When people retire, there’s a temptation for them to want to pay off their mortgage as soon as possible. After all, it’s a repeating cost that people simply don’t want to have to deal with. However, that’s not necessarily the best financial choice. Depending where the money is coming from, it may actually be less expensive to keep making payments. That said, there’s definitely something to be said for reducing the stress that comes with overhead payments, even if you sacrifice some income.
Sometimes the decision is relatively simple. If you have excess money lying around not being invested, such as in a checking account, you probably want to pay off your mortgage. This is because checking accounts typically don’t earn much interest if any at all, so the interest rate on a mortgage is guaranteed to be higher — the longer you wait, the more you lose. This also applies to any other funds that are being invested at a lower interest rate than the mortgage. Of course, this assumes you don’t need large sums of cash in the near future for some other reason.
Checking account withdrawals also aren’t taxable, unlike funds from certain retirement accounts. The interest rate comparison may not work out for retirement accounts. Even if it does work out, the withdrawal tax may make it less economically viable, especially if it pushes you into a higher tax bracket.