Should I pay off my mortgage?

[Stacie]

My husband and I are both 56 years old. I recently retired after 27 years with a company. It was a voluntary retirement with severance. I receive 40 weeks of severance pay ($6,000/mo. net).

We have $100K in savings. No credit card debt or car loans. We have a mortgage balance of $126K. Our combined 401K savings is $500K.

I'd like to pay off the mortgage as soon as possible to reduce the stress should I not find another job after my severance runs out.

We have a 15 year mortgage at 4.65% interest rate with a $126K balance. Original loan was for $224K.

Should we do whatever we can do pay off the mortgage? If we do so, we won't have much left in savings.

My husband is still working. His salary is $48K per year gross.

Our Real Estate taxes are $8,000/year and not taken out of our mortgage payment.

What should we do?

[EconoMutt]

I'd hold on to every dollar you have until you find another job.
4.65 % is not a bad interest rate on your home loan.

[creditcardfree]

I agree. Save all your money. That interest rate is great. You are too young to dip into your savings and retirement to pay off your home. Once you are employed again, make every effort to pay down that loan.

[disneysteve]

I agree, as well. Paying off the mortgage won't help if you don't find another job. You need the savings, not the paid off house, to live if you have no income for a period of time.

I'd also be cutting back spending as much as possible right now so that you can stretch that severance pay as long as you can.

[creditcardfree]

The best scenario would be to find a job soon, and use the severance money to pay down your mortgage. I realize this isn't always possible, so my best wishes for you!

[Stacie]

Thank you!

Thank you all for the great advice!

[Slug]

I'm with everyone else. You keep that loan and write off the interest. It's a great rate and that level of liquidity that you have is excellent. You're doing a great job. I hope my situation is that sound in 20 years.

[LMA]

You got a good loan and you say you have $500k in the 401k. Your 401K is probably giving you higher returns than your mortgage so considering the unemployment you should keep your money reserves until you are employed again.

You also do not know what the real estate market is going to do in your area so you don't want to pay off a loan only to find out your home value goes down.

Until you solve your income situation having the cash reserves is a stronger cushion than a paid off mortgage.

[disneysteve]

you don't want to pay off a loan only to find out your home value goes down.

The loan needs to be paid no matter what happens to the home's value. Even if the value falls, the loan still needs to be repaid. You borrowed the money. You need to repay the money. The home's value is irrelevant.

[jIM_Ohio]

Can you list the following:

1) your monthly expenses (mortgage included)
2) your total assets (retirement accounts and similar)
3) a retirement spending plan?
4) when are you eligible to collect social security?

[Stacie]

Response to your questions above:
1) your monthly expenses (mortgage included)
Approximately $3,200/mo. Includes mortgage, gas, electric, cable, internet access, home phone, cell phones, newspaper, groceries, vehicle gas, car insurance for two cars, and home insurance. No credit card debt or car loans.

2) your total assets (retirement accounts and similar)
$500K in 401K savings and 100K in savings account. Home equity.

3) a retirement spending plan?
Not defined at this time.

4) when are you eligible to collect social security?
62 years old for reduced benefits. 66 years old for full benefits. 70 years old for highest benefits.
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[Fern]

I'm in a similar situation as you. I'm out of work, age 50 and have a $60K mortgage balance, no other debt and about $115K in taxable savings, $429K in retirement savings.

I have been sorely tempted to pay off the mortgage, but it's not a good idea, even if by doing so i'd reduce my monthly income needs. When you're out of work or underemployed, liquidity is much more valuable than getting rid of the mortgage. You don't want to be cash poor and house rich, so bide your time and reconsider paying off the mortgage, or making monthly prepayments, once you start working again.

Consider, too, that if you paid off your mortgage i'm guessing you'd be withdrawing the money to do so from various investment accounts, which you'd take a loss on if you held those investments all through the bull market years like i did.