I currently have a mortgage on our home:
- House "paper value": $460,000
- Mortgage balance: $52,000
- Mortgage term: 15 year refinance taken out in 2013, current payoff will be in 2028 (coincidentally I turn 70 that year)
- Mortgage interest rate: 2.875%
- Current monthly payment: $620/month (actual required payment is $613 and change, I just round it up a bit for payment purposes)
Coming into this year, I was looking at paying it off, for the following reasons:
- We have no other debt.
- We have currently about $455,000 in cash. It is a lot, some may say too much, but was the "sleep well at night factor" based on (a) not being forced to sell equities during severe market downturns, before my SS FRA age, (b) potential medical premiums (which are turning out to be half of what we planned for), and (c) potentially paying off mortgage balance early.
- Beyond the cash our stocks (almost all broad market mutual funds/ETFs) and bonds (almost all in a stable value bond fund) currently total $1.8 million (before the current meltdown allocation among stocks/bonds/cash was 34/43/23). We have only touched these for Roth conversions (okay, a little to "celebrate" at times our portfolio hit a nice milestone on the way up).
- I have a very good pension, my wife still chooses to do part time work (though we do not depend on it for our plans), and she has started taking her SS. These items are covering 99% of our regular monthly expenses. Paying off the mortgage would free up that $620/month for whatever we wanted.
- I track our "cash flow out". In 21 months of retirement, our cash flow out has averaged $2300 a month on our non-saver "luxury" lifestyle. This roughly half of what we thought our cash outflow would be so far. So the decrease in cash would not impact our current spending rate.
I am considering dollar cost averaging the $52K that I would use to pay off the mortgage into our funds and ETFs, over the next 5-6 months. I do not see the current volatility setting down before then (of course my guess is as good as yours).
If you were in my situation, would you consider investing the $52K instead of paying off the mortgage? I am sure there are factors I have not thought about. Some of my current random thoughts:
- One factor against doing this is to simplify our finances for my wife, who, with a paid-off house, would would have one less major expense to deal with in the event of my death before the current payment schedule ends ( I am very healthy, but no one is guaranteed tomorrow).
- Some may feel I have enough cash to both pay off the mortgage and dollar cost average cash into the market, but there is my "sleep well at night" factor.
- A coincidence, we purchased this home in 1990, the original mortgage was for 30 years. Paying it off this year would mean, even after refinancing 3 times, we still paid it off on schedule from the original mortgage. More a psychological "feel good" thing.
- Perhaps I am being greedy in investing the cash, I have "won the game", if I can weather this type of downturn at my age, why take any further risk.