When you’re nearing retirement, is it a better idea to pay off your mortgage or invest that money? 

Q: Greetings! I’m a long-time listener to your radio show and read your free weekly newsletter. You even gave me good advice nearly 10 years ago when I called your show about my real estate in Georgia. But I have another question and hope you can help.

Would you advise to pay off the house? The mortgage loan balance is $100,000. I have $120,000 in cash in the credit union, another $13,000 stuffed under my mattress (that’s my “world is coming to an end” cash stash) and more than $350,000 in my retirement account.

My mortgage payment is $564 per month. I just turned 67 and been on Social Security for one year. I’m still working, however, I’m afraid that will end quickly. So, should I pay off the house? I’ve been polling my friends and family. The men say no and the women say yes!

I like having cash around but hate to think about the dough I pay out in interest on the loan. Thank you for your insight.

A: Here’s the first question you should answer: How much interest are you really paying?

If your payment is just $564 per month, you could have a $125,000 loan at 3.5 percent. Even in the first 10 years of the loan, that’s not much in the way of interest. Especially compared with the massive returns generated in the stock market. Over the life of a 30-year loan, you’ll only pay about $102,000 in interest.

If you’ve just got $120,000 sitting in cash earning nothing, and your interest rate is actually more like 4.5 percent, then you might want to consider prepaying your mortgage. What you’d do is simply add an extra $100 to $200 per month and direct your lender to prepay the mortgage balance.

If you made an extra $200 per month prepayment ($2,400 extra per year), you’d pay off your 30-year mortgage in 18 years, 8 months (assuming you started in the first month), and would save $31,689 in interest payments over the life of the loan.

We understand why you might prefer to pay off the loan all at once. After all, there’s nothing better than not having a monthly mortgage payment (although you’d still have to pay property taxes and maintenance). But the problem with paying off the whole note is we prefer seniors not use up all their cash or plow it into relatively illiquid investments, which is what your home equity is: it’s hard to sell a home the moment you decide you no longer want to be a homeowner.

We’re more interested by your gender experiment: Men say don’t pay off the loan and women say go ahead and pay it off. While plenty of research cites men as being bigger risk-takers when it comes to investments, women actually do better by playing it a little safer. And since women generally live quite a few years longer than men, we’re guessing your female friends and relatives want to make sure they don’t have a monthly mortgage payment to make in their later golden years.

Since you’re only 67, we suggest you split the difference: Prepay a few hundred dollars each month, which should give you plenty of access to “just in case” cash.

Good luck. And thanks for visiting ThinkGlink.com.