Retiring Early With a Mortgage

January 27, 2021
Last updated:
January 27, 2022
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The baby boomer generation had a set plan: graduate college, earn for a bit, buy a home, pay it off, save money, retire. For later generations, it may not be that simple. More and more Americans are looking into retiring early – with a mortgage, is that even possible?

If you’re considering early retirement but still have a mortgage payment, here are the pros and cons of paying it off before you launch your retirement plans.

Top Reasons to Retire Early

The top three reasons to retire early have to do with what you think your life will look like if you do. If you’re in reasonable health now, but aren’t sure it will last, you might want to retire early so you can:

Access your social security sooner

Your SS benefits are designed to pay out approximately the same amount whether you retire at age 62 or age 70, since they are based on the assumption that the average lifespan is 79. But you might start drawing your social security now so you can quit working so hard and enjoy your life. If longevity runs in your family, you might even beat the actuarial tables!

Enjoy your golden years

Even if a lot of boomers are reluctant to let go of their job, worried about what they’ll do with all that free time, you can plan your life to be rich and fulfilling. Retiring early can mean more health and mobility to enjoy yourself, whether you want to travel the world or hang out on the golf links.

Avoid retirement regrets

Remember, you can always go back to work later if you retire early, but you can’t get years back if you spend them working instead of in retirement. That’s as good an argument as any to give retiring early with a mortgage a shot.

Why Not Pay Off Your Mortgage Pre-Retirement?

Paying off your mortgage before you retire is the common approach, but it might not be your best financial strategy. If you use up available cash to pay off your home loan early, you might find that it ends up costing you in the long run.

No money to handle unexpected expenses

If you put all of your available resources into paying off your home mortgage loan, you’ll have home equity but no cash reserve. You might be better off paying your mortgage payment each month and sitting on your cash in case of emergency.

Missing out on a better rate of return

You can also let cash earn for you in a money market account, assuming you can get a decent rate of return and your mortgage interest rate is low. If needed, you can always refinance your mortgage for a lower rate on the remaining balance.

6 Reasons to Retire Early With a Mortgage

It might be financially smart to carry your mortgage debt into retirement Consider these scenarios:

1. Selling your home

If you plan to sell your home and downsize into retirement, save your cash and get what you can from flipping your home. This can be a great decision if you plan to travel for a while and you can stick all your cash in an earning account until you decide where you want to retire to.

2. Renting your home

Consider renting out your present home. Calculate the cost of property management and roll it into the rent, and then your tenants will be carrying your mortgage payment. Demand for rentals is high almost everywhere in the U.S. and you may be able to command top dollar if your home is in good condition.

This can be an especially good option if you own a home in one of the following high-demand rental home markets:

  • Boise, Idaho
  • Colorado Springs, Colorado
  • Olympia-Tumwater, Washington
  • Boulder, Colorado
  • Eugene, Oregon
  • Provo-Orem, Utah
  • Greeley, Colorado
  • Ogden-Clearfield, Utah
  • Fort Collins, Colorado
  • Salem, Oregon
  • Seattle-Tacoma-Bellevue, Washington

Still living in your home? You might be able to Air-BnB a room or a floor a few days a month, and cover your mortgage payment that way.

3. Staying in your home and paying down high-interest debt

If your mortgage interest rate is low, but you have considerable other debt with a higher interest rate, consider paying that off first. If you have equity in your home, you have a cushion.

4. Leaving money in a retirement account

Your retirement account can continue to grow for you even if you retire early. Cashing out your money to pay off your home might seem like a good plan, but only if you save more on mortgage interest that you’d earn with those dollars. ONce you withdraw them, you can’t put them back.

5. Investing to maximize income

Paying off your mortgage means less cash to invest, as you’ll simply be tying your wealth up in your home, where you’d have to borrow against your home equity (paying to access your money.) Investing with regular payouts from investment income might be the smarter plan.

6. Deducting mortgage interest

Depending on how you file taxes, you might find it worth your while to deduct interest paid on your home loan. If an IRS-qualified home is securing the majority of your debt, this could knock your interest down to virtually zero depending on the total debt owed. You’ll have to itemize deductions to take advantage of this opportunity.

Making the Finances Work For You

If you choose to retire early with a mortgage, just make sure the financial angle makes sense. If you have sufficient funds or income to pay off your mortgage, make sure it’s a sustainable option so you can opt to pay off your mortgage later if need be.

You don’t want to be cornered into selling your home suddenly or at a loss because you can’t make your payments. At the same time, retiring early is intended to help you live your best life, and tying up all of your wealth in real estate can make it harder to realize your dreams.

Talking to a financial expert can help you make the right decision. If you want to partially pay down your mortgage, you may be able to do a refinance and reduce the interest rate and shorten your loan term to maximize savings.

Today’s Mortgage Rates

Why Choose Sammamish Mortgage?

If you want to retire early with a mortgage, the team at Sammamish is here to help you. We can walk you through your refinancing options, help you obtain proper valuation of your home, and crunch the numbers to find the path that makes the most sense for you.

Sammamish Mortgage has been in business since 1992, and has assisted many home buyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.

Contact us if you have any mortgage-related questions or concerns. If you are ready to move forward, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.

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