Ahh, ratzenfatzenpackalumas…
I thought I was old enough to be past that, but it will be another year or so. That was a key part of my plan, so that’s out for now.
I’ll continue paying it down until I can pay it off with savings, or get past that point. Maybe I’ll talk to a financial advisor though, anyway. If I can find one.
Thanks for all the input!
Now we know how old you are 
I paid off mine, finally, since the new tax law made my low interest payment not deductible anymore - since it and my other deductions did not go above the new higher standard deduction. That increased my effective interest rate on the mortgage to closer to what my investments were doing.
I’d do some serious retirement planning first. When you retire, will you stay in the house or downsize? Do you have enough in retirement savings to last you? House prices go down just like investments - if you need to sell the house to have enough to live on during a housing crash you might lock in losses
Definitely refinance if you are planning to be there long enough and the interest rates are lower. That’s a no lose proposition.
I can tell you after being retired for 4 years that having enough money in your acccounts is a very comforting thing.
I would not pay it off. Of course it depends on the details (interest rates, type of mortgage, number of years left, etc), but in general assuming you have a reasonable interest rate (say <5% in the US), it is better to keep paying it and invest the balance elsewhere. Paying it off doesn’t really buy you anything except the very nice feeling of not having a debt. But remember, you always have debts-in a sense your future food purchases are a debt. You have to incur those expenses, so it should be treated as a “debt” or a required expense. You need to live with required expenses and a mortgage is one such. Usually you can make most of the interest payment on a mortgage through investing the balance. Why not let the market help you pay that bill? Of course it will feel good. And that is a positive. But in my experience, feeling good has a cost like anything else.
Assuming you are talking about a regular IRA (not a Roth) don’t forget that you will be paying income taxes on any withdrawal. A major point of an IRA is that you defer tax on contributions until you are retired and presumably in a lower tax bracket. If you withdraw while you are still working the proceeds will be taxed at your marginal tax rate.
I agree to the extent that the mortgage is essentially the “last” debt to pay off because generally it’s the lowest interest debt you’ll likely have and “dad’s” logic makes a lot of sense too.
Having said that, however, if you can pay it off, I say do it and you can use the house for a HELOC down the road if need be.
Sure, but you keep your IRA unmolested, and you keep the life insurance money liquid, and you can always pay it off if things end up such that paying it off becomes the prudent thing to do.
It’s more flexible, and it has the potential to actually position yourself much better in the future.
You say that borrowing money to buy stock is inherently terrible. Why? I mean, if someone was willing to loan me money at say… 1%, I’d jump at that chance to turn around and invest it at say… 5%. They’re basically leaving money on the table when they do that- they could be investing that money for 5% instead of loaning it to me. So why wouldn’t I do that?
I didn’t say it was terrible. I said the risk-reward should be explained clearly.
You can never borrow money and invest it at a guaranteed higher rate. What you can do is borrow money and take risk in the hope of making greater returns. And it’s important to understand what risk you’re taking. The stock market tends to go up in the long run, but it has regularly lost 50% of its value, so at the very least you need to have the commitment and liquidity to ride out that kind of loss.
I am in pay off as much as you can camp and start making bigger payments if you can. Or refinance at a lower rate and shorter term and principle if you can with the insurance money. But don’t touch that IRA.
Hi Zyada,
What we have here is a case of competing priorities. If everything was secure in your world, it’d probably be better to push cash into your mortgage payment than leave it sitting around. But you have job insecurity and probably need this cash as a safety cushion more than you need it to make progress on your mortgage. Especially, if you’re talking about pulling more out of an IRA to finish the job. You could wait a couple years to pull the IRA money out without that penalty, but realize there’s another kind of “penalty” or disadvantage that will still be there: you’ll have to pay income tax on what you pull out, and it will be at your marginal rate, like if you got an enormous bonus at work.
I paid off my mortgage several years ago, and it’s great.
But, IMHO it would be better for you to evaluate the security cushion you have now, which maybe is primarily insurance money. Is it enough to keep you feeling safe given your job security level? Practically, would it take care of you long enough for you to find another job, if you lost yours? If you have available cash well above and beyond that, then, sure, pay ahead on the mortgage. Otherwise, no, keep your cash where you can use it in the short term should that become necessary.
Re-evaluate everything when you get old enough to pull from your IRA without their penalty, but, still, probably, it’s better to leave the IRA alone and just work hard on paying the mortgage faster. You don’t want to waste it on higher taxes.
Of course nothing’s guaranteed, but it hasn’t been uncommon at all to run across situations in the past couple of decades where interest rates have been extraordinarily low. For example, I got lucky when I consolidated my student loans, and currently pay 1.5% on them. I could easily pay off the entirety of my outstanding loans in a lump sum, but why would I, if I can make more in investment income on that same money in the interim?
It’s not just the IRA penalty, it’s taxes on the IRA to begin with – better to hold off on paying those taxes if you can. To those saying pay it off and get a HELOC if you need cash, I doubt the bank is going to want to lend you money if you’re out of cash because you’ve lost your job.
Worries about the job make it even more important not to pay off the mortgage right now – you’ll wish you had the cash if you’re not getting a paycheck. If you have the cash sitting around (invested in something, at least a CD, I hope), then you have it to pay the monthly mortgage. If you pay off the mortgage and lose your job, you won’t have that cash any more, and banks only lend to people who don’t need it.
I guess at this point I’m not sure why you’re refusing to acknowledge my point. You can make a choice to do that, and it may be the right choice for you - provided your financial situation and personal attitude to risk are such that you are will to accept the risk of loss from your investments. Different people will have different tolerance for risk and different investment time horizons, so this should be clearly explained to them. What you cannot do is in such a cavalier way say “why wouldn’t I just borrow at 1% and invest to make 5%” as though it’s just free money. The only way (for most people) to make 5% from an investment portfolio is to buy equities and hold them for a long period, which involves the short term risk of losing ~50%.
I’m there now. Once you are retired your income goes way down, and you can pull out IRA money in a controlled way that still keeps you at a low incremental tax rate. This especially works because the age at which you have to take mandatory withdrawals has been increased. I can take $40K out at a very low tax rate.