March 22, 2011 — You are about to retire, but perhaps you didn’t quite pay off the mortgage on your home before you got your gold watch (remember those days!). That might put you in a quandary – you have the money in your retirement account that could pay it off, and you know that CDs and T-bills are not going produce anywhere near the interest rate you are paying to the bank – even if you did refinance recently. And in addition, your income has dropped so that home mortgage deduction doesn’t have the same effect as in your higher income days. So what to do?…..
Pre-paying your mortgage is a complex decision that involves looking at your individual situation carefully. Your financial planner is a good place to start for advice, and believe it or not, so is your mortgage banker. Recently we saw a press release from Freedom Debt Relief that listed 6 points to consider to determine if prepayment is a good option for you. We thought they sounded useful, so here they are:
1. Are all other needs under control? If you owe credit card debt, pay that first!
2. Is a move coming up? If so, you’d be better off putting the money into a larger downpayment.
3. Check for prepayment penalties.
4. The earlier, the better.
5. Analyze the mortgage interest deduction. Talk to your accountant about this one.
6. What else could be done with the money?
The release offers additional tips to consider. But another option to consider is refinancing. If you haven’t refinanced in the last few years and decide to keep a mortgage, you should probably refinance, as long as you save more in the long run than any fees you might have to pay.
What do you think?
Have you paid off your mortgage? Do you think you might, or are you going to wait? Please share your ideas in our Comments section below.