[USER]

Would like some POVs on this strategy—we have a mortgage @ 2.8% interest and are nearing retirement.

Instead of paying extra to pay it off more quickly I have been putting extra $$ into a high yield savings account currently paying 5% interest.

It seems to me that nets more value than paying down the mortgage loan.

Is that correct thinking?

[Angela]

We were in the same situation and we decided to pay off our mortgage. Here was our reasoning:

1. We wanted the security of being debt free when my husband retired.

You wouldn’t believe the peace of mind that comes from knowing that as long as you pay your property taxes, no one can take your home from you.

2. Our monthly mortgage payment was $1,800.00/mo.

Once we paid the mortgage off we had an extra $1,800.00/month to do whatever we wanted with.

3. With the cost of everything rising (insurance, property taxes, gas, food, etc) we wanted “wiggle room” in our budget, in case we needed it, since we were now on a fixed income in retirement.

4. Since our Capital One High Yield Savings account was making close to 5% interest we combined the mortgage amount we were no longer paying to the mortgage company with the $1,000.00 we had already been putting into the HYS account each month.

That meant we were able to put $2,800.00/mo in the HYS account.

That adds up really fast plus the interest you are earning.

We are typically earning $350+ a month just in interest now because our account balance is almost triple what it would have been had we not paid off our house and had that extra $1,800.00/mo.

Who knows how long these high interest rates will last, but we are going to ride it as long as we can.

The interest we earned last year paid for our property taxes.

Good luck making your decision!

[Kirsten]

It depends on how much you have left on your mortgage and how much is in the high yield account.

You can’t look at it as straight percentages

I’m sure there’s some formula out there but I don’t know it.

But basically if you have way more left on your mortgage and only a little in the savings you are actually better off paying down the mortgage.

If you can find that calculator you can figure it out.

[John]

Even better I would be locking in high rates using CDs or bonds.

A 10-yr treasury bond is paying over 4%.

These rates won’t last forever

[Keri]

Mathematically correct. However, it doesn’t take into account risk and stress.

Having a paid for home reduces your stress and removes risk on your finances.

Assuming you have an emergency fund in savings and no other debt, I would get the mortgage paid off before retirement instead of increasing savings.

[Annette]

I completely agree. I want my money to work for me. I have almost the same amount it would take to pay off my mortgage in a HYS because I am making more money in that account than I would by paying off my house.

If and when the interest rates change I will reevaluate.

[Teresa]

My goal was not to pay off the mortgage, but to BE ABLE to pay off the mortgage if I wanted.

I’ve got a paid off mortgage now, but will be building a new house in the future, and my strategy will depend on interest rates then.

At 2.8% mortgage interest, yes, I would focus on saving and having money earn more.

Then, once the savings is enough to pay off the loan completely, you can decide which you prefer.

[Suzann]

Hubby and I are in our early 60’s. Several years ago we began paying down our mortgage aggressively.

Our interest rate is 3.25%, we felt it was more important to pay off our mortgage so that it is done before we retire.

We plan on retiring in 4 more years and will be mortgage free in 2.5 years.

[Jennie]

This is great thinking as long as you don’t spend any of the money in the savings account!

[Kim]

You are correct. I’m in the financial planning industry and advise our clients if this when their numbers are similar to yours.

No need to overthink it.

The return on your money is more than the interest rate on your mortgage.

[Loretta]

Yes, only if your interest in the year is more than mortgage interest less tax write off.

Take a look at your amortization rate to see.

[Brian]

Yes. Keep doing what you are doing. Your money is earning more in the HYSA than it would paying down your mortgage.

If you want before retiring, you could take the money you’ve been saving to pay off the mortgage so you can go into retirement without a mortgage.

[Lori]

Find out how the interest on the mortgage interest is compounded, and how the investment is paid as well.

It sounds like you’re doing it right, but doesn’t hurt to find out.

[Barbara]

Yes as long as you can make more than your mortgage, you are doing the right thing.

Especially in a safe investment!

[Laura]

That’s what I’d do.
my mom & dad bought a home in 2020 – they could have used the proceeds from the sale of their old house to pay for it in full – but decided to put half down and invest the other half.

PS – how much do you owe – that might change my suggestion.

[Linda]

How much is the payoff amount and how much are you investing? Unless they are the same amount you can’t compare these two.

[Jackie]

That’s what our financial advisor would recommend. I don’t like having a car payment but at 0% interest ours says it’s smarter to keep earning on our investments.

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