At first glance, paying off a mortgage with $200,000 or less on the loan left to pay seems to make good sense, and good math. The age-old homeowner tradition of burning a paid-off mortgage is one of the biggest moments in adult life, and not having a monthly mortgage bill frees up cash in the household budget. Jeff Bezos backs a platform that lets anyone invest in rental homes for as little as $100 — 6 ways to build wealth like a landlord without actually being one Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake.
Here's what it is and 3 simple steps to fix it ASAP The tax breaks in Trump's 'big beautiful bill' expire after 2028. Here are 4 moves to make before the window closes Yet for retirees with a growing retirement investment portfolio and a home mortgage with a low interest rate, rushing to pay off the mortgage using investment cash has its pros and cons. Consider Leslie, 57, and her husband Rick, 59, who want to use some of their $2.5 million investment account to pay off a $200,000 mortgage with a 4% interest rate.
The couple also plan to retire, each by age 62. With their golden years almost in reach, should they raid the investment portfolio or keep paying down the mortgage and leave their stocks, bonds and funds alone? Here's what retirement savings experts advise for couples like Leslie and Rick, who feel they're caught between the rock and the proverbial hard place with a nearly-paid-off mortgage.
Knowing your exact current and estimated portfolio picture is just as important as the mortgage rate. "On paper, paying off a 4% mortgage gives you a guaranteed 4% return because you're eliminating that interest expense," Steve Sexton, CEO of California-based Sexton Advisory Group, told Moneywise. "If the money stays invested and earns 6-7% over time, you may come out ahead financially." Here, two often underrated household finance factors come into play.
"The portfolio's return on investment isn't guaranteed, and in retirement you don't necessarily have decades to recover from a bad market at the wrong time," Sexton noted. Leslie and Rick will also want to compare the mortgage rate with the after-tax return on the investments, and not just the headline return. Plus, Sexton advises the couple to examine whether the mortgage interest is actually providing a tax benefit.
"Mortgage interest generally has to be claimed as an itemized deduction, and many retirees may get more benefit from taking the standard deduction instead," he said. (The IRS explains the mortgage-interest deduction rules here.) Ultimately, the key questions Leslie and Risk face before going forward are critical ones: What is the after-tax cost of this mortgage? What would we realistically expect this $200k to earn? What tax bill would we create by accessing it?
Extract — continue reading at the source.
