When to pay off a home mortgage

Q: I am 62. My wife is 60. We're both employed, virtually debt-free, and saving about $40,000 annually. We have $12,500 remaining on a home mortgage, at 6.99 percent. Our itemized deductions on our income taxes, which include mortgage interest payments, nearly equal the standard deduction. Please advise about the feasibility of paying off our home mortgage with respect to next year's taxes. If this appears sound to you, please also advise where our current monthly payment of $459 might be invested.
F.C., Marlborough, Mass.

A: You've done a smart job preparing yourself and saving for retirement, says John Erb, a certified financial planner in Alexandria, Va. Because you're pretty certain to pay off your mortgage, you may as well do it now with your cash-flow savings.

That move in effect represents a before-tax investment of 6.99 percent,

Mr. Erb says. (Instead of paying interest, you'll be paying yourself.)

As to where to invest your nonretirement plan monthly savings, it may be best to buy shares of a growth-oriented mutual fund, he says. You're still working, and using a growth strategy on your investments at this time is still a legitimate objective to supplement your other more conservative assets.

Because you'll be investing with after-tax dollars, Erb recommends the funds be managed inside a Roth IRA. This way, any earnings or withdrawals would be free of future taxes.

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