Thinking about paying off your mortgage before retirement? It’s a common emotional consideration among investors who believe they’ll sleep better at night without their most substantial debt hanging over their heads—figuratively and literally! But here’s the twist: many couples who take this route end up “house-rich, cash-poor.” While they own their home outright, their cash flow may lack flexibility, especially if they need money for family needs, car or home repairs, or even healthcare. It’s like trading one worry for another.
Looking at this from a purely financial viewpoint, let’s first consider whether your money could earn more if invested than what you’re paying in interest on your debt. Many people locked in extremely low mortgage rates between 2010 and 2020—often below 4 percent. With cash-equivalent investments like money market accounts, Treasury bills, and certificates of deposit currently paying between 4 percent and 5 percent, an investor can easily earn more on their investments than they’re paying in mortgage interest. Furthermore, homes are generally considered appreciating assets, thus increasing your equity.
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