waited. You need to find out what makes financial sense now and at retirement. You may find out that paying it off now requires you both to work an additional number of years until retirement or waiting to pay it off means that you can retire when you want.

What's best for a fair number of DISer's might not be best for you. Until you talk to some one with experience you won't know what is best for you.

 

[QueenIsabella]

You need to talk to a financial advisor (if you don't already have one) about your specific needs and wants.

They can run the numbers etc. so you can see exactly where you stand now and where you would stand if you paid it off now or if you waited. You need to find out what makes financial sense now and at retirement. You may find out that paying it off now requires you both to work an additional number of years until retirement or waiting to pay it off means that you can retire when you want.

What's best for a fair number of DISer's might not be best for you. Until you talk to some one with experience you won't know what is best for you.

This. Everyone's different.

I used to favor the idea of having the mortgage paid off before retirement, but now I don't. What changed? A very low mortgage rate, coupled with having other assets we could tap in an emergency.

That said, I have no issue with the people who say that having no mortgage helps them sleep well at night--good for them! Who am I to tell them they're wrong?

 

[havaneselover]

This. Everyone's different.

I used to favor the idea of having the mortgage paid off before retirement, but now I don't. What changed? A very low mortgage rate, coupled with having other assets we could tap in an emergency.

That said, I have no issue with the people who say that having no mortgage helps them sleep well at night--good for them! Who am I to tell them they're wrong?

100%. It's all about risk tolerance. It's not irrational to want to pay it off. It's not irrational to want to invest the money--either risk free or in the market.

 

[starry_solo]

It seems to me that there are several important questions:
- how much do you have remaining on the mortgage?
- what is your monthly payment?
- what is your interest rate?

Before answering the question of whether to pay it off before retirement.

 

[gmi3804]

It seems to me that there are several important questions:
- how much do you have remaining on the mortgage?
- what is your monthly payment?
- what is your interest rate?

Before answering the question of whether to pay it off before retirement.

That all means nothing without knowing how much they’re going to need in retirement.

 

[tvguy]

I don't follow this argument. If you still had the money in savings or CD couldn't you just pay the mortgage with those funds?

For many of us the feeling of having your house paid off is huge, even if the money were sitting in the bank.

 

[RivShore]

x

 

[Starport Seven-Five]

At the time of payoff CDs were paying 1-2%. Savings accounts were maybe half a percent. We had a 15 year mortgage and I did the final payment in year 9 or 10.

Besides if things go south quick and you need help, having 100k in your savings guarantees no help. Having a paid off house is a gray zone for some programs.

I was assuming we were talking about today based on the "on paper it didn't make sense" portion of your post. Agree that you can't second guess your personal decision based on today's information though as we haven't seen savings rate like this since 2009 or so.

Second part is true and something that should definitely be considered if they are in a position where that is an option.

 

[wide awake]

Pay the house off. People assume that all investments will make more, perhaps, perhaps not. We paid ours off three years ago and it gives an amazing sense of freedom. Also....unless OP has a VERY large mortgage you can no longer deduct mortgage interest...that went away with the substantial rise in the standard deduction.

 

[DisneyHardin]

I'm in the "Pay off the House" camp. I know on paper it seems like it might make more sense to let the money grow in a retirement account, but I would want the security of not having that big debt going into retirement.

I am planning to retire in 10 years and it will work out that our mortgage will be paid off right at the same time - to me, that is a HUGE relief knowing we will own our home outright when I retire.

 

[OrangeBirdGirl]

I'm also in the mindset pay off your house. Our rate was 3.875% and we paid it off about 2 years ago. We were ending year 15 on a 30 year mortgage when it was paid off. It is an amazing feeling to know we are totally debt free.

 

[Anthony1971]

I am personally from the camp of mortgage free. With that our rate was also over 5% can't recall the exact amount but it was good rate in the early 2000's.
While we do not know your income nor the amount you need to pay off here are a few things to consider.
As another mentioned there really is no tax benefit to a mortgage these days. On the flip side interest and investment income can easily put that money in a higher tax bracket as well as an investment income tax of an additional 3.8% which can take 50% of your gains with state tax if you live in a state that has state tax. While the 3.8% is considered when calculated meaning when you do your taxes if in the past you get a small tax return or pay a small amount you could be fined as you have to pay 90% of your tax burden in any given year. In other words if you make 10K in interest with a 180k AGI combined income you will owe over 2K in federal tax alone for the interest (may also owe the 3.8%) The rate could be much higher depending on your income if you normally pay federal even this amount could leave you with an underpayment leaving with you paying the federal gov't a fine plus a much higher rate if interest on the amount you owed. Same goes for state. If this is a situation for anyone the easiest way to ask your employer to deduct and additional amount each pay period or you can file QTR returns - they are very easy to do your own but this would have needed to be started in the first QTR of 23

 

[gmi3804]

I didn't think this thread was a poll about what YOU would do. OP asked for advice. They need to do due diligence on their situation and do what makes sense to achieve their goals.

Currently, $1MM in debt service can be written off, as well as the first $10,000 in property taxes. That went in to effect several years ago; in the past there were no limits for your primary residence. Our mortgage was $1.3MM, and our property taxes had risen over the years to $43,000, so we took quite a hit when that rule changed. Those new rules pushed us to finally downsize, and we did almost two years ago.

 

[RivShore]

The answer to this will be different for everyone.
I think I would have always been in the debt free is better camp, until recently. We are in very unique fiscal times, many have 2-3% mortgages with up to 28 years left at that rate. And with interest rates up, you can get near guaranteed returns of 5.5% or more for 20+ years on CD's and Government bonds. You'll need to run some tax scenarios, or go the tax free municipal bond route, to see how far ahead you actually come out.
It's never a bad thing to be debt free but its also a good thing to make money with the bank's money.

 

[Anthony1971]

I didn't think this thread was a poll about what YOU would do. OP asked for advice. They need to do due diligence on their situation and do what makes sense to achieve their goals.

Currently, $1MM in debt service can be written off, as well as the first $10,000 in property taxes. That went in to effect several years ago; in the past there were no limits for your primary residence. Our mortgage was $1.3MM, and our property taxes had risen over the years to $43,000, so we took quite a hit when that rule changed. Those new rules pushed us to finally downsize, and we did almost two years ago.

In some ways it is what you would do, as everyone has a reason to why they did or did not do.....and how they arrived at the decision to do so. I do agree saying to pay off or not is not helpful without an explanation.
Yes, everyone has a different set of circumstances but each response brings a different reason as to why or why not and bingo maybe person X reasons are similar to the person asking the question. This is the exact problem with a public forum no one has all the information needed to say what will or will not apply but many can offer a few things to consider. As others have said the best way is for the OP to either pay a financial advisor or do the work themselves.
The hit you speak of on personal taxes is also very may or may not apply as before the higher standard deduction when the SALT tax was still allowed in many cases you were hit with an AMT which if you reached the phase out AGI you were limited to the then much lower standard deduction. The phase in Started in the lower 100K but most did not notice it, once you started going above 200K AGI (not actual income but AGI) is when you would see the write off become smaller and smaller with the end being limited to the standard deduction. However up until a few years ago you were still allowed a deduction for chartable donations which is also no longer allowed unless you beat the standard deduction. Unless a person has considerable Donations and or deductible Medical expenses which is only costs above 7.5% of your AGI it is very difficult to take more than a standard deduction. In the past it was easier but you would have spent a very large percentage of an average income to do so. Note we are talking of average income not people making a million+ a year that is a whole different way of doing things as they can simply afford to make large donations if not run a chartable organization or have large investment or Business losses. Also people with executive pay plans that are offered ways to defer cash income if you will to offset part of the stock compensation which is taxed in the year ownership takes place not necessarily the year granted as in most cases there is tenure or goal tied to the actual ownership date although it is part of your pay structure and deposited in an account in your name. There are plenty of other examples as well.

 

[DLgal]

How many years left on the mortgage?

How much left to payoff?

If you provide these numbers, you can run some very basic calculations about how much money you stand to lose over time by paying off your mortgage early, because at 2% interest, you WILL lose money paying off early.

Now, there is an emotional component to being "debt free" IF you consider debt "bad" (I personally don't, but many do). In that case, whatever helps you sleep at night is the right decision for you.

I don't know many people heading into retirement who DON'T want more money, though. So, you have to decide which one would give you more peace of mind: more money or being debt free.

 

[CGB]

We'd like to retire at 65/67 but really want to have out home paid off.

That was my opinion as well when DH decided he wanted to retire back in 2020. We still had a mortgage and car loans, so we agreed that Dec. 2021 was our self-imposed deadline for paying it all off and DH's retirement. Amazingly, we paid off about $115K in 18 months without touching any of our savings or investments. Looking back, the smartest thing I did was streamline our expenses so that we were living off a portion of my teaching salary only, which was roughly 35% of our total income. I did it to free up money to pay the debt; however, it did something else I didn't realize would be so helpful. It moved us to a budget and mindset for retirement earlier than actual retirement. Today, we're still living that mindset, debt-free and bankrolling DH's pensions. I'll be eligible to retire in a couple of years, but like you, my pension won't be as cushy due to my military & stay-at-home mom years. I'm also currently debating drawing later vs. early because I'll be hit with some penalties for drawing before age 60. So, paying off the house, getting on a realistic budget early, and banking some funds ahead of my retirement has given us some leeway, and peace of mind, as we go into this next phase of our lives.

I do agree with talking to a financial advisor, but I also think hearing stories from other people's experiences can help. Good luck with your choices!

 

[amylevan]

Strictly math speaking, with a 3% mortgage, it makes more financial sense to not pay it off immediately. You can put the extra is savings account or CD and make more than that. You can still use that money to pay it off upon retirement.

Lots of people here say they prefer to be debt free. I’m in the camp that says the best financial decision for me is to make every dollar work as hard as it can for me. Earning 4-5% FDIC insured is harder working than 3%. Other non-FDIC insured investments may even lead to greater returns, but they carry risk and if you are closing in on retirement, risk is not necessarily a good thing.