It’s tough to write a personal-finance blog for five years without repeating topics. New readers come and old readers go. Meanwhile, the needs of existing readers are constantly changing. I try not to repeat material too often, but sometimes it’s clear it’s time to revisit a subject. Now is one of those times.

Lately, I’ve received several questions like this one from Robin, who wants to know if she should pay off her mortgage:

I’ve been reading your blog for a while now. It’s good for both entertainment and advice, and I like reading through comments on the articles I’m interested in and getting all the various points of view from people.

Something I don’t think I’ve seen addressed yet is this: I’ve saved up enough money to pay off our mortgage. Should I do it? Should I pay off part of it? Should I keep it as our emergency fund?

Here are some of the rough details of our situation:

  • Current mortgage amount: $250,000
  • Current mortgage rate 4.625%
  • Years left on mortgage: 13
  • Years until retirement (at 58): 15, solid salary expected until then
  • Current place the money is parked: savings account making 1%
  • Thoughts about moving: unlikely anytime in the next 4-5 years, can’t say beyond that
  • Other retirement savings: substantial IRAs, 401(k), and other investment accounts (not concerned that this will be a problem even if we live to 100).
  • House value: probably around $500,000 in Seattle
  • Other debt: just monthly credit cards that are paid in full, no car payments, no student loans, etc.

I think it would be great to live mortgage-free, and I hope to do it sooner than later but I also get that there may be better uses for the money and we aren’t in any circumstance to rush about it. What do you think?

We’ve discussed this dilemma several times in the past. In fact, it seems to come up every six months! Let’s review the basics.

By repaying the mortgage early, Robin would generate a guaranteed return on her cash: She’d be getting 4.625% on $250,000, which is no chump change. On the other hand, this move has drawbacks. Most notably, cash in a savings account (or even in stocks) is liquid; it can be accessed when needed. But if that cash is converted to home equity, it’s more difficult to get at.

And, of course, there’s the opportunity cost. Sure, the 4.625% guaranteed return is greater than the one percent Robin would earn in a savings account. But it’s less than what she could probably expect to earn if the money were in a diversified investment portfolio.

Some other notes:

  • First, this is a good problem to have. Whether Robin pays off her mortgage or keeps the money in savings, she’s in good shape.
  • Second, the experts don’t agree on the best move here. Many argue in favor of getting rid of the mortgage, but many argue in favor of keeping it. There’s nothing close to universal agreement.
  • Third, as with many money issues, this question is often more about psychology than it is pure math. For many folks, not having a mortgage provides peace of mind they can’t find anywhere else. There’s no way to quantify how much this is worth — but it’s worth a lot.

Whenever this question comes up, I offer the same advice: Unless your mortgage rate is very high, it makes more sense mathematically to invest your money. But psychologically, you should do what works for you. If paying off your mortgage would take a weight off your shoulders, then pay off your mortgage. Sure, you might be losing a bit in the long-term, but you’re still making a smart choice. It’s like choosing between an apple and an orange; one may be better for you, but they’re both good.

And, of course, it doesn’t have to be an “either-or” situation. Instead of paying off the mortgage completely, Robin might opt instead to eliminate some of the balance (or to make accelerated payments) while keeping some of the money for emergencies, or investing it elsewhere for potentially greater returns.

What do you think? Does it make sense for Robin to pay off the mortgage? If not, what should she do with her money instead? Have you been faced with a similar situation in the past? What did you choose to do? Would you make the same choice again?

This article is about Ask the Readers, Choices, House and Home