Should I pay off my mortgage loan if I have it in the bank?

“I have $93,000 left on my mortgage and I just hit $93,000 that was saved in my bank account. Should I pay off my mortgage?”

We receive financial questions all of the time. I thought it may be helpful to others to share some of the more common ones we see-

There are a lot of armchair financial advisors out there willing to tell you what their second cousin’s neighbor’s best friend’s dog groomer did ten-years ago that worked great for them. You truly have no way of knowing whether it was a financial strategy that worked, whether it was sheer luck, or whether or not it will work now.

Heck, scrolling through Facebook while standing in line at the grocery store I get at least three good eye rolls in from completely ludicrous suggestions and recommendations. (BTW, when talking about big money issues, ask someone that’s the real thing, like with credentials and all- We have a lot of credentials-)

Without having more information, there’s really no way to answer this question with any certainty. Sure, you can run the numbers and figure out the dollar amount you may save by paying the loan off early, but there are other things to consider.

Is this $93k ALL you have saved? Do you have anything stashed away for emergencies? What will you do if your AC unit, dishwasher, stove, microwave, washer, and dryer go out…all at the same time? What if it all of these items go out at the same time you need new tires or a new engine for your vehicle? The odds are astronomically high these will all happen at the same time, but is still possible. These are all things to consider.

What is your mortgage interest rate, and how aggressive of an investor are you? Is your “risk tolerance” based on more than just your gut or intuition? Will the bank account make you more or less than the interest rate of the mortgage? Could you make more if you placed this money into an investment account? Will your stomach allow you to place the money into an investment account? 

What are your intentions with the house? Do you plan on selling it soon or living in it until you die? Why do you want to pay the pay off the mortgage? Is this an emotional decision? Is this a personal goal you have set for yourself? Or is it simply for bragging rights towards your buddies? By the way, these are all really valid reasons.

There are many things to consider when deciding to make a big financial move, and all things being considered are just as important as the next. However, if you want a general rule of thumb (or in this case multiple thumbs), I would likely recommend if your mortgage interest rate is less than 4.5%, then investing the funds and allowing them to grow, while making the payment directly from the investment account may be your best bet in the long run. An advisor can come up with strategies to “ladder’ the money into various investment vehicles, not only making sure the payment needed for the next 12-months is available but also gaining some growth on the assets not needed for a bit longer.

However, if you have a low-risk tolerance and investing is not your cup of tea, the odds of your bank (checking or savings) earning you more than the interest rate you're paying is rather slim, so paying off the note will likely work in your favor. Just cross your fingers and hope your appliances remain in good shape for a while longer.

In any case, I suggest talking with a financial advisor. The few hundred dollars it costs to run an analysis may save you thousands in the long run-

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