pay off mortgage?

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pay off mortgage?

Postby ieee488 » Fri Apr 05, 2013 8:25 pm

I have 3 more years remaining on an ARM at 3.75%.
I have money saved up which can pay off my the amount remaining on my mortgage and still leave me with 2 years of emergency fund.
I am planning on early retirement in another 5 years and most likely at that time but not certain to sell the house and buy a smaller home in a 55+ community.


Is there any reason I should not pay off this mortgage?
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Re: pay off mortgage?

Postby stan1 » Fri Apr 05, 2013 9:25 pm

Invest the money, or pay off the mortgage. No point leaving more than 2 years worth of "emergency fund" in a 1% FDIC insured savings account or a 1.75% CD (as examples -- perhaps you are "grandfathered" with higher yielding accounts to park your ash but you very well could have much lower yields these days). Unless you think you are at high risk of unemployment in the next 5 years, rather than saying you have a 2 year emergency fund I would change your asset allocation to reflect a 5% or 10% cash allocation to honestly represent the decisions you are making.
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Re: pay off mortgage?

Postby ieee488 » Fri Apr 05, 2013 9:33 pm

Thanks.

I have had my share of unemployment in the past 10 years.
But it seem that there is not any reason not to pay off the mortgage.
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Re: pay off mortgage?

Postby grabiner » Fri Apr 05, 2013 9:53 pm

Paying off the mortgage will eliminate a guaranteed payment for each of the next 36 months. It is thus equivalent to buying 36 CDs, maturing in 1-36 months, each earning a 3.75% yield (taxable if you are deducting mortgage interest). That's a great deal, so you might as well do it.
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Re: pay off mortgage?

Postby ieee488 » Fri Apr 05, 2013 10:01 pm

Excellent.
Phone call to Wells Fargo Home Mortage coming up later this month.
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Re: pay off mortgage?

Postby Toons » Fri Apr 05, 2013 10:39 pm

Easy decision pay it off :happy
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Re: pay off mortgage?

Postby Watty » Sat Apr 06, 2013 12:19 am

I like to turn this question around so in your situation question would be pretty much the same if you asked, "I have a paid off house, should I take out a three year home equity loan so that I can invest the money?"

That sounds like a pretty silly idea but it is really just about the same as the one you asked.

I would pay it off.
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Re: pay off mortgage?

Postby ieee488 » Sat Apr 06, 2013 10:12 am

The original intent was to pay off the mortgage, but I wanted to run this by the Bogleheads just to make sure I was not overlooking something.

Thanks again, everyone.
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Re: pay off mortgage?

Postby momar » Sat Apr 06, 2013 10:32 am

Yep. Seems like by paying off your mortgage with part of your EF, your EF will actually turn out to last even longer. Since you no longer have a mortgage payment.
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