Pay off a mortgage or hold onto the cash?

For family reasons in this risky market, I bought a new home in October before selling my existing home, taking out a mortgage to do so, about $ 450K on an $ 800K condo…I live in California, thus the prices. The interest rate is 5.25%.

I’m pretty sure I am FINALLY going to close escrow with a qualified buyer on my current home after falling through escrow 3 times before, usually because of bank loan rejection reasons. I own my current home (no mortgage) and was going to take the proceeds of the sale and pay off the mortgage to lower my monthly outgoing expenses and put the rest back in my investment account. I am in high tech so I was also laid off in October but was lucky to find a new job in November.

My question is, should I do the “safe thing” and take the proceeds and pay back the loan? I thought I was going to, but others have told me that (1) If I am laid off again in this economy no bank will approve giving any equity out of my house if I lose my job so keeping the money as “near cash” is a safety net to get through these hard times, and (2) With the record debt the USA has incurred, high inflation sooner or later is a near certainty and I may be able to get a higher return (possibly tax free in a muni) in a low-risk near-cash investment, while still getting a tax deduction.

Register New Account
Reset Password