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Should I pay down my mortgage with assets from 401(k), stocks and savings?

I will be 65 years old next year. I have a mortgage balance of $157,000 at an interest rate of 5.25% with 22 years left to pay. I have $70,000 in a savings account, $50,000 in stocks, and $55,000 in my 401(k). Should I use part of my assets to pay down my mortgage? If so, how much?

Debt, Personal Finance, 401(k), Stocks
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November 2017

No, I wouldn't advise you to simply withdraw all money and pay off your mortgage.  Withdrawing some money and paying off part of it could be an option depending on other considerations. If you're married and how long you may continue working are highest on the list but here are some other things you might weigh before making a final decision. There are alot of factors that actually could and should go into this decision.

Among them are:

1. Option of refinancing. 5.25% is not normally bad but at today's rates you could likely secure a lower interest rate. Given that your total savings, liquid assets are less than $250,000, we might want to hold onto those for retirement and potential healthcare costs. Refinancing down to a 20 year note could get you rates lower by ~1.5% without having to empty your coffers. 

2. Expected returns in the portfolio and expected risk to achieve those returns. The 5.25% is a guaranteed cost- you will pay it. If you are making 7% on your investments, some people might say to not pay off the mortgage and keep the 1.75% difference but that depends on if the 7% is guaranteed- probably not, but is probably rather variable which means the sure thing might be better. 

3. Tax status of funding. Simply put, where you draw the principal payment from depends on your tax situation. For higher income years (or if you have a significant pension, inheritance, etc) it might be advisable to pay down your mortgage using the savings and stock account, but not the 401(k) so you do not bump your tax rate.  If however, this is a low year of income and you foresee higher years in the future (i.e. social security beginning, pension begins, spouse begins getting SS or pension payments, etc) then maybe accessing the 401(k) could be the ideal solution this year. 

4. Have you considered a reverse mortgage? That could be a way of eliminating the payment while still being able to continue living there. There are some conditions like you must continue living there, you're still responsible for repairs, etc. but it can be a very good option.     

The best decision in your case would probably involve combining some of these ideas here. For example: maybe you take the stock account and liquidate to make a lump sum payment and then do a HECM reverse mortgage to establish a credit line with increasing value for future retirement income.  Without specific information I wouldn't say absolutely that's what to do- but now you have some of the things that you need to consider.

November 2017
November 2017
November 2017
November 2017