Making retirement decisions comes with a long list of questions — and a long list of unknowable factors.
When it comes to paying off your mortgage, there are even more questions. What’s your interest rate? How much do you owe? What else could you be doing with that money? What other assets do you have?
We break down some considerations for paying off your mortgage early in its entirety or continuing with monthly payments. Learn how we can help you plan your retirement.
Reasons to keep it
- You haven’t maxed out your retirement accounts. If you can still contribute to your 401(k), IRA or other retirement accounts, focus your financial effort there. The money in these accounts can grow without taxes on earnings until you withdraw it. Read the savings milestones you shouldn’t miss.
- You carry other debt. If you have higher-interest debt, pay that down. Prioritize tackling credit card balances or loans of any type where the interest rate exceeds that of your mortgage.
- If you’re low on cash (think: less than 6-months’ worth of emergency expenses), the blow of paying off your mortgage could make retiring risky.
- You’re losing tax deductions. The interest you pay on your mortgage is tax deductible. Do some digging to determine how much eliminating that write off will impact your tax bracket and annual burden.
- You have a move on the horizon. If you’re considering moving or downsizing during retirement, keep the mortgage. You may be able to finance your next home without touching your savings. Should you downsize?
Reason to pay it off early
- You’re getting by on less. Your mortgage is likely your biggest monthly expense. Getting rid of this payment means a much lower overhead cost each month.
- You can ditch the interest. There’s no two ways about it — you’re likely paying tens of thousands of dollars in interest over the life of your mortgage. Paying off your mortgage early means less money going to interest, freed up for other uses.
- You’ll have more peace of mind. You may sleep easier entering retirement debt free. Factor that in alongside financial considerations. If you plan to stay in your home, paying off the mortgage represents security.Even if you lose your job early, the markets fall and tax rates increase, you’ll have a roof over your head.
Ready to pay it off? Here’s how to game plan:
Get on a schedule. If time is on your side (read: you’re still a few years out from retirement), consult your loan provider and ask for a schedule to pay off your mortgage before you plan to retire. Online calculators can also show you how to make extra monthly or annual payments to pay off the loan by a certain time.
Use the right money. Cashing out funds that could be earning you money for the future isn’t wise. Instead, look to savings that isn’t actively working for you. If your emergency fund is all set, put any excess toward your mortgage. Otherwise, cash out your lowest interest-producing options. Check the rates of your lower-earning money and prioritize using that first.
Rethink your retirement contributions. If you’re dedicated to paying off your mortgage early, consider contributing to your retirement accounts only up to the maximum match value — especially if you may need to dip into those accounts to wipe out your mortgage in the future.