Pay off our house?

[MKCP5]

Hey budget board,

Someone talk numbers to me. DH and I are early 60's. We have steady jobs-he's a teacher who will get a pension, and I have higher paying work. After a lot of effort over the years we have no debt except our home. We'd like to retire at 65/67 but really want to have out home paid off. I'm committed to that but worry about my retirement. I was a SAH Mom for many years where I did not build any retirement for myself. Are we wiser to bump that up at this late date, or continue to pay. more on the house and relieve ourselves of that burden before retirement? Thoughts?

 

[gmi3804]

Lots of variables here.

What's the interest rate on your note, what's the current market return for your savings/investments, and what kind of income will you have if you don't have income from your jobs?

 

[MKCP5]

Lots of variables here.

What's the interest rate on your note, what's the current market return for your savings/investments, and what kind of income will you have if you don't have income from your jobs?

Interest rate is 3%. I am embarrased to say I don't know the return on my 401K. Our retirement income will be somewhere around 70K a year.

 

[gmi3804]

Interest rate is 3%. I am embarrased to say I don't know the return on my 401K. Our retirement income will be somewhere around 70K a year.

70K/year is a good amount to live on, but I don't know your desired lifestyle post-retirement. You can certainly do better than 3% with solid growth and income investments, so paying off the house doesn't seem to be the financially prudent thing to do in this case. If you have a mortgage to pay, you'll still have your mortgage interest deductions too, since you'll have a nice tax bill when you start drawing from your 401K, and having deductions will help with your tax liability.

Those are my general feelings, but as usual, it's best to consult with a financial planning expert, someone who's up on all the current laws and tax rules.

 

[barkley]

Interest rate is 3%.

we paid ours off and it has been a wonderful sense of relief in retirement. that said-3% is less than you can earn on a cd right now so you could likely earn more on retirement savings and hold off on doing the payoff closer to or right after retirement.

that 70K you estimate, will it all be taxable? if not you might want to run numbers with a cpa and see if that mortgage interest deduction will help you tax wise. if it won't (it had gotten to the point that it did'nt for us b/c of untaxable portions of our retirement income) then you can consider continuing to sock the money away in a financial instrument that would allow you to earn more interest for the time being and then payoff upon retirement.

i suggest also looking at what your retirment budget will be like as well-will you have higher health insurance costs (my civil service retiree coverage was obscenely higher than that of active employees)? will you want to travel more? eat out more? you will likely have some cost savings like gas, work clothing and such but being home means higher utilities which can offset costs as well.

 

[bakerworld]

We've been retired 2 years and both of us received a lump sum upon retirement so we paid off all our debt - house, car, kids education and credit card. With no debt we can live comfortably on our SS and still travel to WDW twice a year (we use to go 4 times annually). I withdrew from my retirement fund to go to Europe with my daughter. DH hasn't touched his.

 

[neatokimmo]

We paid ours off with a 3% rate. On paper it didn’t make sense. But the security from doing it was priceless. If something bad happens we can live off one fast food wage.

 

[wannabee]

Agree with the others- it may not make sense on paper to pay off a mortgage with a low rate but the feeling of security is hard to beat.My stress level is so much lower with a paid off house and we are now living on one income and saving the other for retirement. I would 100% pay off your mortgage.

 

[tvguy]

For us, buying a house and paying off our house was a top priority. We bought our house four years before our first child was born when we both were 25. It was a financial challenge, but it all worked o0ut. Our goal, to have the house paid off before our oldest started college and having the equity in the house as a financial backup to our kids college fund. Took us 17 years, and three mortgages, two 30 year fixed rate, the first at 12.25%, the second at 9% the last a 15 year fixed rate at 6.25%. Payment were $1,100 for the first mortgage, $900 for the first refinance, and $625 for the second refinance, but since we could swing the $1,100 payment, we kept making that payment every month on the two refinances. That was the key to the early payoff. The house was paid off 5 years before our oldest started college, and every month for those five years what had been the $1,100 a month mortgage payment went into the college fund.
But, even if we had just kept the first 30 year mortgage our house would have been paid off 10 years ago since we have been in the house 40 years.
All I can say is two people on my street went into retirement with a mortgage and it was financial burden for them, to the point that they had to sell their houses and become renters. They kept taking equity out of their houses for investments that ended up not being good investments.
For my wife and I another issue was we were the first generation of have a mortgage. Our parents both paid cash for houses.........actually, in my parents case literally a shack in the sticks, but over 10 years they added on and added on until their one bedroom, one bath shack was a 3 bedroom 2 bath house that they sold for a tidy profit.

 

[havaneselover]

Invest in tbills and reassess in a year.

I’m 46 and can pay mine off (2% rate) and my modest mortgage is my only debt but I’m waiting.

 

[Skywalker3]

We had 4%, but made it a goal to pay it off, and did so about 1 year shy of the 15 year mortgage.
I love not having a house note. Now, a lot of the extra is going into retirement savings, but also had a kid starting college, and will have another one there soon. plus it's nice to have some extra spending money each month.
in-laws have a different way of looking at things. They moved here several years ago, they're in their 70s, and took a 30 year mortgage. I would never want to do that, but they have enough retirement income to cover it.
We talk about getting a place in FL, and being snow birds, but I would hate to have another house note now.

 

[havaneselover]

.

 

[Twilghtsprkle]

We had a 6% and probably should have just refinanced when rates were low, but my husband had done a few very risky investments (crypto, shorting the market) that paid off immensely so i used some of that money to pay the house off. It’s great not to have a mortgage and wonder who my mortgage would get sold off to next.

 

[Starport Seven-Five]

I don't see a financial reason to pay it off unless you have some type of subsidy or tax incentive you can move your income below with the reduced spending. For example, some areas have annual income limits to qualify for freezing property taxes. You may be above the limit regardless though due to the pension so that consideration could be a moot point.

High interest savings accounts are paying 4.25% currently and there are CD's paying 5% with zero risk. Assuming 100k remaining balance, you could net $2,000 per year just by carrying the mortgage and opening the CD.

I get the whole "debt free" thing but it's likely the numbers lead you a different direction.

 

[Dakota731]

We paid ours off too. It didn’t matter to me what the interest rate was - it’s still a debt. And I wanted to be debt free in retirement. I now use that mortgage payment to put into my 401k so it’s earning me money not costing me money.

 

[starry_solo]

How much do you still owe on the house?

 

[Starport Seven-Five]

We paid ours off with a 3% rate. On paper it didn’t make sense. But the security from doing it was priceless. If something bad happens we can live off one fast food wage.

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?

 

[lockets]

We paid ours off with a 3% rate. On paper it didn’t make sense. But the security from doing it was priceless. If something bad happens we can live off one fast food wage.

Agree with the others- it may not make sense on paper to pay off a mortgage with a low rate but the feeling of security is hard to beat.My stress level is so much lower with a paid off house and we are now living on one income and saving the other for retirement. I would 100% pay off your mortgage.

What @neatokimmo and @wannabee said. 100%.

Pay off the house. While math and logic say one thing, not everything has to be a financial interest-rate-based decision. Sometimes it's better to have simplicity in your retirement life. You'd be 100% debt free!

With no mortgage, you can reallocate that payment (or a portion of it) to stockpile it onto your current investments or elsewhere.

The point made above about "something bad" happening is a really valid one. You can always invest your money, but that mortgage is due to the bank every month, baby! No matter what. In sickness and in health... Clear it out.

 

[gmi3804]

Pay off the house. While math and logic say one thing, not everything has to be a financial interest-rate-based decision. Sometimes it's better to have simplicity in your retirement life. You'd be 100% debt free!

OP should do what they're comfortable with and what aligns with their goals, not because that's what some Internet stranger would do. And only they can figure out what their goals are. Once they do, they can do what they need to do to achieve those goals.

 

[lockets]

OP should do what they're comfortable with and what aligns with their goals, not because that's what some Internet stranger would do. And only they can figure out what their goals are. Once they do, they can do what they need to do to achieve those goals.

Of course.