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Times have changed, and so has conventional wisdom about
paying off your mortgage before retirement.
We’ll give you the run-down on what to consider.

Mortgage Rate versus Investment Rate
The issue with mortgage rate versus investment rate is something called opportunity cost. By paying off a mortgage at, for example, 6%, what are you giving up by doing this? Well, you could be giving up putting that money in an investment portfolio that earns 8%. From this basic analysis, it would make sense to keep your mortgage. The best way to consider this is to look at your current financial investment portfolio. How do you structure your investments? Are you risk-adverse, and tend to put more money in bonds than stocks? If so, your guaranteed lower rate of return may mean it is better to pay off the mortgage.

Tax Implications
By taking a holistic look at your financial picture, how do taxes play into things? The first point is the tax-deductibility of the interest portion of your mortgage payments. While you are still earning a decent salary, you may want to keep this aspect of your mortgage. You need to include this in your calculation of the return you are getting by putting your money in something other than paying off your mortgage. By paying off your mortgage, the opportunity cost is the rate of return by investing the money elsewhere, PLUS the lost deductibility of mortgage interest payments. Therefore, paying off your mortgage is more attractive for those who can no longer benefit from this tax deduction.

Other Considerations
Unfortunately, we are human, and therefore things can never be simple, and we can never operate according to a financial formula. So, here are a couple of other things you need to think about:


Liquidity: Some people like to have the ability to convert their savings into readily accessible cash as quickly as possible. This can be used to pay unexpected bills, such as medical costs.


Guaranteed: By paying off your mortgage, you are guaranteeing your asset. The lack of liquidity means that people cannot foolishly spend their money on non-essentials. How much self-control you have is therefore another important consideration.

"In conclusion, consider how tolerant of risk you are, and remember to consider all the different opportunity costs of your decision. Finally, follow the advice of many experts, who will advise against ever using money from a tax-deferred account, such as your 401(k) plan, in order to pay off your mortgage.

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