Should I Use Savings to Pay Off My Mortgage?

Mortgage
Photo by Andrey_Popov / Shutterstock.com

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about paying off a mortgage; specifically, whether it’s a good idea to use money in your savings account to do it.

This is a question I’ve been asking myself, so I was happy to answer it. Watch the following video and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “7 Times It Makes Sense to Pay Off Your Mortgage Early” and a similar-sounding but different story, “7 Painless Ways to Pay Off Your Mortgage Years Earlier.” You can also go to the search at the top of this page, put in the word “mortgage” and find plenty of information on just about everything relating to this topic.

If you’re shopping for a mortgage, you can click here for rates from multiple companies. And if you need anything from a better credit card to help with debt, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to the “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by Money Talks News, serving up the best in personal finance news and advice since 1991.

Let’s get to our question for the day. It comes to us from Marsha:

“We’re several years from retirement and have accumulated enough in our savings to pay off our mortgage. Which is best: money in the bank, or a debt-free home?”

I’ve got three things for you, Marsha:

No. 1: Mortgage payoff pros

One advantage to getting rid of that mortgage is increased cash flow. Money you’re no longer putting toward your mortgage can now go into something more productive — like your savings, or maybe an investment account.

Another advantage is not having that obligation over your head. Not only does it feel good, but should things go south, it’s one less bill to worry about.

Finally, if you’re earning less on your savings than you’re paying in mortgage interest, you’ll be richer. Look at it this way: You’re effectively turning your mortgage interest rate into your savings rate. In other words, if you’re paying 4% on your mortgage and you pay it off, that’s like earning 4% tax-free and risk-free. That’s a compelling argument, especially if the money you have in the bank is earning next to nothing.

No. 2: Mortgage payoff cons

What are the disadvantages of paying off a mortgage? One is turning a liquid asset — money in the bank — into an illiquid asset, home equity. For example, a few years back during the housing crisis, I had a bunch of money in the bank earning very little. I used it to buy the house next door really cheap. I fixed it up, then sold it for a big profit.

Theoretically, I could have borrowed against my house to raise the cash, but I probably wouldn’t have. Because I had the cash and it wasn’t earning much, I did something with it that earned a lot.

In short, having money in the bank can really be an advantage if you’re planning to use that money. It feels good to know that if things go south, or an opportunity arises, you’ve got the funds to deal with it.

Another thing to consider: You might get a tax deduction for your mortgage. This is harder to do now because the standard deduction for married couples is $24,000, so a lot of us are no longer going to be getting a tax write-off for mortgage interest. Still, if you’re getting a write-off, that essentially lowers the cost of the interest you’re paying.

No. 3: The bottom line

I’ve given you pros and cons, but what should you do? Well, it depends.

Pay off your mortgage if:

  • You’ve got all your retirement accounts fully funded and you’re socking away as much as you can.
  • You’ve got a ton of savings in an account that’s earning almost nothing.
  • You’re not getting a tax deduction.
  • You can’t see any future use for the cash.

On the other hand, you might be better off leaving your mortgage alone if:

  • You’re earning more with your savings than the mortgage is costing.
  • You’re getting a tax deduction.
  • You might find something rewarding to do with your cash.

Either could be the correct answer.

Does that make sense, Marsha? I hope so. And I hope you will tune in next time.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
The 13 Worst Types of Tickets for Your Car Insurance Rate
The 13 Worst Types of Tickets for Your Car Insurance Rate

Some types of traffic violations can drive your car insurance rate dramatically higher.

10 Colleges That Offer Free Tuition for Seniors
10 Colleges That Offer Free Tuition for Seniors

These schools let retirement-age students study, tuition-free, while earning college credit.

9 Ways to Boost Your Home’s Curb Appeal for Less Than $50
9 Ways to Boost Your Home’s Curb Appeal for Less Than $50

These products will instantly improve your home’s curb appeal without breaking the bank.

Beware These 5 Common Work-From-Home Scams
Beware These 5 Common Work-From-Home Scams

You can spot scammers and con artists with a little know-how.

14 Uses for WD-40 That Save Money, Time or Headaches
14 Uses for WD-40 That Save Money, Time or Headaches

WD-40 is handy in a lot more situations than you likely realize.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

Eat This Food If You Want to Avoid Alzheimer’s Disease
Eat This Food If You Want to Avoid Alzheimer’s Disease

One type of food associated with the Mediterranean diet offers especially large benefits.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less
5 Awesome Places You Can Retire Overseas on $2,000 a Month or Less

In this week’s podcast: tips on retiring overseas — from someone who’s been helping American expats for decades.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

Why Half of Retirees Now Owe Taxes on Social Security
Why Half of Retirees Now Owe Taxes on Social Security

Growing numbers of seniors are paying taxes on their Social Security benefits, but you might be able to avoid this fate.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.