Before you put a match to your mortgage, think about whether you will have enough liquid assets for emergencies — and other expenses
America, by and large, is a country in debt. Total household debt in the U.S. rose to $17.05 trillion in the first quarter of 2023, according to the latest data from the Federal Reserve Bank of New York. Mortgage balances were at $12.04 trillion, auto loans were at $1.56 trillion and credit card balances stood at $986 billion.
John Cunnison, chief investment officer at Baker Boyer National Bank in Walla Walla, Washington, agrees that paying off high-rate debts like credit card balances is a good idea. “But there are some ‘good debts,’ such as mortgage debt, especially if it was refinanced in the last decade when rates were so incredibly low.”
Think strategically “If the interest rate is low on your mortgage, it may be worthwhile to put that money toward an investment account or a high-yield savings account, rather than trying to pay off your mortgage before or in retirement,” Ashline says. Got cash? While being completely out of debt is a marvelous feeling, consider how much you will have left to live on if you choose that route. Aaron Dorn, the chairman, president and CEO of Studio Bank in Nashville, Tennessee, tells us that you need a clear understanding of how much cash you will need on a recurring basis.
“Paying off debt when not needed takes away from resources that could have been used for home improvements or furnishing the home,” warns Lerner. “A retiree can often improve their debt-to-income ratio by increasing their monthly disbursements from retirement assets rather than paying off debt to decrease their monthly payments,” he says.
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