Elderly couple debates paying off $100,000 mortgage

DEAR BOB: We have learned so much about real estate over many years from your articles. But now we need your advice. I am 72. My wife is 65. We have $160,000 in three-month T-bills. Should we use that money to pay off our approximately $100,000 mortgage at 5.7 percent interest with 28 years remaining at a $560 monthly payment? --Vinh H.

DEAR VINH: You have an excellent fixed mortgage interest rate. The only reason to pay it off early, presuming there is no prepayment penalty, is because you have more than enough cash than you will ever need.

Purchase Bob Bruss reports online.

If you are retired and the $160,000 is a major portion of your retirement liquid cash, I suggest you do not pay off your superb mortgage. Re-borrowing in case of an emergency or investment opportunity could be very difficult or impossible if you have limited retirement income.

Considering your small $560 "petty cash" monthly mortgage payment, which approximately equals your 5 percent earnings on your $160,000, please don't pay off your beautiful mortgage unless you have too much cash burning a hole in your pocket.

Just in case you foolishly disregard this advice and pay off that great loan, please do me a favor and immediately obtain a home equity line of credit (HELOC) at your bank or credit union for the maximum available (usually 75 percent of home market value). There is no cost until you write a check to borrow on your HELOC. The interest rate should be at the prime rate, or less. Then you will have easy access to cash for an emergency.

(For more information on Bob Bruss publications, visit his
Real Estate Center).

Copyright 2006 Inman News