Pay off a profitable mortgage?

[EscapeVelocity2020]

I'm in a situation where I could use all of the Mustachian angles.  I feel that I am FI and am getting ready for RE.  I'm 40 y.o., hit a million NW, but still have a mortgage.  I do not count home equity as part of my NW.  My mortgage is my only 'real' debt, other than credit card use that saves me from carrying the equivalent in cash and gives some rewards.

I have roughly the equivalent of my home mortgage payoff in a Norwegian savings account from an expat assignment, which pays a 3% interest rate (SpareBank).  I say 'roughly' because the Norwegian kroner exchange rate is always in flux vs. USD, but within +/- 10% per year (and I have confidence in Norway's banks and economy).  My 10 year mortgage rate is 2.875%, which comes due about the time my children start college.  So, for 2013, I made ~$6000 in interest and paid a 28% top tax bracket.  I also paid ~$5200 interest on the mortgage loan and get the deduction, so I was ~$600 ahead after tax.  Of course, exchange rates fluctuate, so it's not a guaranteed USD gain, but it's pretty easy to buy dollars when nok goes below 6 and buy when it is above.

So, as a retiree, what would you do?  Keep the mortgage or pay it off? 

[SwordGuy]

What % of your RE income would the mortgage payment be?   Would it really hurt your cash flow? 

Or are you going to pay it from your expat account?  In which case, the expat acct interest income will drop with each payment.

[Cheddar Stacker]

Don't pay it off, make it even more profitable.

You keep the equivalent of the mortgage balance in cash, so you are likely somewhat risk averse, at least to the point of whatever debt exposure you have. If you want to maintain that safety net, consider chopping it in half. If it's $150K, move $75K into some dividend paying index funds. This does a few things for you: 1) hopefully provides a higher return on your investment (maybe 7% over a long enough period) and 2) results in qualified dividend income taxed at 15% rather than the 28% rate you are currently paying on the interest.

The second point is just as important as the first I think. You are paying an unnecessarily high rate of tax on this interest income, and I think you're selling yourself short. Since you are in the 28% bracket you make a lot of money, so you actually might have to pay the extra 3.8% medicare tax on the investment income, but even if that's only on the dividends you still come out way ahead. Sorry I can't advise on exactly what this new rule is, but it kicks in at around $250K income so if you're under that don't worry about it.

[EscapeVelocity2020]

Very interesting idea CS, this is why I love forums!  I've struggled a little, but this is a new angle that I'll consider.  Thanks.

[Zorlax]

I have roughly the equivalent of my home mortgage payoff in a Norwegian savings account from an expat assignment, which pays a 3% interest rate (SpareBank).

If you switch from SpareBank to Nordax you'll get 3,95% interest rate. The bankbalance is guaranteed up to 750000NOK.

[EscapeVelocity2020]

Thanks Zorlax, intersting handle btw.  Probably hold on to what I have for now, but if I follow through with paying half the mortgage, maybe I'll make a trip over to Norway and set something like this in motion, I'd only do this in person.  I'm half-waiting for a big drop in the market, which is a win every day - able to feel good when it rebounds and feeling good if it keeps on dropping, since I'll have 100k on the sidelines.