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Withdraw from IRA to pay mortgage

By Terry Savage on May 16, 2022 | Housing / Real Estate

I’m 74 & a widow, have teacher’s pension (106,000.), 400,000 in IRA with TRowe, mortgage balance is 202,000. Should I withdraw 100,000 from IRA to pay 80,000 to mortgage? I would pay 18,989 in mortgage interest (house will be paid 2/2032) as opposed to 59,671 if I leave it as is.

Terry Says

You left out an important detail: What is your mortgage interest rate? I would not advise doing this if your mortgage rate is under 5%. You might need the cash one day for expenses. And you’ll pay taxes on the withdrawal as well as losing all future growth. If your mortgage rate is over 5%, then you could compromise and make a withdrawal to pay down half of the balance.

You also didn’t say how your IRA is invested! I do think that stocks may underperform their historic long-term return of 10% per year. And money funds are definitely yielding far less than a 5% mortgage paydown would do. But I also think that if inflation continues, that gap will narrow.

The “finger on the scale” in this equation is the potential need for cash for say nursing or medical care. Once your money is IN your house, it is difficult and expensive to get it out via a reverse mortgage if you need cash!



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