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Q&A: Should I Use Investment Money to Pay Off a Home Equity Loan?

First, look at how the numbers pencil out.

Question: I have a passionate interest in restoring my 1820 house. Last year I had $17,000 worth of landscaping done, which I put on my home equity line of credit. I am now retired and paying off the debt at $200 to $500 per month. Even so, I don’t like having that much additional debt on top of the $77,000 I owe on my mortgage, so I am tempted to withdraw $10,000 to $15,000 from my investment account to pay off the equity line. Should I?

Ric’s Answer: Let’s say your loan lasts for 15 years. Over that period, what rate of return would you expect to earn annually from your investment portfolio?

If you expect your investments to earn more than what you’re paying in interest on the loan, then you might conclude that it’s worth keeping your money invested. Now, I’m not saying that past performance guarantees future results or that you won’t ever experience volatility, but by doing so you retain access to the money in case you need it in the future.

Paying off the loan might feel good, but having it paid off won’t help if you need the money unexpectedly. And paying off the loan won’t increase the home’s value. Read The Truth About Money for more reasons to keep your mortgage.

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