One of our pre-retirement goals was to pay off the house. Now I’m not so sure that is the best financial move for us at this time.
About a year ago, we refinanced our mortgage when interest rates were very low and secured a 2.25% rate. Of course, back then, the interest on savings accounts was near zero. Fast forward to today. It appears the financial markets have made a 180. Our online bank is now paying 2.5% interest (3.0% if I switch to a CD). So effectively, I am now getting more interest on my savings account than I am paying in mortgage interest. Crazy, right?
In light of that, we have decided to bulk up our savings instead of rapidly paying off our mortgage. It feels right to have more cash available at this time. And,
should when the financial markets turn again, we will have the choice of paying off our mortgage with our savings. We are betting, at least for the next couple of years, rates on savings and mortgages will continue to rise, making it more advantageous for us to save cash. Unfortunately, it won’t look good for those wanting to get a mortgage. Currently, my credit union is offering 6.25% for the same mortgage I got last year for 2.25%. Ouch.
The other reason we are holding off paying down the mortgage is that we still want to downsize. We feel having cash on hand would be better than equity tied up in the house.
I feel as though I’ve had to pivot quite a bit from our original plans for retirement. This last year has been a crazy ride. I guess we’ll have to see how this new plan plays out.