I gave up my dream of paying off our house before my husband retires. If mortgage rates fall, it's back on the table.

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Author Rebecca Chamaa.

Courtesy of Rebecca Chamaa

• I'd like to pay off my mortgage before my husband retires.
• Mortgage rates are expected to fall after the Fed cut interest rates, which could affect our plans.
• But after doing the math again, we're still keeping money in a CD instead.

Although I bought my first house in my 20s, that was the only financial planning I did until well into my 30s.

My husband and I didn't make much money in the first decade of our marriage, so there wasn't a lot of extra cash to plan with. Luckily, one thing we have always had going for us as a couple is that we are both frugal and will go out of our way to save even $5.

A change we've made from our former approach to money is watching and reading about interest rates. Now that I'm paying attention, we can make decisions that impact our bottom line, even if they take a little bit of research and effort on our part.

For instance, we considered moving part of our emergency fund and a portion of other investments to pay off our mortgage, a dream I wanted to realize before my husband gave up his full-time job and moved into partial retirement. Not having a mortgage in retirement would make a significant difference in our monthly financial obligations.

But after we ran the numbers, we decided to wait. The interest we would pay on the loan was less than the interest we would receive if we took that money and deposited it into a one-year certificate of deposit. At that time, we would make a net gain of about $60 a month. That used to be enough for a week's worth of groceries, but now, thanks to inflation, pays for about half of a week's grocery bill.

After the Fed cut rates for the first time in years during its September meeting and with talk of a further decline in mortgage rates in the coming year, we decided to rerun the numbers and see if we should move some money around and pay off that mortgage. We are even closer to my husband going from a 9-to-5 to a more part-time gig, so is now the time?

We did the math on opening a CD instead

We refinanced our 30-year mortgage to a 15-year mortgage in 2020. At that time, we were able to refinance our mortgage at 2.5% interest. I know how low that sounds today, and that's the reason that the higher interest rates paid on cash deposits at banks have kept us from moving money to pay off our mortgage. It simply didn't make financial sense to do so — and it still doesn't, at least not yet.

To simplify it, let's say we have $150,000 left on our mortgage and 11 years left on those payments. That means we are paying about $270 a month in interest toward our home. If we deposited $150,000 in a one-year CD available at my local bank at 4.83% APY, we would make roughly $590 in the first month of interest. That is a positive gain of $320, which would pay for over half of our monthly grocery bill. With the recent price increases in almost everything, that is no small dent in our monthly budget.

I searched for the best CD rates right now and found the higher range to be between 3.75% and 4.8%. So, my local bank is still offering a slightly higher rate than many others, but what stood out from last year is that rather than providing 12-month CDs, most banks only give these higher rates on 3-month and 6-month CDs. This scenario makes perfect sense, considering the talk of multiple rate cuts. These banks don't want to lock in an interest rate that they would have to pay for an extended period after the rates have gone down.

The best no-penalty CDs are a good way to lock in higher rates on CDs without facing penalties if you need to withdraw funds before the maturity date. CIT Bank CD rates and Raisin are popular no-penalty CD options.

We still don't plan to pay off our mortgage early

Paying off our mortgage early still doesn't make financial sense. Interest rates would have to go down several points for us to make more money paying off our mortgage than when we invest the money in other ways.

That said, it doesn't make sense to do this now ... but if interest rates return to where they were in 2020 (not likely —  the lowest rates in four decades were in response to the pandemic) it would be worth considering again. Even if the rates don't go down to 2020 levels, it may eventually make sense to revisit our numbers and head into retirement mortgage-free.

Living mortgage-free would give us more flexibility in our monthly spending, and that has a value that could be worth more than saving the difference between our loan's interest and the interest paid on cash at the bank.

Now we just have to wait and see what happens at the next Fed meeting.

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