11 must-knows about early mortgage payoff

Seniors close to retirement can boost return on investment

By Inman News Feed
Add Comment Add Comment | Comments: 0 | Posted Dec. 12, 2011

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Q: Should seniors close to retirement pay off their mortgage?

A: It is a prudent move if they have the assets to do it, because the rate they are paying on their mortgage is higher than the return they can earn on assets having a high degree of safety. Paying off their mortgage also clears the way for a reverse mortgage in the future, should the need for additional income arise.

Q: If I have two mortgages, which do I pay down first?

A: In general, pay down the mortgage carrying the higher rate. However, if that mortgage is fixed-rate while the lower-rate mortgage is adjustable-rate, the decision must consider the possibility that the rate on the adjustable will increase in the future.

Q: Is a biweekly payment mortgage a painless way to pay it off sooner?

A: Making half the monthly payment every two weeks is not painless, because it requires an extra monthly payment every year, and the lender will charge you for the privilege. An alternative approach that is equally effective, and which is entirely within your control, is to increase your scheduled monthly payment by 1/12 of the payment.

The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.

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