Should They Pay Off the Mortgage?

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There is no "financial" section of this board so I posted this in the Retirement section which seem close.

I don't give financial advice to "real" people... just to relatives who won't sue me (!!!)... but I like to get advice so that I can at least be knowledgable.

When do you pay off the house?

My cousin's situation...

  • Couple, no children both 64 years old, good health.
  • Wife retired and took SS.
  • Husband semi-retired... self-employed contract programmer. Did not take SS yet.
  • Liquid assets (excluding real estate) is almost $900K
  • Market value of house: $450K-$500K
  • Mortgage: $167,200 for 21 years at 6.3%. Payment almost $1200/mo.
  • Other debt: zero
  • Yearly income (gross) from work, SS and fixed investments: $100K
  • Living expenses (including mortgage): $60,000 yr.

For those of you with a financial advisor background, what do you say? Should this couple pay off the mortgage? (They tell me they have no plans to move to a different house until the RE market "comes back" (if ever!)) Would paying the mortgage be a good use of almost $168K?
 
Absolutely payoff the house. There is risk involved with a mortage on a house. Pay it off, and the risk goes away. There is no advantage to keeping the mortgage at all.

My 2 cents of advice.
 
Absolutely payoff the house. There is risk involved with a mortage on a house. Pay it off, and the risk goes away. There is no advantage to keeping the mortgage at all.

My 2 cents of advice.


Absolutly. 6.3% is probably more than they are making on investments.:yes:
 
I don't believe in carrying personal debt of any kind longer than you have to.
If he wants to keep the mortgage though, at least refinance to a better rate.
 
Absolutely payoff the house. There is risk involved with a mortage on a house. Pay it off, and the risk goes away. There is no advantage to keeping the mortgage at all.

My 2 cents of advice.

Actually for many retirees the only deduction that can be written off against their retirement income is the interest payment on their mortgage. Just a thought.
 
That's true, but it has never made sense to me why anyone would spend for example, $1000 in interest, so they can save $300-$400 in taxes. Mathmatically, that is huge losing propasition any way you look at it.
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Pay the taxes, keep the interest.
 
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There are some negatives. I would refinance the house at a lower rate if possible. The thing that is important about a mortgage is that in some states (Indiana) there is a tax break to having a mortage plus the interest is deductible. If they pay off the mortgage they give up liquidity on this money and that could become important to them. Plus the money in the mortgage is not protected from Medicare look back should they fall into ill health. Do they have any long term care protection?
 
That's true, but it has never made sense to me why anyone would spend for example, $1000 in interest, so they can save $300-$400 in taxes. Mathmatically, that is huge losing propasition any way you look at it.
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Pay the taxes, keep the interest.

I know it seems that way but consider this ... if you own $500k in the equity of your home, that money earns no interest. If you can put that money in 5% interest earning product and pay 3% on your mortgage of $500k after 2% income deduction, then you get to earn 2% net on that $500K. This works for higher income brackets.
 
I know. Problem is, where do you get 5% these days? And, if you can, and do what you suggest, you still have the risk factor involved if there is a mortgage on your house. To me, it's just not worth it. Just my opinion.
 
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