Mortgage payoff pros and cons

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We went to a mortgage-burning party Friday night. It sounds old-fashioned, but it was fun.

This is a third marriage for our friends who threw the party. They bought a house together late in life. When mortgage rates fell five years ago, they refinanced and then doubled down on paying off what they owed. This month, they sent in their final payment.

We all ate a great dinner, toasted the couple’s financial savvy and wished them a long life in their mortgage-free home.

The conventional wisdom holds that paying off the mortgage gives people living in retirement more options and lowers their out-of-pocket costs, but not every expert sees it as a great retirement planning move. The National Bureau of Economic Research points out that for some people, it makes more sense to keep paying the mortgage and deducting the interest while continuing to invest the money they didn’t spend.

One big advantage, the researchers say, is liquidity. When you need cash, you don’t have to sell the house or take out a loan. You just pull the money out of savings and spend it.

This research was done before the full impact of the real estate meltdown was felt, but the advantage of having cash available is probably greater now than it was when houses were more valuable and, arguably, easier to sell.

The National Bureau of Economic Research particularly advises against paying off your mortgage if it will mean you’re putting less in your workplace tax-advantaged savings than the Internal Revenue Service will let you put away.

Many retirees are like our friends: Just the feeling of being mortgage-free is worth a lot. But that’s obviously not the only way to look at it. Figuring out the impact before you lock in is smart.