Payoff home mortgage?

Question

I plan on retiring in about 3 years. Should I pay off my refinanced home loan and put that money in some sort of investment or pay it off in the next two to three years? I would have to dip in to my IRA with no penalty. It would be roughly 10% of my savings.

Answer 1

Pay your mortgage off first. Invest what you have left. Always pay off your mortgage before investments other than retirement type investments. People will tell you that if your home mortgage interest rate is higher than what you can make in a fund then keep the mortgage and invest the extra. What they never factor into the equation are taxes on non-tax deferred investments. They also don't account for risk. If you factor in risk and taxes, it's a wash. So, why take on the extra risk? If you have a paid for house and money left over to invest you are ideally setup for retirement.

And, reverse mortgages are not a good road to travel. At the end they get the house and the fees are too high. It's another money making scheme for the lender.

Answer 2

Paying off a mortgage is almost never the proper thing to do. It is far safer to have a large mortgage and a lot of cash in the bank, than to have little or no mortgage with little or no cash in the bank.. Many people hate their mortgage because they hate
paying interest. The truth is that everything in life is 100% financed. This means that you are either paying interest to someone else, or you are losing the opportunity to earn interest on your own money. It is not accurate to compare the spread between the rate of return on your invested cash to mortgage interest rates. First, the fact is there are investments which match present mortgage rates for people with good credit. Second, there is a significant tax advantage that goes with the mortgage that can be figured into the equation. I would suggest you check the work of nationally recognized financial planner Ric Edelman, author of "The New Rules of Money" among other titles. And also Doug Andrew, author of "Missed Fortune". Last August, the Federal Reserve came out with a study that agreed with this strategy.
Also, a reverse mortgage may indeed be another option. The lender does NOT take title to your house. The legal effect is no different than any other mortgage if you should die and the fees are no different than any other government insured mortgage if you obtain the mortgage through a reputable lender.
However, you really haven't given enough information about your total financial picture to give accurate advice. The decision about the mortgage shouldn't be made as if it was isolated from the rest of your financial life

Answer 3

Leave the money i the IRA, don't pay off the mortgage. You are already investing and 10% of your retirement income is significant. The mortgage interest in deductible and you will need your assets for 25 to 30 years.
Don't do a reverse mortgage except as a last resort. Only do this if you absolutely need money to live on. Otherwise you are giving your assets away. If you have to do a reverse equity loan look to doing so with a family member first.

Answer 4

It all comes down to the interest rate your are making in your investment. Say you are in the market and able to get a 15% return on a mutual fund or individual stocks. If you are paying 5-10% on your mortgage then you're better off delaying your mortgage payment and profiting from that difference.

When retiring, people usually prefer low-risk so I'll assume you have a mix of T-bonds, blue chip stocks, mutual funds, and other conservative instruments.Take a look of what this investment mix is yielding per year. If it is, say 5-6% and you're paying 8% on your mortgage, then definitely amortizing your home right up is your best option.

Answer 5

Considering that the interest on the mortgage is almost gone, I would pay off the house, get another mortgage, for say $100,000, for 10 years. Invest the money in a hi-yield fund, paying more than the interest on the loan (which may be tax deductible since you are using the money for investment).

In that way: (a) you have a home free and clear, (b) you have additional investments for retirement, (c) have a tax deduction, and (d) should you need the money, it is readily available.

Answer 6

Pay the mortgage and stay away from reverse mortgage. It is a total rip off especially for senior citizens (shame on them). Once the home is paid look at how much more you have to invest. You can recoup that 10% in no time once you have no payments. Good luck.

Answer 7

Paying off your mortgage is almost always the best option.

Firstly , the interest on the mortgage will be bigger than the interest or dividends on any investment. Secondly, the feeling of security in owning the roof over your head, come what may, is great. Plus you will have something worthwhile to bequeath to your descendants. Wins hands down for me. Happy retirement, when it comes.

Answer 8

If you're 62 or older you should seriously look into a Reverse Mortgage. Many people are skeptical about them, but that is only because they are unfamiliar with them. A Reverse Mortgage can eliminate your mortgage payments altogether and possibly give you a lump sum of money (to invest or do as you please), monthly installment payments, or a line of credit.

Since it is much better explained by AARP here is the link to their website http://www.aarp.org/money/revmort/. They do not endorse any specific mortgage lender or product, but explain how they work. In fact, before you can get a Reverse Mortgage, a licensed Reverse Mortgage counselor must sit down with you in person to review the product and the pros/cons specific to your situation.