retirement question 2: payoff mortgage early or drive up retirement account

[tasha99]

Two words.

Compounded Interest.

I would beef up my retirement account to take advantage of the time value of money. Let that money earn interest on itself. Our market returns have been great for several years now.
One thing you might want to consider, would be to refi to a 15 year mortgage and take advantage of these low rates. we did that a few years back and will have our home paid off soon right after retirement.

But doesn't that compound interest go both ways? Most people are paying the mortgage company a lot as well. I might be wrong, but I think it really depends on the situation, though in my case when I got a lump sum I stuck it on my mortgage and refinanced to a 15 year loan (to me, knowing I'll have my house paid off before I retire was peace of mind.)

 

[Goofy_Disney_Dad]

Well, we paid for both of our childrens' educations.....no loans.
We paid off our house in WA and when we sold it, we paid off this house.
We retired a couple of years ago. I guess we just invested wisely.

You should be very, very proud.

 

[Colleen27]

But doesn't that compound interest go both ways? Most people are paying the mortgage company a lot as well. I might be wrong, but I think it really depends on the situation, though in my case when I got a lump sum I stuck it on my mortgage and refinanced to a 15 year loan (to me, knowing I'll have my house paid off before I retire was peace of mind.)

It does, but in recent years mortgage rates have been low enough that it is a fairly simple matter to "beat" the interest you're paying with the return on your investments.

 

[MIGrandma]

We paid our house off several years ago (purchased from DH's parents and made a once-a-year-payment when we sold crops in the fall). We do still owe for the land up north that we're buying, another 8 years I think. Maybe less as a couple times we have thrown more $$ at the principle. If we had the extra money we would pay it off as soon as we could, so we could pay less interest. We're working on our retirement though (life insurance, 401K and investments).

 

[Gumbo4x4]

Mortgage, but that's an answer that comes from many years of up and down income. I quite simply sleep better at night knowing that the roof over our head is paid for even if it isn't the best choice from a purely financial perspective. Our property taxes are low enough ($1100/year) that losing the house to taxes is unlikely to the point of near impossibility, so not having a mortgage represents a great deal of financial security for us.

Now that we have a predictable income for the first time in our married life I may find I feel differently as I adjust to the "new normal", but I don't imagine I'll regret owning our home outright. It probably isn't our "forever" home (I don't think we will have such a thing) but it is the home where we plan to stay for at least another decade, and since we bought a fixer upper at a crazy low in the market the value has nowhere to go but up.

I know quite a few people who paid their homes off extra early. Not one of them has ever even hinted at regret

Best example is a friend who paid off still in his 20's. Now, well into his 50's, he hasn't had a loan for ANYTHING since. Zero interest paid over the last 30 some years. Not too shabby

 

[elaine amj]

For our first 10 years, we chose to invest and keep the mortgage. A few years ago, we decided to just attack the mortgage to reduce our monthly cashflow out. We should be paid off next year. Still hoping early retirement in 5 years or so is going to work out!

We've just been readjusting our investment strategies (it's taken a ton of time at the bank dealing with paperwork!).

I know from a financial perspective, keeping the mortgage often works out better. We tried that - but at the end of the day, we decided we like the security of having it paid off. Plus, DH likes a LOT of cash reserves and that's hard with so much going to a mortgage every month. So there is a psychological factor too. As it is, our retirement has to be delayed a little because DH absolutely must have a ton of cash just sitting in a high interest savings account. On the plus side, we never have to worry about not having enough money in the bank to pay our bills Even if our expenses are unexpectedly high a particular month.

 

[gwynne]

I know quite a few people who paid their homes off extra early. Not one of them has ever even hinted at regret

Best example is a friend who paid off still in his 20's. Now, well into his 50's, he hasn't had a loan for ANYTHING since. Zero interest paid over the last 30 some years. Not too shabby

And that is all well and good as long as your friend keeps up with real estate trends. Buyers these days are pretty picky. Hopefully he puts some cash into updating the property periodically. When he finally lists the place he won't want it to show as a low value, dated property in need of an overhaul.

 

[lvillotta1]

I have 11 years left on my mortgage. At that time I will be 55. Otherwise I am debt free at 41 raising 2 girls. When the house is paid off that money will be used for DD#2 college education. I max out my Roth Ira every year and have an excellent retirement fund growing. I just accepted a new job and my employer yearly will put in 15% of my annual income into retirement. I will then add another 10% so that is not too shabby. This is my forever home so ay 65 I am hopeful to retire very comfortably.

 

[Gumbo4x4]

And that is all well and good as long as your friend keeps up with real estate trends. Buyers these days are pretty picky. Hopefully he puts some cash into updating the property periodically. When he finally lists the place he won't want it to show as a low value, dated property in need of an overhaul.

Meh. I'm sure the home appreciated either way. Another friend of mine spent a fortune on remodels on her house & recouped almost none of that when it came time to sell.

Regardless, he (original friend) sold that home in 2002 & paid cash for a larger home on 10X as much acreage. He spent most of his time in the old home working so-so jobs, but always had spare cash for boats, vacations, and nice (but never new) cars. Finally landed his dream job in 2002, but that required a move. Growing up poor, he was always scared of debt. It's amazing how much cash is freed up when you're debt free.