Main Content
Blog
Blog Details
Should You Pay Off Your Mortgage Before You Retire?
Many Americans find themselves at a similar crossroads later in life—they’re a few years away from retirement, but they’re also a few years (or more) away from fully paying off their mortgage. You might be in the same shoes. Maybe you’re on track to hit both financial goal lines at the same time. Maybe you’re on pace to pay your mortgage for a couple years in retirement, or pay off your mortgage a couple years before you call it a career. In any of the above scenarios, you’re probably asking yourself: Should I pay off my mortgage before I retire? There’s no one-size-fits-all answer, but below are the tools to help you make the best decision.
When It Makes Sense to Pay Off Your Mortgage Early
In some situations, it makes financial (and even psychological) sense to pay off your mortgage debt early ahead of your retirement. Whether it makes sense also hinges on how you’d pay that debt off early—if you had a large cash windfall you wanted to put to use, or if you just planned to speed up your payments to knock out your mortgage a few months early. Here are several reasons to retire your mortgage before you retire yourself.
High Interest Rate
Homeowners with a high mortgage interest rate could save a substantial amount of money by accelerating their payoff schedule. Let’s say that, 27 years ago, you got a 30-year home loan for $300,000 at a 6% interest rate. If you made normal repayments for the remaining three years, your remaining interest would be about $5,600. If you were sitting on a large sum of money—let’s say you received an inheritance—and paid off the entire remaining balance of roughly $59,100, assuming your mortgage didn’t include a prepayment penalty, you would save about $5,630 in interest. You could still enjoy some savings even if you just paid off the remaining balance more quickly. For instance, let’s say you have three years left on the mortgage, but you want to pay it off by your retirement in two years. If you added $1,000 to your regular monthly payment, you’d have your mortgage paid off in a year and 11 months—and you’d save a little more than $2,100 in interest.
Lower Monthly Expenses
In many cases, a person’s mortgage is their largest monthly liability. If that’s the case for you, then paying off your mortgage won’t just save you a chunk of interest—it will substantially free up your cash flow for other needs and wants. In many cases, a person’s mortgage is their largest monthly liability. If that’s the case for you, then paying off your mortgage won’t just save you a chunk of interest—it will substantially free up your cash flow for other needs and wants.
One Less Thing to Stress About
Financial decisions aren’t just about money—psychology and emotions are often deeply involved, too. Mortgage stress is common. And even if you only have a few years’ worth of mortgage payments remaining, there’s still a risk that you suddenly wouldn’t have the means to pay off your debt, and the bank would foreclose on your home. That’s why there are few more relieving feelings than finally paying off your mortgage and officially owning your home. So, for many people, even if the math says they’d be better off financially by investing their money, they’d be better off mentally by just being done with their mortgage.
Text by Riley Adams | Photo credit on wealthup.com | Read More Here
Login With
Or Sign Up With Disqus