Q: I have $50,000 sitting in a money market account. I owe approximately that amount on my mortgage. I have a 401(k) of about $325,000 and another retirement account worth approx $400,000.
Should I pay off my mortgage?
A: Even with the economy on an upswing, I’d hate to see you use up every last cent of your liquid cash paying off your mortgage, particularly if you have a low interest rate or are at the point in your loan that your monthly payments go mostly towards reducing the principal balance on the loan.
But if you can immediately start socking away the cash you won’t be using to pay down your loan each month into a savings account, and if you have other cash available in case your car breaks down, you have to buy a new hot water heater, or you have the need for some immediate cash, that would work.
One final thought – if you’re near the end of your loan, you’re only paying principal only and not really any meaningful amount of interest. So if you want the cash flow each month, pay off your mortgage. Otherwise, just make sure it’s paid off by the time you retire.
Read more about paying off your mortgage early at ThinkGlink.com