Your Piece of the Rock is Not What it is Cracked Up to Be

Full reconveyance of title from the bank in 2017

Though my ancestors have never been wealthy, every generation has had its home paid off by the age of 65. We happily had our own mortgage-burning party in 2016.

While there is a great deal of psychic satisfaction from doing so, prepaying one's mortgage--assuming one has the funds, of course--is often not the best financial move.

Reasons for paying off your mortgage:

[it] can bring peace of mind.

if you’re...earning an interest rate of 2%, it makes more sense to use that money to pay off your mortgage if the interest rate is higher.

Reasons against:

"Most Americans generate their income in retirement from social security, a 401(k) or IRA.... “Should we be taking large withdrawals from them to pay down a mortgage? The answer is no.”

Explanation: because withdrawals from a 401(k) or IRA are taxable (unless they're from "Roth" plans), the tax cost swings the decision towards not prepaying.

Your humble blogger's former mortgage carried an interest rate of 5.25%, high enough to pay off according to the agreed schedule but still below a normal rate of return on equities--in other words, I preferred (slightly) to invest the money in the stock market rather than prepay the mortgage.

A mortgage can be thought of as a regular payment that one is obliged to make, else the home could be lost (to the lender in this case). That is why mortgage-burning parties are not as joyful as they once were--there are still substantial payments one must make to other parties, like the county tax collector and the homeowners' association, who also have the right to seize the home for non-payment.

We are personally aware of California homes that cost $300,000 and have annual property taxes of $7,000 due to development bonds, coupled with annual homeowners' association fees of $3,000. $10,000 seems to us to be an onerous burden on a $300,000 paid-up home, but such is life in the Golden State.