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Pay Off the Mortgage?

Pay Off the Mortgage?

December 29, 2020

A frequent question we are asked by financial planning clients is "Should I pay off or pay down my mortgage".  This recent article from Morningstar does a good job answering this question.  If you don't want to read the entire article, lets say that for most retirees, the writer and his subject matter expert believe the answer is yes.  Low yields on interest paying investments, they say, make paying off your mortgage even more favorable.  Read more here:

With rates so low, your mortgage may very well need attention, even if you do not choose to pay it off.  We have had clients refinance at rates well below 3% on 15 year loans. If your rate today is more than 1% higher, and if you still have 10 years or more left on your mortgage, then refinancing may be a huge benefit. 

But it is also true that if you have a typical balanced portfolio with stocks and bonds, and if the bond portion of your portfolio is only yielding (typical for today) 2% - then why not "invest" in paying off your mortgage and increase your investment return? 

The authors also point out that not having a mortgage payment creates resiliency in the face of financial emergencies.  That is to say, when you no longer need to come up with a mortgage payment every month, interruptions in income, or downturns in the market, are easier to withstand.  They also take aim at several of the rationales some folks use to keep their mortgage ("I could make better returns in the market) even when they have the financial wherwithal to pay it back. 

We are not going to say that paying off a mortgage is the best financial decision for everyone, all the time.  But it often does make sense in the context of an overall financial plan.  If you are uncertain whether paying off the mortgage makes financial sense, give us a call, we can help you walk through the  financial planning logic with you and help you decide.