Question for the Money Doctors
Question submitted on Jun 2, 2014.
QuestionI am qualified to get a reverse mortgage.
My idea is to pay off my $55,000 mortgage with cash. This will save me $425 /month. The house will be free and clear.
I calculate that with social security and retirement savings I can pay my way for 22 years without taking money out of the house with a reverse on it. I am 65 now. Assuming I am still around there should be a good chunk of equity to leave behind.
Is this a sound strategy to meet these goals?
Paying off your mortgage is not necessarily a good plan. If you are tapping into retirement funds, like an IRA or 401K, it is definitely not advisable, since you will first have to pay taxes on the funds withdrawn to pay down the mortgage. Assuming that you have a reasonably low rate on your mortgage, it is preferable to leave the funds invested, particularly if they are in retirement accounts. Before using any of your savings, you should make sure that you have enough saved to fund six months of living expenses. In addition, you should keep a cash reserve for unexpected medical expenses which may arise as you age. Finally, if you use your savings to pay the mortgage now, the reverse mortgage situation may change when you are ready to draw from such a vehicle, and you may not be able to obtain one. You should have a financial advisor review all of your assets and investments and design an overall strategy before you take any actions such as paying off your mortgage. There may be better alternatives available that you haven't considered.
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