AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

I find your advise very insightful.  I am looking forward to your opinion.  I am 39 years old with a wife and 2 kids (5 and 2).  I have a net worth of 1.5 mil.   My mortgage is 310k on a 30 year note at a rate of 5.65%.  I am 3 years into the loan.  The market value on the house is about 330k (down about 90k in the last 2 years)   Our house hold income is around 120k.   Our only debt is our house.  Does it make sense to pay off the mortgage at this point?  Thanks!

 No. Keep your mortgage. Remember that inflation is working for you and you have some tax benefits. I would not make this suggestion if you were older but you have many earning years ahead of you and will likely benefit from being able to repay with dollars that are worth a lot less than they are today.

 Scott
 

What if one is 65 years old and has a 4.875% mortgage of $500,000? There is an investment account of $610,000 backing this mortgage. There are other investment accounts, insurance, etc for living expenses. The original idea was to use the investment account to meet the mortgage monthly obligation. At the end of 15 years (now 3 years into the mortgage) the mortgage would be paid off, and I would still have the money in the investment account. The risk and stress of pulling this off has me worried. That old difference between theory and practice!! DT

 The problem with that arrangement--- having an investment account make your mortgage payments--- is that it creates a reverse dollar-cost averaging situation. A 15 year mortgage at your interest rate, for instance, costs $7.84 a month per thousand to service or $$94.11 a year. If you have an equal amount invested that means you have to have a 9.41 percent return every year to avoid being forced to sell some shares to make payments. Have a few bad years and your investment fund will never recover.

    I do believe some older people can reasonably have a mortgage. The operative word is "some"--- if you live in a state with income taxes and have relative high real estate taxes, if your income is well above average, and if you have a substantial pension that can be used to make the payments, then a home mortgage can be used to provide a modest amount of leverage for your total portfolio.

    But for most people having a mortgage just creates problems and may actually increase their tax bill because providing the income to pay the mortgage may trigger the taxation of Social Security benefits.

 
Scott