Home ownership has always been one of the hallmarks of the American dream. Traditionally, owning a home has been a symbol of financial stability and a reliable retirement nest egg. For many, owning a home is the biggest investment in a family’s financial portfolio. So, will you still be making mortgage payments when you retire?
One way to retire with less debt is to consider paying off your mortgage ahead of schedule. Depending on your personal financial situation, this option might help you enjoy your golden years with less monetary worries.
Why Pay Off Your Mortgage?
If you have the financial means to pay off your mortgage sooner, there are some economic benefits for doing so, including:
- Freeing Up Cash. By paying off your home loan ahead of schedule, you’ll have more disposable income to use as you see fit.
- Saving On Interest. Paying your mortgage early can save you money in interest payments.
- Reducing Debt Load. Lowering your overall debt early will give you less to worry about when you eventually retire.
When Paying Off a Mortgage Early Might Not Work
Of course, paying off your mortgage early might not be right for everyone. Depending on your current financial situation, other monetary priorities might trump this option, such as:
- Creating an Emergency Fund. Some financial advisors suggest that homeowners keep a savings fund in reserve that is equal to at least six mortgage payments for emergency purposes.
- Paying Off High-Interest Debt First. If the interest on any credit card loans is higher than your mortgage’s interest payments, you might consider paying down those outstanding debt items.
- Contributing More Towards Your Retirement. Making generous payments to your employer retirement plan or individual retirement account might be a better financial investment than paying down your mortgage early.
Housing Options For an Easier Retirement
There are several practical things you can do today to help make your retirement more comfortable, including:
- Make Extra Mortgage Payments. Paying off your mortgage early can help save you thousands of dollars in interest. Making biweekly instead of monthly payments can reduce the term of a 30-year loan to about 25 years. You can also opt to pay enough extra each month to total one additional payment by the end of the year.
- Consider a Shorter-Term, Lower-Interest Loan. If you originally carried a 30-year loan, consider refinancing to a 15-year mortgage instead. The current interest rates might even be lower than when you first bought your home.
- Move Into a Smaller Home. Consider downsizing to a smaller home if you realize you don’t need as much space and your payments would decrease. You might even be able to purchase a smaller residence outright with cash from the sale of your larger home.
- Relocate to a Less-Expensive City. If you’re planning to retire soon, consider moving to a city or town that has a lower cost of living. With the money you made on selling your original home, you might be able to buy a smaller home or condo outright.
Ideally, retirement should be worry-free. Hopefully, you will find these tips helpful.