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.
JOURNEY TO RETIREMENT 
The only firm decision is that my husband set a retirement date. We can cover our expenses with my salary. Our biggest goal is to sick away cash before his retirement and invest in home improvements that will entice us to stay at least 10 more years. Cash is king right now.
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Hi Sharon, this is Chris. I can understand your change in plan at this time, I know it makes sense financially, especially if you itemize your taxes. But , for us, the psychological benefit of a paid off house is great and I am glad we did it, even though we had a low interest rate. It sounds like you have the payoff amount already saved, so could pay it off if you change your mind. That is a good position to be in.
We have not made any changes to our plan since I last updated you. Agree that cash is king right now.
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Some online bank accounts are paying 4.10% right now! I’m waiting till it gets to 5%. I have a five year CD paying 2.45%. Once it gets to 5% I’ll be switching it over. This is a GREAT time to have cash and that’s what I have. My Money Market now is paying 3% which is MORE than my locked in CD. Who’d a thunk? Plus, is you have extra cash you can go shopping and get great buys. I got designer clothes at 75% off at Marshall’s. They were practically giving the stuff away. A fall sherpa lined coat, with the price tag of $198 still attached, sold (to me) for $54!!!! I got some other great duds too.
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Yep, I’m watching the rates and will definitely throw money into the higher CD. We bought IBonds when they were 9.5%, so that’s sitting pretty too. 🙂
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Smart on the iBonds!
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