Mortgage vs. CDs
Question: We have several CD’s that are coming due. Interest rates are so low we are wondering if we should pay off our 6.875% home loan with the CD’s and then pay our house payment to ourselves to resave. We only owe about $72K. The CD’s are for our retirement; we are self employed. Gail, Arlington, WA
Answer: First of all, I don’t see how you can go wrong by paying off the mortgage or reinvesting the money into CDs.
On the one hand, the advantage of eliminating your mortgage is that you’ll earn a 6.875% return on investment–not bad in this market. I also believe that most homeowners should enter their retirement years without a mortgage.
On the other hand, if you keep the money in savings you have a personal financial safety net in case business slows down for one or both of you during the economic downturn. I also believe it’s smart to own a well-diversified portfolio and not put too much of your savings into a single asset like a home.
So, my answer really comes down to evaluating how much risk you face. The more secure your income and the better diversified your overall household portfolio the more I would lean toward getting rid of the mortgage, and vice versa.
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