When determining whether to pay off or keep your mortgage, you should also consider your interest rate.
If the average after-tax return on your investments is greater than the after-tax cost of your mortgage, it may make sense to keep your money invested, says Fierstein.
Don’t forget to factor in the effect of the mortgage-interest tax deduction.
If you’re in the 30 percent tax bracket and you’re able to claim the full deduction, a 5 percent loan is really only costing you roughly 3.5 percent.
Thus, you’d only have to earn 4 percent on your investments to make it worth your while. (Given the low interest-rate environment, however it’s nearly impossible to achieve that rate of return on more conservative, fixed-income products such as bonds and certificates of deposit.)
“It’s hard to find comparable risk-free investments, so you have to be able to stomach a loss if you want to go that route,” says Jean Setzfand, AARP’s vice president of financial security. “You can’t get a plain vanilla CD anymore, because those rates are too low.”
If you’re nearing retirement but haven’t yet quit, the case for keeping your mortgage and continuing to invest is more clear—at least until you part ways with the boss.Page 3 of 6 | Prev Page | Next Page