What to consider before paying off mortgage

By Claudia Buck The Sacramento Bee

When it comes to managing our money, we’ve all got questions. This week, Walt Romatowski, a certified financial planner with Castellan Financial Advisors in Roseville, Calif., gives advice on paying off mortgages.

Question: I will be getting around $80,000 in cash from the sale of a property. I have 13 years left on my mortgage, with $70,500 remaining in principal. The house desperately needs a new roof and a new driveway. If I pay off the mortgage now, I will be saving $1,000 per month to use for the repairs. Should I invest the $80,000 or pay off the mortgage?

Answer: If your home “desperately” needs a new roof, making that repair should be a priority.

I would use a portion of the cash to repair the roof and, depending on how bad the driveway is, maybe repair that as well.

You didn’t indicate if any taxes will be due on the $80,000 from the property sale. If so, you need to reserve for that as well.

The decision on whether to use the remaining amount for investing or paying down your mortgage should be based on a number of factors:

•The interest rate.

Expected investment earnings, based on your risk tolerance and investment horizon.

Your income tax bracket.

If any large purchases are needed in the near future.

The balance in your emergency fund.

Adequacy of your retirement savings.

Make sure you take all of the above into consideration before using the whole $80,000 to pay down your mortgage.

Not having a mortgage in retirement can be a real comfort, but you need to make sure that you have funds available for more short-term needs, such as an emergency fund, planned large purchases or repairs and the inevitable unexpected expenses.