Personal Investment & Financial Planning Q`s/IRA vs paying down mortgage


I am 27 years old. I have an IRA with about $1500 in it currently, and am adding $100 automatically per month. I have about $115,000 left on my mortgage. I love my home and don't see myself moving in the future. It was built in 2013 and I can only see myself moving once repairs become too difficult for me to handle- at least 10 years down the road, if not more.
I get about $900 back in tax refund consistently each year, and occasionally get a holiday bonus at work. Every year, I am torn between adding those funds to my IRA and making sure I have a good amount for retirement, or paying down my mortgage.
Both seem like smart options... any advice on which one is "smarter?"



Hello Cate,

Saving in a regular, methodical way is the best thing you can do, so you already get a gold star!  

Paying off your mortgage sooner builds up equity in your home, and will eventually free you from a mortgage payment.  I don't know what your interest rate is, say 4%. By paying down the mortgage you are essentially getting a guaranteed 4% "return" on the money that you are investing in your home.  That's a good deal in today's low rate environment.

On the other hand, if interest rates rise sharply, presumably so will your earnings as well as the returns on investments that you have in your IRA.  In that case, keeping a low fixed rate mortgage might look like a wise move. The money you save in the IRA may earn more than the cost of the mortgage interest.  The interest on your mortgage payment is tax deductible and so is your contribution to the IRA.  The value of those deductions depends on your marginal tax rate. The lower your tax rate, the less valuable they are.

But a mortgage is in effect personal leverage.  Keeping the debt and investing (assuming you can earn more than the interest rate on your loan) would benefit you in the long run - but it is a question of risk. There is no guarantee what return you will receive from your IRA investments. Paying down your mortgage is the less risky alternative.

You can see that there is no perfect answer, neither choice is necessarily “smarter”.  You may consider doing both, for example continuing to put a monthly contribution in your IRA and using your holiday bonus or tax refund to reduce the mortgage principal.  I should note however, that if your employer is providing any amount of a matching contribution to your IRA, you should maximize that first before paying down the mortgage.

Hope this is helpful.  Good luck.

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John Guilford Kerr, CFP, CFA


I can answer questions related to personal financial planning, asset allocation, private equity investment analysis, fixed income, mutual fund, ETF, and stock questions, estate planning (basic), education planning, insurance planning, and business financial planning.


I have thirty-eight years of experience in finance, in the U.S. and internationally, for both public and private corporations. I have specialized in personal and small business financial planning and investment advisory services since 2005.------ - ten years commercial banking, New York, Paris, Houston, Charlotte, Atlanta---- - six years treasurer of a publicly traded health care company, Philadelphia----- - six years international project finance (Bechtel), San Francisco, Manila, London----- - five years head of international hotel development (Hyatt), Chicago---- - eleven years personal financial planning.----- Registered Investment Adviser, Hawaii---- FINRA General Securities Representative - Series 7---- FINRA Uniform Combined State Law - Series 66---- Resident Producer Insurance License, Hawaii-, Accident and Health or Sickness, Life, Variable Life and Variable Annuities

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