Should we pay off our mortgage?

Posted by Colorado Group Realty on Tuesday, October 12th, 2010 at 1:54pm.

A couple close to retirement asks June Fletcher of the Wall Street Journal what the best use of their money is.

Q: We have a mortgage worth $177,000 pm a house we've owned for 21 years.  We refinanced our loan twice, and now have a 30-year mortgage at 6.48% that we took out in 2002.

My husband and I are now six years from retirement, and we are trying to figure out the best use of our money.  We have enough to pay off the mortgage without dipping into our IRAs, and we'd sleep better if we didn't have a mortgage hanging over our heads.  Is this a good idea?

A: Given the economy's continuing weakness, the fact that you have cash that's not tied up in IRAs and how close you both are to retirement, I think it's a fine idea to pay off your mortgage.

Here's why: You should always try to get the best return on your money.  So you shouldn't keep the loan unless you can find another investment that, before taxes, can reliably earn more than the 6.48% that you're currently paying on it.  With the stock market still volatile and certificates of deposit and other other relatively safe investments paying less than than the rate of inflation, I wouldn't count on that.

What's more, paying off a mortgage loan is risk-free - no matter what happens to the general economy, you'll be left with an asset that you can live in or rent out.

A downside is that you'll lose the mortgage interest tax deduction if you pay off your loan.  But as a new report from the National Association of Home Builders points out, those benefits largely go to those buyers who are younger than 45, who typically have the largest mortgages and the most itemized expenses.



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