What this question focuses upon is "lifetime wealth."
Carrying mortgage debt certainly has its advantages, especially if the mortgage payments are low. Paying one off also has its advantages. But, what about the question confronting many 55 to 64 year olds: Should I move to a low-tax state? Implicit in this question is whether to invest the proceeds of the sale of the house in the new property or take out a mortgage on it?
Villarreal provides a case using the NCPA's State Tax Calculator (www.whynotmove.org) to answer that question. Villarreal discovers that buying the new property with the proceeds of the sale of the previous property would add to lifetime wealth by ~$96k!
Even though a state, like Texas, may have low tax burden, if its median property tax rate is about the same as that of the state in which the previous property is located--even though property taxes and mortgage interest payments are both tax deductible--that low tax rate is not enough to reduce the federal tax burden and increase lifetime wealth. Thus, purchasing a less expensive home and paying for it in full increases lifetime wealth by reducing property taxes and interest payments.
Carrying mortgage debt can have a substantial negative impact on lifetime wealth. Villarreal's analysis is something anyone aged 55-64 and currently carrying a mortgage should consider as they engage in retirement planning.
Let the discussion begin...
To read Pamela Villarreal's analysis, click on the following link:
"Retiring Soon? Pay off the House First."