As you approach or even in your retirement years, the question that is on your mind is, “Should I pay my mortgage off?” There are two questions and two answers. First, what is your financial plan? Second, what is the “cost of money?”
Let’s deal with the first question, what is your financial plan? First, your financial plan needs to go beyond one year, five years, or even 20 years. Your plan is to live a long, happy, healthy life. Your plan should reflect that. With that said:
- What does your cash flow look like 20 years from today?
- What will be the inflationary effect?
- What is the Medicare & Medicaid plan?
- What is your long term health planning?
Too often in retirement people look at the totality of money they have without a cash flow plan beyond today. It is critical that your financial plan extends out 20 years. 30 is preferable.
Cash Flow 101
Now that you are viewing or at least thinking about cash flow in a whole new light, consider for a moment the following:
- What would a $350,000 addition look like?
- What about a $350,000 subtraction from your cash flow? What would that look like?
We use $350,000 as an average median mortgage balance in the US for people 59 ½ years and older. Would it have a significant impact if you paid off your mortgage? Although you would have monthly alleviation, your bottom-line would be impacted.
Unique Opportunity in 2020
2020 has been anything but a standard year. It has taught us to expect the unexpected no matter how long we have lived. However, in the chaos, one opportunity has emerged — especially for you. The cost of money.
Mortgage rates have never been lower, period. There’s no disputing that. In fact, as a retiree or soon to be, you can recall getting mortgage interest rates in double digits! So with the cost of money so low, why not take advantage of it?
By doing a cash out refinance, you have the ability to tap money so cheap, including the tax deductibility that you could put it right in your cash portfolio. Check out what a payment would be here with this calculator. Now you see how small the payment would be, put that money back in your cash flow analysis. Make it stronger? Is the cash position stronger? Is the debt position stronger? Is your tax-free position stronger? Are there long-term issues now solved due to the low cost of money? This may be the proper position for you.
Let’s do an analysis together. Let’s put a specialized financial plan in place. Your mortgage has done so much for you through the years, it is not done giving. It can be just as powerful in retirement as it was in your 30s and 40s.