It depends. Using leverage to buy a home can be beneficial in a rising real estate market, especially if you are in a high tax bracket, have a low interest rate and earn more that the interest cost in other opportunities (i.e. investments). This is not the case, however, in a real estate market that is falling and if your “aftertax” cost of interest exceeds what your after-tax rate of return is on monies invested elsewhere. That said, a home is a non-income producing asset – paying down your mortgage means a lot of equity is tied up (getting it back out requires being eligible for refinancing or a HELOC) and it will not provide an income stream during retirement (reverse mortgages not discussed here). I generally recommend that my clients contribute the maximum to their 401(k)s, pension plans, deductible IRAs/Roth IRAs first (to maximize tax savings, employer matches, save for retirement outside of the house equity, etc.) and then, if there are monies left over (after accumulating cash reserves), pay down their mortgage (or accelerate payments to turn a 30-year mortgage into a 15-year mortgage). If you are upside down on your house (mortgage exceeds value), and plan on leaving within five years, you should pay extra principal every month to avoid presenting a large one-time check at settlement.

Whether or not to carry a mortgage on your house depends on numerous factors, and there is no one answer that is appropriate for everyone. For most people obtaining a mortgage is the only way that they can afford to purchase a house initially. The question of whether or not to pay off that mortgage becomes more pertinent as people approach retirement. Some of the most common reasons cited to retire a mortgage are: 1). Emotional, the stress of having a loan on your home is uncomfortable for you, 2). You can lower your monthly costs, 3). The interest on your loan is greater than what you can earn on any investment, 4). You have less than 10 years left on your loan and therefore no real tax deductions from that loan. Some of the most common reasons cited to maintain a mortgage are: 1). You would rather use the money for other purposes than paying off your home, 2). You would like to take advantage of the tax deduction available (though this may need to be reevaluated if certain changes are made in the tax laws), 3). You want to maintain access to your money should the need arise without being forced to take a home equity loan or refinance your current loan (which you may or may not be eligible to do at that time). Ultimately each person’s circumstances and comfort level is different. Take some time to assess your personal lifestyle, what you would like for your future cash flow, how easily you would like to access money should the need arise and work with your Certified Financial Planner Professional to determine whether or not you should pay off your house.

That’s a great question. The first thing that you need to look at is what does it cost you for your mortgage and what is the after-tax cost of the debt. If, for example, your mortgage is at 6 percent and you’re in a 30 percent tax bracket, then the after-tax cost of your loan is 4.2 percent. This is as a result of the tax savings that you get for deducting the mortgage interest. This, of course, assumes that you have enough deductions to itemize on your tax return. If you do not itemize then the after-tax cost of your loan is the same as your rate. So if your after-tax cost is 4.2 percent then the next thing you have to look at is what are you going to do with the money if you do not pay the mortgage down or off. If your earnings are greater than 4.2 percent after tax, then you may consider not paying it down and make an arbitrage on your funds. The question you need to also look at is how safe and is the return that your looking at guaranteed? If it is invested in the market, then you have to be prepared for not hitting your target and even losing money. I am one planner who believes cash is king and if you can have as little debt as possible, then you have much more flexibility in your cash flow needs. In today’s markets it certainly makes since to pay down debt when you can!

Obviously, everyone’s circumstances are different. So the answer to your question is, there is no “general” answer. In a perfect world, as you near retirement, you want to have your mortgage paid in full and sufficient investments to sustain your desired lifestyle over the next 30 years or so. This provides security and allows you to truly enjoy your golden years. One thing to focus on is how much is the mortgage actually costing you? If you have a good mortgage interest rate, and factor in your mortgage deduction on top of that, you may realize that your true cost isn't too terrible after all. By looking at the true interest rate, it will help you make a decision between using your savings to pay off your mortgage, or continuing to leverage the bank’s money and keeping your savings intact (and hopefully working harder for you).