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Paying off your mortgage before retirement can be a great financial move for most soon-to-be retirees. Nevertheless, if you are on the fence about allocating a large sum of money to pay off your house, then you should make it a point to weigh the pros and cons. In this article, we’ve done the work for you.
If you have the financial assets to pay off your mortgage early, then what are you waiting for? Instead of thinking that it does not make sense to pay off your mortgage so close to retirement, why not do the research and see if your financial situation is compatible with spending the rest of your golden years mortgage-free. That said, as with any big financial decision, it is essential to consider all factors before you try to pay your mortgage off early.
There are many pros or rather advantages to paying off your home loan earlier. For instance, retiring a mortgage reduces stress, provides peace of mind, increases cash flow, and provides a significant equity cushion that can be tapped for a true emergency. Plus, paying off your house early will save you a substantial sum of money on interest. Besides these perks, heading into retirement mortgage-free also offers these additional financial benefits.
Clearly, depending on your specific financial situation, heading into retirement mortgage-free can truly pay off in more ways than one.
Of course, just like with anything else, there are risks involved that need to be weighed against the benefits you are anticipating. In fact, the biggest con to paying off the mortgage early is reduced liquidity. It is much easier to access funds sitting in an investment account or bank account than to access funds in the form of home equity. But be that as it may, some people who do decide to pay off their mortgage early typically have no worries about having access to extra cash.
Note, if you are concerned, however, then you may want to consider establishing a home equity line of credit once your mortgage is paid off. Hence, you have additional liquidity or access to your funds if needed. A few other common downsides to a pre-retirement home loan payoff that you should keep in mind include the following.
If all signs point to an early mortgage payoff, it is important to keep in mind common mistakes that many people make during this process so that you can avoid them. Often homeowners nearing retirement do not consider all their options, have neglected to make an extra payment on their principal along the way, extended their mortgage term when refinancing, or they did not discuss any possible early payoff penalties with their lender. Yet another mistake to avoid during the early payoff process is leaving yourself cash poor.
A homeowner’s biggest consideration, in this instance, might be whether to pay off your mortgage or focus more on investing. If you do not have a sizable sum of money saved for retirement, then you should seriously consider both options if at all possible. Along those same lines, you should be realistic about what you will likely do with your money if you do not use it to pay off your mortgage early. In other words, will you actually use it to get ahead?
In addition to doing your research, thoroughly considering all your options, and avoiding common early payoff mistakes, homeowners should make it a point to pay off high-interest debt before making extra mortgage payments. It is also in your best interest to make sure you are investing for retirement, building up an emergency fund, and working on your other goals.
Overall, whether or not it makes sense to pay off your mortgage early or rather before retirement really boils down to your specific financial and life circumstances. As a result, what may be right for one party may not make sense for another. Thus, it pays to do your research, especially when coupled with speaking with a knowledgeable mortgage professional and your financial advisor who can study your circumstances more closely.
Ultimately, the advantages and disadvantages of paying off a mortgage sooner are not always clear, cut, and dry. But, hopefully, now you have a better understanding of whether you should pay off your mortgage pre-retirement.
Are you curious about mortgages, or are you seriously considering paying off your home loan? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest and have been doing so since 1992. Contact us today with any questions you have about mortgages.
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