Pay off Mortgage or No?

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One of my goals has been to pay off our Mortgage.  Imagine going into retirement without a monthly mortgage payment hanging over you?

But as this story tells, what may look like a good idea on paper, may wind up biting you later.

This is  a cautionary tale that highlights the need for an Emergency Fund.  I’d still like to be Mortgage free (in addition to our DebtFree status), but we also need to make sure we cover our ASSets with an Emergency Fund.

What about you?  How are you handling the balance between Emergency Fund and paying off/down debt?

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2 Responses to Pay off Mortgage or No?

  1. outtadebt says:

    Great points Siobhan.

    Everyone’s situation will be different, and in fact, the variables could change over time. If an employer changes how much they contribute in a 401k match, that might impact how much a worker contributes to his/her retirement. Or paying of a loan may free up additional money to be saved for retirement, or applied to paying off other loans/mortgages.

    It’s no doubt best to have a plan and consult with a Financial Advisor!

  2. Siobhan says:

    I tell all of my clients who come to me with this situation to consult their Financial Advisor. Let them know what you are paying interest rate wise on your mortgage, and see what they can do with your money. Right now, typically your FA is able to get you a higher rate of return than your mortgage rate. Currently, 6-8% rate of return is typical while rates are around 5%. That definitely makes it worth your money to invest it rather than pay it off. As mortgage rates go up, so should the rate of return.
    As for having a lower payment for retiring, remember that you can always put extra money towards your principal, and as for a recast. This will lower your payment without extending your payoff. If your loan was $200k 5 years ago with a payment of $2000, and you paid it down to $100k, your payment should not still be $2000. Yes, it will be paid off sooner, but why not have a payment of $1200 and invest the other $800?
    Before paying off your home loan, please consult with your Financial Advisor.

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