Pay off our house?

[Starport Seven-Five]

In some ways it is what you would do, as everyone has a reason to why they did or did not do.....and how they arrived at the decision to do so. I do agree saying to pay off or not is not helpful without an explanation.
Yes, everyone has a different set of circumstances but each response brings a different reason as to why or why not and bingo maybe person X reasons are similar to the person asking the question. This is the exact problem with a public forum no one has all the information needed to say what will or will not apply but many can offer a few things to consider. As others have said the best way is for the OP to either pay a financial advisor or do the work themselves.

That makes sense but it seems like often people are giving the OP advice on what to do today based on economic conditions they experienced in the past. We're in a weird market right now that is unlike anything we have seen in recent history. People should take a step back and consider the opportunities it brings them because the decision matrix has new options.

 

[georgina]

Right. We paid off a 7% mortgage years ago. I would not advise my kids with a 3% to pay it off now, doesn't make any sense for them in their situation, as they still owe 12 more years on a 15 year note.

 

[gmi3804]

Strictly math speaking, with a 3% mortgage, it makes more financial sense to not pay it off immediately. You can put the extra is savings account or CD and make more than that. You can still use that money to pay it off upon retirement.

Lots of people here say they prefer to be debt free. I’m in the camp that says the best financial decision for me is to make every dollar work as hard as it can for me. Earning 4-5% FDIC insured is harder working than 3%. Other non-FDIC insured investments may even lead to greater returns, but they carry risk and if you are closing in on retirement, risk is not necessarily a good thing.

Some people like the Disney Dining Plan (or having extra money taken out of their paychecks for taxes that aren't due for over a year) even though it hardly ever makes financial sense, but they don't want to have to "think about money" while on vacation. Often times those people have a lot less money to "think about."

 

[mjkacmom]

We have about $60,000 left, house assessed around $500,000, 3% interest. I like the fact that my property taxes are taken out from escrow, they’re over $1000 a month and would rather avoid paying every 3 month by check. It will be paid off before H retires though.

 

[georgina]

Some people like the Disney Dining Plan even though it hardly ever makes financial sense, but they don't want to have to "think about money" while on vacation. Often times those people have a lot less money to "think about."

Yeah, I would rather pay for my Disney meals with gift cards bought at a 10% discount through credit card offers.

We have about $60,000 left, house assessed around $500,000, 3% interest. I like the fact that my property taxes are taken out from escrow, they’re over $1000 a month and would rather avoid paying every 3 month by check. It will be paid off before H retires though.

Every 3 months? Wow. In PA I used to pay annually. Here in N. VA they automatically deduct it from my checking account twice a year

 

[barkley]

We have about $60,000 left, house assessed around $500,000, 3% interest. I like the fact that my property taxes are taken out from escrow, they’re over $1000 a month and would rather avoid paying every 3 month by check. It will be paid off before H retires though.

quarterly? even when we had a mortgage i paid our property taxes and homeowner's insurance myself-2 installments per year on prop taxes, 1 on homeowner's (and once i started doing the insurance myself i realized the nice discount i qualified for paying it annualy vs. whatever system the lender used).

 

[2TxAgs]

We have about $60,000 left, house assessed around $500,000, 3% interest. I like the fact that my property taxes are taken out from escrow, they’re over $1000 a month and would rather avoid paying every 3 month by check. It will be paid off before H retires though.

No one here knows your overall financial picture. Is $60k all of your available cash/part of your emergency fund? If so, then you might prefer to keep that aside and continue with the monthly mortgage payments. Would you want that cash to help with college/weddings/gifts for your children in the near future? If it's a much smaller portion of your available cash, then it's easier to say pay it off.

One option would be to increase your mortgage payments by $500 or $1000 a month - that would speed up your payoff but still not require a full $60k commitment at one time.
The difference between 3% (your loan interest rate) and a guaranteed 5% in CDs is $1200. How much interest will you be paying on your loan this year?

This question can be found all over retirement forums and in retirement articles. The answer is that there is no answer that is RIGHT FOR EVERYONE...similar to the topic of when to take Social Security, it is based on individual circumstances and personal situations.

Edited to add: I went back to read your original post. Since you are worried about catching up on retirement savings after years out of the workforce, then I'd say every extra penny to retirement. Once you quit working, there's no more adding to the retirement account. (Of course you can work part time, but when you retire at 65, that's not what you want to be doing.) At that point, if there's still $ on your mortgage, you can decide whether to pay off or keep making payments.

 

[mjkacmom]

No one here knows your overall financial picture. Is $60k all of your available cash/part of your emergency fund? If so, then you might prefer to keep that aside and continue with the monthly mortgage payments. Would you want that cash to help with college/weddings/gifts for your children in the near future? If it's a much smaller portion of your available cash, then it's easier to say pay it off.

One option would be to increase your mortgage payments by $500 or $1000 a month - that would speed up your payoff but still not require a full $60k commitment at one time.
The difference between 3% (your loan interest rate) and a guaranteed 5% in CDs is $1200. How much interest will you be paying on your loan this year?

This question can be found all over retirement forums and in retirement articles. The answer is that there is no answer that is RIGHT FOR EVERYONE...similar to the topic of when to take Social Security, it is based on individual circumstances and personal situations.

Edited to add: I went back to read your original post. Since you are worried about catching up on retirement savings after years out of the workforce, then I'd say every extra penny to retirement. Once you quit working, there's no more adding to the retirement account. (Of course you can work part time, but when you retire at 65, that's not what you want to be doing.) At that point, if there's still $ on your mortgage, you can decide whether to pay off or keep making payments.

I think for the second half of your post you might be thinking of someone else. I haven’t worked since having kids, we are definitely on track for retirement in 9ish years (my husband us a financial planner). We will use a lot of our cash savings this year on a put off due to covid kitchen tear out. H is practical, back before tax laws changed not paying off the mortgage was a no brainer. We do have an emergency account too. We had to buy 2 cars in 1 year ($40,000 total, used, paid in cash). Waiting on the kitchen quote, but also need a back deck.

 

[cedricandsophie]

I’d recommend You talk to a fee for service financial advisor who can run different scenarios showing what your total financial picture will look like either paying off the house or not. You can factor in your goals and future spending for things like medical care, travel, gifting to kids, likely housing expenses for repairs etc. One of the things to factor is inflation. So $70,000 in the future will buy less than $70,000 today. And what your investment accounts are likely to earn based on how you invest, conservative or more aggressively . It’s an exercise well worth the time and money. Then you can make an informed decision based on facts not just emotion. We have scenarios that run out to age 99 based on different assumptions so we can see how long our money will last.

 

[2TxAgs]

I think for the second half of your post you might be thinking of someone else.

Yikes! You are correct...I meant my entire response towards the OP. For whatever reason I quoted you rather than her. Sorry 'bout that

 

[mjkacmom]

Yikes! You are correct...I meant my entire response towards the OP. For whatever reason I quoted you rather than her. Sorry 'bout that

It was still good information!

 

[Garyjames220]

Dont think I’ll be paying my house off anytime soon

I just got a 30 year mortgage and have 29 years and 10 months remaining

 

[hoffse]

If you haven’t saved enough for retirement you need to prioritize that first. Also, cash is more flexible than home equity in case something else happens in life where you need it. Medical bills, a kid who needs help, whatever. Once the money is spent on the house you can’t get it back out again without borrowing against your equity, now at a much higher rate. Besides, a fixed 3% rate is so low. Even money markets are paying almost 5%. You make more just keeping it in cash. Unlike CDs, money markets are completely liquid.

A lot of people have mentioned tax changes and being able to deduct your mortgage, etc. One thing to keep in mind is the current rules expire at the end of 2025, and it reverts back to the old limits in 2026 unless Congress extends it. Of course this is just speculation, but unless there is a Republican sweep in 2024 an extension doesn’t seem likely to me. I just point that out because it may change the math for you in a couple years.

Another consideration is the social security trust fund is currently scheduled to run out in 2033 unless there is a patch before then. That doesn’t mean you won’t get benefits, but benefits will be cut to about 80% to match the money actually coming in at that time. Personally, I think there will be an 11th hour fix for this because it affects too many people who actually vote, but for planning purposes you may want to be conservative and figure your SS is cut to 80% in 2033 and then be pleasantly surprised if it is not. This weighs in favor of saving more of your money for retirement and not sinking it into your house right away.

There is no reason you have to make the decision now. Again, cash is flexible. I suggest hanging on to it for now and then reassessing when you get closer to retirement and you can do a deeper dive on your actual spending to see whether it’s really necessary or not. Or maybe take an intermediate position where you max out your retirement accounts first and send whatever is left to your mortgage to whittle away at it while you finish your career. Then if you decide to just pay it off in a lump sum on the eve of retirement you can do so, and the remaining balance will be even lower than it is now.

Finally, as an aside - please spend some time with your retirement accounts and learn how the money is invested, what the tax considerations are when you withdraw it, what fees you are paying within the account, etc. This is just my opinion, but learning all of that is way more important than spending time and energy on deciding whether it’s worth paying down a 3% mortgage early. I certainly understand that the mortgage feels more immediate and has an emotional component your retirement accounts may lack, but the state of your retirement accounts matters far more than your current mortgage does in the long run. For instance, your money may just be held in cash in a settlement account if you haven’t been paying attention and you may have lost out on all the growth that has taken place over the last few years. Or you may be sending your money to a fund with high fees. You would be shocked by the fees some funds charge. Many charge 1-2% per year. Dig into the what that actually costs you in real dollars and it’s highway robbery. Also, did you know that if you saved in a traditional 401k you have to pay tax on the money when you take it out? It’s not tax free forever, and those taxes have to be built in as part of your retirement budget. Please spend the time now to learn how all of this works and get your retirement in a good place. Then you can focus on the mortgage. It will still be there in a couple years, and it’s really the simplest piece of the overall puzzle because the rate is fixed.

I suggest lurking on the Bogleheads forums for awhile. You can learn a lot about retirement there and the wiki is pretty good.

 

[tvguy]

Dont think I’ll be paying my house off anytime soon

I just got a 30 year mortgage and have 29 years and 10 months remaining

Even adding only $100 a month to your payment can shorten your loan term by an amazing number of years.

 

[Garyjames220]

Even adding only $100 a month to your payment can shorten your loan term by an amazing number of years.

That’s really true. We got told adding 100 pounds a month on could take 6/7 years of the term. We will cert be trying to keep that up

 

[tasha99]

We've decided not to pay our house off before retirement because our interest rate is so low (2.25--can't get close to that now, and we'd rather hang on to our money). The thing about a house is it isn't typically a depreciating asset, so we don't consider the debt to be the same as other debt--it's more like moving money from one pile to the other. Yes, the value could fall and probably will at some point, but by the time we want to sell, it will still probably be more than the original mortgage (it's worth almost 3x that now in less than 10 years). Plus, even once it's paid off, we'll still owe about half what we pay since insurance and taxes won't go away. Ymmv of course, depending on your comfort level, current mortgage rate, and cash flow.

 

[tvguy]

We've decided not to pay our house off before retirement because our interest rate is so low (2.25--can't get close to that now, and we'd rather hang on to our money). The thing about a house is it isn't typically a depreciating asset, so we don't consider the debt to be the same as other debt--it's more like moving money from one pile to the other. Yes, the value could fall and probably will at some point, but by the time we want to sell, it will still probably be more than the original mortgage (it's worth almost 3x that now in less than 10 years). Plus, even once it's paid off, we'll still owe about half what we pay since insurance and taxes won't go away. Ymmv of course, depending on your comfort level, current mortgage rate, and cash flow.

Yikes, your insurance and taxes must be high.

 

[tasha99]

Yikes, your insurance and taxes must be high.

Nope. It's that the principal part of our payment is low (years ago I put in a huge extra payment and refied to a 15 year loan--I refinanced a few times actually, and it kept lowering the principal part of the loan.)

 

[snowwite]

We paid ours off with a 3% rate. On paper it didn’t make sense. But the security from doing it was priceless. If something bad happens we can live off one fast food wage.

We paid ours off with funds we had been saving for a new home. When the pandemic hit we worried what if the economy tanks, we get sick or lose our job etc. The only downside is losing the tax break.

 

[Sheree]

We paid ours off with funds we had been saving for a new home. When the pandemic hit we worried what if the economy tanks, we get sick or lose our job etc. The only downside is losing the tax break.

for every dollar you pay in interest, your taxes go down by 25-38 cents depending on your tax bracket. put those dollars in the bank, pay the IRS a bit more and you still ave 62-75 cents left in the bank.

it's not a dollar for dollar reduction in taxes