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It’s one of those debates that rarely seems to have a clear-cut winner: Should retirees pay off their mortgage or continue making those monthly payments?
The answer — probably somewhat annoyingly — is that it depends.
Of course, there are a couple of immediate benefits to paying off a mortgage: Your monthly obligations drop and you may get more wiggle room in your cash flow.
However, depending on where the pay-off money would come from — as well as your tax situation and your available remaining assets — there could be financial implications that would need to sit well with you.
Here’s what to consider.
Sometimes, the math can be cut and dried. That is, if you’re paying more in interest on your mortgage than the interest you’re earning on the money you’d use to pay it off — and the tax consequences of doing so would be minimal — it may be an easy decision.
“Do you have the cash just lying around in a checking account? If so, then it may be a no-brainer to pay off a debt costing you a few percentage points when you’re earning nothing on cash in today’s rate environment,” said certified financial planner Brian Schmehil, director of wealth management for The Mather Group in Chicago.
Likewise, if you’re invested in bonds that are yielding 1.5% and you’re paying more than that on your mortgage, you essentially are negating the gains from the bonds, said CFP Allan Roth, founder of Wealth Logic in Colorado Springs, Colorado.
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He also pointed out that if you’re paying, say, 2.5% on your mortgage and you pay it off, you essentially just earned that rate on the money you used to retire the loan.
“It would be a risk-free, tax-free, 2.5% return,” Roth said.
Additionally, you didn’t have to sell an asset for that return: Your home, whose value could rise, remains yours.
On the other