Wednesday, November 26, 2014 07:51am
North Adams, MA now: 34 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: Should You Pay Off Mortgage Before Retiring?
By Bill Schmick On: 03:21PM / Thursday June 26, 2014
Important
1
Interesting
0
Funny
0
Awesome
0
Infuriating
0
Ridiculous
0

Many retirees, concerned with no longer having a steady paycheck, have asked me for advice on whether to pay off their mortgage early. There is no definitive answer but here are some variables to consider when making a decision.

Your monthly mortgage payment in retirement may represent a significant portion of your monthly income. If you only have social security as an income stream, then chances are that a mortgage payment will significantly reduce the amount you will need to meet your monthly expenses. If so, then pay off the mortgage. However, be careful you don't significantly reduce the amount of money you have available for emergencies, general expenses and discretionary spending. You don't want to end up house-rich but cash-poor.

By paying off your mortgage now, you reduce interest rate risk, especially in a rising rate environment. Naturally, there are several factors at play here. How long and how much debt remains on your mortgage will be a crucial factor. If you have an adjustable rate mortgage and rates double over the next five years then it makes sense to pay off the loan or at least convert to a fixed-rate mortgage.

On the other hand, if you took advantage of the low interest rate environment over the last few years and re-financed, you might now have a thirty-year fixed rate mortgage with an interest rate of 3-5 percent. In that case, it may make sense to keep the mortgage. Why?

If, as many predict, interest rates do rise substantially in the years to come, your borrowing cost on that fixed mortgage will look like a very good deal.

Retirees must also understand the opportunity costs of paying a large lump sum out of your retirement savings to be free of that mortgage. While being debt-free may feel good, could there be other investments that might provide a better return?

Let's go back to the retiree who refinanced and now has a 30-year fixed at 5 percent. If interest rates do rise from here sometime down the road, that retiree has the opportunity of taking advantage of those higher rates. Theoretically, he could invest that lump sum money into a safe U.S. Treasury bond yielding 6 or 7 percent, maybe more.

While he waits for rates to rise, there is always the stock market. Stocks have averaged a 7 percent return historically for well over the past 100 years. He could invest the money in a group of dividend stocks, which would not only generate him income but also price appreciation. In long-term bull markets like today's, the average return on equities has been much, much more.

Of course, each individual's situation is different. Paying off the last $100,000 of a mortgage out of a retirement nest egg of $1 million is much different from someone who only has saved $300,000. As always, the mortgage interest rate you are paying is critical to the equation. There are also alternatives. If there is no prepayment penalty, you can always pay down the principal faster or simply double your overall monthly payment.

But numbers aren't everything. For some people debt is, and always will be, a dirty word.

The peace of mind they receive from being debt-free may trump whatever opportunity they may have elsewhere. My only advice is to weigh all your options carefully before making that decision.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



0 Comments
     
News Headlines
Selectmen May Seek Peer Review of Dollar General Traffic Study
Oh Be Thankful Pie Auction Raises Funds for Charities
Pittsfield Council Accepts School Budget Law, Denies Hiring Authority Plan
Holiday Hours: Thanksgiving
Holiday Raffle to Benefit Berkshire County Arc, NAMI Berkshire County
Watch What You Eat to Avoid ER This Thanksgiving
'Breakfast With Santa' Set for Dec. 7
Williams PTO holding BJ's Fundraiser
MLK Jr. Day Committee Seeks Nominations for 2015 Peacemaker Award
Volunteer Matter of Balance Coaches Needed

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (151)
Independent Investor (204)
Archives:
November 2014 (3)
November 2013 (2)
October 2014 (9)
September 2014 (5)
August 2014 (7)
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (8)
December 2013 (8)
Tags:
Crisis Election Stock Market Oil Europe Commodities Pullback Selloff Currency Bailout Japan Economy Interest Rates Energy Jobs Taxes Europe Federal Reserve Stimulus Recession Banks Retirement Debt Debt Ceiling Rally Euro Markets Fed Fiscal Cliff Metals Greece Congress Housing Stocks Deficit
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
@theMarket: QE II Supports the Markets
The Independent Investor: Does Cash Mean Currencies?
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
The Independent Investor: The Pipeline Made Simple
@theMarket: Markets Are in Half Time
The Independent Investor: U.S. and China Square Off
The Independent Investor: Workers Get to Save More in 2015
@theMarket: All Clear
The Independent Investor: The Elephant in the Room
@theMarket: So far, So Good
The Independent Investor: OPEC's Oil Ploy
@theMarket: Are We There Yet?
The Independent Investor: Why Is This Recovery Different?


View All
Abbott School Pie Auction...
Gabriel Abbott Memorial School's annual Oh Be Thankful Pie...
Wahconah Football Reaches...
Salvatore grabbed the ball out of the air and sprinted 95...
Proud Pittsfield Fights to...
Pittsfield’s run in the postseason came to end on Westfield...
McCann Football's Run Ends in...
The McCann Tech Hornets road to Gillette Stadium and a...
Berkshire Chamber Showcase...
The Berkshire Chamber of Commerce held its Business 2...
Berkshire Grown Holiday...
Berkshire Grown held its Holiday Market in Williamstown on...
Wizards at Hoosac Valley
The Harlem Wizards faced off against Hoosac Valley staff...
St. Mary's Church Tour in...
Residents, business people, elected officials and Friends...
Williamstown's Mather House...
Traffic came to halt for several hours Wednesday morning as...
Girls Soccer: Nipmuc vs...
Although the Wahconah girls' season ended on Tuesday, its...
Boys Soccer: Belchertown vs...
Belchertown Downs Mount Greylock Boys in PKs
Football: Pittsfield vs...
Shade himself ended up taking it in from the 1 on third and...
Football: Turners Falls vs...
After completing the first-ever undefeated regular season...
Festival of Trees 2014
The Berkshire Museum kicked off its Festival of Trees...
Farmers' & Artisans' Harvest...
organic and handcrafted goods were sold at the special...
Football: Agawam vs Wahconah
The Wahconah football team was down eight points heading...
Abbott School Pie Auction...
Gabriel Abbott Memorial School's annual Oh Be Thankful Pie...
Wahconah Football Reaches...
Salvatore grabbed the ball out of the air and sprinted 95...
Proud Pittsfield Fights to...
Pittsfield’s run in the postseason came to end on Westfield...
McCann Football's Run Ends in...
The McCann Tech Hornets road to Gillette Stadium and a...
Berkshire Chamber Showcase...
The Berkshire Chamber of Commerce held its Business 2...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved