Yes, I paid off a 3.61% mortgage a few years early, in 2022. It was a choice to prioritize cash flow over net worth. Between the heavy inflation at the time and facing the start of a very expensive time of life beginning in 2023 (kids starting college), the cash flow improvement of having the mortgage paid off was more valuable to me than the added complexity I would be facing to manage in a world where I would be regularly having to pull even more money out of my investments to cover those expenses
In hindsight, I probably could have used the money to strengthen my investment grade bond ladder and used the maturing bonds to make the mortgage payment. It’s not really a regret, but I do recognize it as a missed opportunity from a bit of added complexity.
Early retirement. You will need a source of income to cover the vulnerable years of 50 to 65 when you are too young for Medicare and health insurance is very expensive. (Not to mention living expenses in a time of rising inflation.) These are also years when health problems may occur.
The Federal Reserve is in a rate-cutting cycle. A high yield savings account paying 3.75% is tied to the fed funds rate which is being cut. We went through similar cycles in 2010 and 2020. Savings account yields were cut to 1%. If you are planning to pay off a mortgage over time I recommend building a bond ladder (NOT a bond fund!) that will provide you with maturing bonds as you need the money over time. Bond Ladder: Overview, Benefits, and Examples
I paid off my mortgage in about 1995. Rates were much higher. I had the relief of having a paid-for home when I lost my job. On the other hand, there’s a lot to be said for liquidity. With a 2.25% mortgage you are better off keeping the mortgage. Having the cash will give you more flexibility. (I assume that you have a lot of investments to support your decades of retirement but there is no substitute for cash.)
I am 71 years old. I retired with my husband at your age. We already owned our home and cars with no debts. Between 2001 and 2025 we experienced 3 recessions. The stock market is currently at a record high P/E ratio that resembles the 2000 tech bubble. So don’t count on stock investments continuing to rise smoothly to support your retirement. Even when you are working you should keep a minimum of 6 months of cash in your emergency fund.
You forgot to mention the potential tax benefits of having a mortgage. I live in California and the SALT deductions may apply.
Thanks for your thoughtful reply. I will hold off now of doing anything implusive. It’s my mom that wants me to pay it off. She is by nature more conservative.
I’m actually old enough to be your mother. I am very conservative and risk-averse. Given the changing economic situation (which I may be more familiar with than your mom) my recommendation is meant to minimize risk. If your mom is up for it you might walk her through it point by point so she understands that you are taking the conservative path.
Your mortgage is costing you less than the rate of inflation. I would never pay it off. I’d take a 50 year mortgage at 2.25% and let the bank (via inflation) pay my mortgage for me.
Additionally, if you are thinking of retiring in a few years, why tie up cash in equity - that will be far more expensive if you want to gain access to it again.
I am in a very similar situation. I think my mort is 3.25% and I am sitting on about 170k in cash - not enough to pay it off but I am in no hurry to pay it down early. The opportunity cost of giving up my liquidity is simply too high.
Depending on your tax bracket and other factors, the spread might not be as big as you think it is. Assume 20% on interest/dividends, your 3.75% is now about 3%. Depending on how SALT works out, a fair amount of your mortgage may not be “deductible”. The Feds will probably lower rates more so your back of the envelope spread might be approaching zero.
I’ve paid off 3 mortgages early over my life (one home and two businesses) and never looked back. Did it for cash flow reasons and peace of mind.
When mom bought her house in San Francisco in 1985, the mortgage rates were maybe in double digits. Of course she keeps telling me that paying off her mortgage was the best financial thing she did. Times are definitely different.
