Just as buy and hold used to make a lot of sense a years ago when it came to the stock market, paying a mortgage free home when you retired was once a wise goal.
Now, it may not make as much sense.
Why? Most people getting close to retirement have lost a lot of their nest egg in the market crashes. With less liquid assets you need have a larger percentage invested in stocks (yes I know its scary but I follow up column will teach you how to be a safer stock investor),
Another critical factor is that present mortgage rates hover around 4 percent and as long as you can write off the interest as a deduction, your real cost to finance that home comes down to 3 percent or less.
The question is can you earn more than 3 percent a year in the stock market? I think you can. There are great dividend stocks out there that pay between 3 and six percent with the possibility of appreciation: here are a few – UTC, AT&T, Verizon, Bristol Myers, First Niagara, Duke Energy, Consolidated Energy, Windstream, Nordic American, Du Pont, Clorox, and Intel. I own them all and don’t think these companies will disappear.
Here is was Shelly K. Schwartz wrote for CNBC:
“The countdown to retirement is on for millions of baby boomers and, thanks to a lifetime of diligent saving, some have amassed enough wealth to pay off their mortgages and live debt free.
“Conventional wisdom says it’s best to pay off your mortgage before retirement, but given the low-interest rate environment, and the need to preserve cash in an unstable economy, that strategy is no longer absolute.”
“Paying off your house is one goal, but having a zero-mortgage liability is not the answer for everyone,” says Jennie Fierstein, a certified financial planner (CFP) in Westborough, Mass. “If you don’t have a stream of resources to replenish it, you might do yourself a disservice by taking money out of the bank to pay off your mortgage.”
