Subscribe in a reader

Q: Love your column and interesting answers. Now we have a question. My wife and I are both 88, happily married for 68 years with 11 grandchildren, 13 great-grandchildren and two great-great-grandchildren. We owe about $42,000 on our home mortgage at 7.75 percent interest. We can easily pay it off in full. Should we? There are pre-payment penalties, we know, but we are thinking that no mortgage would make no hassle for our children when we die. Should we pay off our mortgage?

A: Before you pay off your mortgage, please ask yourselves if you will have enough remaining liquid cash reserves. I wouldn’t want you to be house rich, but cash poor.

Fortunately, if you pay off the mortgage but then find yourselves cash-challenged, you can easily obtain a senior citizen reverse mortgage. However, the paperwork can often take several months.

The laws of most states regulate the amount of home loan prepayment penalties. Before you pay off your mortgage, ask your lender for the exact amount of your prepayment penalty. If you have had your mortgage for many years, you might be surprised to learn there is no prepayment penalty (which usually only applies for two to five years after a mortgage is originated).

By paying off your mortgage, you will be making a very wise investment at 7.75 percent in the form of interest savings. Where else can you make such a profitable investment?

P.S. If you want to save your children probate costs and delays after you both pass on, please consider putting your home and other major assets into a living trust.

Source: Bob Bruss