With interest rates where they are, you might want to think again
The idea of eliminating a monthly mortgage payment once and for all appeals to many Americans, particularly as retirement looms.
“It feels good to pay off a mortgage, but it might not always be the best thing,” warns Aaron Hartzler, Residential Loan Officer at Independent Bank. “Because interest rates are so low, it often makes more sense to continue to pay your mortgage monthly and put more money into retirement.”
Each person’s scenario is unique, says Hartzler, but he offers these four questions to ponder before pushing to pay off your mortgage:
How much do you have saved for retirement? With most mortgage rates around 4% or lower, it often makes more sense to invest in a retirement vehicle, such as a 401(k) or 403(b). “Typically, investments have done better than 4%. There are even stocks and bonds that pay dividends at higher yields than 4%,” says Hartzler.
How long do you plan to be in the home? If you’re planning on moving, it might be worth continuing to make payments. Or “you may find yourself dumping money into the mortgage and possibly not recouping it all,” says Hartzler.
Are you itemizing on your tax return? Mortgage interest can be deductible on your return.
What are your options? Hartzler recommends meeting with a loan officer to discuss options for lowering your mortgage payments and other financing options that may be available. Talk with your financial advisor to see what strategies work best to meet your retirement goals.
Equal Housing Lender