Ask Terry Questions Mortgage dilema

Mortgage dilema

By Terry Savage on November 12, 2014 | Housing / Real Estate

I owe about 250K on my home. It is worth about $525K. We built it for $615K. The interest rate is 3.5%. Our monthly payment is $2500, property taxes are an additional 15K. I am 52. I would like to retire in 10 years with about $2.5MM. We have 1.2MM in my SEP. We put 25K into it each year. Would like to increase that to 35K. My home is in a unique area (about 80 homes)and has very high property taxes. Only one home has sold in 2 years. My question is why pay anymore towards the principal when I could invest that money into my SEP and at least earn a return. My SEP is 5 equal parts of top rated, average risk, no load mutual funds (BERIX, FBIOX, FSHX, TWHIX, YACKX). My ROI this year is + 10%.

Terry Says:  Please tell me you’re kidding!  You keep paying on the principal of your home loan because you don’t want to lose your home!  And no matter how “top rated” the funds are in your SEP, there is ALWAYS the possibility of loss!  This has been a fabulous year for the stock market.  And over the long run, dividends reinvested, you might get that 10% ROI.  BUT, you don’t want to be withdrawing for retirement in a down year — and losing all future growth  If your home grows in value you can always take out a reverse mortgage if you want to stay there, to supplement your retirement income.  Diversification is important.  You have a great deal — 3.5% deductible interest.  Don’t blow it!



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