Ask Terry Questions Saving money or paying down your mortgage?

Saving money or paying down your mortgage?

By Terry Savage on May 29, 2020 | Financial Planning / Retirement

Hi Terry. My husband has $100,000. We have no credit card debt & about $110k left on the mortgage at 2.75% interest. He wants to take $50k of the money and pay down the mortgage. I say absolutely NOT. We do need some house repairs, $20k and then invest the rest. We are in our late 40’s/early 50’s with no kids at home. Any advice? I’ve always been told not to pay down low interest or zero interest loans. What about buying property or a 2nd home out of state, as we want to be snow birds some day. (That could have rental income potential if we buy now.) Thank you for your advice. Stay safe. God Bless

Terry Says

I’m on your side at 2.75%. Even if you leave the money sitting in a bank, and lose just a little bit every year, it’s worth having liquidity. (And I’m ALWAYS a proponent of paying down your mortgage before retirement!) But you have a great deal. And before that mortgage is paid off it will look even better –if all this money printing leads to inflation and higher interest rates!

So what to DO with the money? Yes, if you’re still working you could invest a small amount over the coming months into a Roth IRA. You won’t get a deduction, but the money will grow tax-free. I suggest going to Fidelity or Vanguard to open the account. Each of you needs to open a separate account, and you can do it if you have earned income. Then put about $1,000 a month automatically into each of your accounts. If you are over 50, you can each put in $7,000 a year — and if only one of you works, the other can open a “spousal” IRA — though with some restrictions. That will sop up some of that extra cash. Just invest it into their S%P 500 stock index fund.

I’m hearing from a lot of people who thought they’d get a lot of rental income — but now that so many people are unemployed the rents aren’t coming in! And they can’t evict! If you find the perfect retirement home, you could make that an investment– just don’t have plans that are too rosy!

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