In the past, it was not uncommon for homeowners to buy a house around the age of 30 and have paid it off in full by the age of 60, hence the 30-year term for mortgages that has become the industry standard.
But the Federal Reserve Board has found that more than a third of today’s homeowners aged 65-74 are still making mortgage payments even as they are facing the inevitability of retirement.
This fact poses a somewhat daunting question if you plan to retire but may do so with a balance left on your mortgage: Should you cash in your investments to pay off your mortgage before retiring?
The answer can vary greatly depending on your situation, but considering a few questions honestly beforehand can help you make the correct decision.
How Important is it to You to be Debt-free?
Peace of mind is a priceless asset, and not having to worry about lingering debt when you are living on a fixed or limited income can offer a valuable sense of confidence.
Tom Sightings, writing for U.S. News & World Report, likens paying off your mortgage before retirement to making a risk-free investment. Not only does eliminating that debt provide a sense of relief, but because you are saving money that would otherwise go to pay interest over the remaining life of the loan.
Depending on the amount you have left on your mortgage and your interest rate, you could potentially save thousands in the long run by paying off your debt early.
This would theoretically help you to pay for other home-related expenses down the line, including property tax, repairs and upgrades. If you have paid off a significant portion of your principal, however, you may be better off saving your money and letting it accrue interest while steadily paying down the remainder of your mortgage.
How much interest can you save by increasing your mortgage payment? Use our mortgage payoff calculator to find out >>
Analyze Your Retirement Savings Before Paying Off Your Mortgage
If you are dissatisfied with the amount that you have saved for retirement, it makes no sense to pay off a mortgage first.
Kiplinger Senior Editor Sandra Block writes that you should take full advantage of building your retirement savings while you are able, suggesting that the tax-advantaged status of these savings would be far more beneficial in the long run than paying off a large debt to save interest.
It may be a wise decision to forego some extra savings and pay off a higher-interest debt like a credit card, but given that mortgages tend to carry lower rates of interest, you may be better putting that money in a high-yield savings or money market account than wiping out your debt.
Sightings writes that “a mortgage is about the best loan you can have” because of its low interest rate.
It’s also worth noting that once you have paid off that debt, that money is gone. By saving that money instead, you’ll have it available for potential emergency situations while accruing interest on the principal that remains in your account.
Need Help? Contact Minster Bank’s Wealth Management Team
Ultimately, the decision to pay off your mortgage early is not one that should be taken lightly or done alone.
Consult with your family on the decision and reach out to a trusted financial advisor like our team of experts at Minster Bank for a professional opinion on your options.
Published by Minster Bank. Includes copyrighted material of IMakeNews, Inc. and its suppliers.