Is it a Good Idea to Pay off your mortgage, Yes or No?
Should You Pay off your mortgage?
Q: I’m in my late 50s. My highest priority goal for retirement is to own my home, with no mortgage payment. Is that a valid, fiscally sound objective? — Bill Slayton, Centreville, Va.
A: Being debt-free in retirement has its advantages. “I’ve never met anyone who complained about not having a mortgage payment,” says Don St. Clair, a certified financial planner with St. Clair Financial in Roseville, Calf.
Pay Off Your Mortgage, But getting there might be more costly than you think, particularly if you’re not already maximizing your contributions to your retirement accounts. “For instance, you may not want to forgo contributing to your company’s 401(k) plan in favor of accelerating your mortgage payments, especially if doing so means missing out on matching contributions,” says St. Clair.
Pay off your mortgage and depending on your marginal tax bracket, St. Clair says you may find saving on taxes, say at 25%, more beneficial than paying off 4% to 5% tax-deductible debt. “There’s a reason the government limits the amount we can put into 401(k)s, Roth IRAs and the like,” says St. Clair. “So be careful not to look that particular gift horse in the mouth.”
Pay Off Your Mortgage
Consider, too, what percentage of expenses housing will be for you in retirement. At present, housing costs — which could include mortgage debt, insurance, real estate taxes and maintenance — represent a little more than one-third of total expenses for retirees. That’s a lot to spend on housing, especially in retirement when you have to depend on income from assets and pensions, instead of work.
So, assuming that you’re already contributing the maximum possible to your various retirement accounts and that you have the cash flow to do so, paying down your mortgage before retirement could be a fiscally sound objective. Among other things it will reduce the amount of income you have to devote to housing in retirement. Plus, it will put you in a position to use a reverse mortgage at some point to tap into the equity in your house for living expenses in retirement.
Robert Powell is editor of Retirement Weekly
Home Owner Tips from the Kedersha Group. Eileen and William Kedersha, Sotheby Fort Lauderdale Agents