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"It’s a psychological thing, from my Depression-age parents," she said. "The whole thing was, you pay off your mortgage. But cash flow is more important to me than having no debt."
In addition, most of her money is in individual retirement accounts and would be taxed if she took it out to pay the mortgage.
Some of the other reasons that people cite in not paying off their mortgage make less sense, according to AARP’s Setzfand. For example, many homeowners want to keep the mortgage interest deduction. But the deduction may be worth less than they think. For one thing, if the homeowners have had the loan for a long time, most of their monthly payments are going toward principal, not interest, and the principal’s not deductible.
In addition, once you move into your retirement years, your income typically drops.
"Your effective tax rate should be lower," said Setzfand, meaning that tax breaks are worth less.
Katherine and Joe Pursley of Mahwah, N.J., are still in their 50s, but hope to be mortgage-free in retirement. When they bought their town house a year ago, they chose a 10-year mortgage, rather than stretch it out over 30 years. And they may pay it off completely in a year, when Katherine can withdraw her retirement savings without a tax penalty.
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