9 Reasons To Pay Off Your Mortgage Before Retirement
Should you pay off your mortgage before you retire? There’s no perfect answer—just plenty of reasons to consider it.
That’s especially true if the following is, too:
You have no credit card debt. If your goal is to be debt free in retirement, pay off high-interest debt before attacking your mortgage.
You max out retirement savings. With retirement in sight, now’s not the time to scale back contributions.
You have a healthy emergency fund. Make sure you have enough cash on hand so you’re not forced to dip into retirement accounts to pay for unexpected expenses after the paychecks end.
Did you check all three boxes? If so, it might be time to turn your attention toward retiring your mortgage before you retire yourself. Here’s why:
Less market risk. A popular argument against paying off your mortgage early is that you can typically make more in the investment markets than you’re paying in mortgage interest. But can you? On average, yes. Over long periods of time, yes. The closer you are to retirement, however, the less the long-term averages matter. Market returns are far from certain day to day or year to year. Every dollar you direct toward mortgage principal is one less dollar subject to market risk—and with retirement on the horizon, reducing risk can look pretty appealing.
Better cash flow. Debt restricts your choices in retirement because it crimps your cash flow. Paying off your mortgage early eliminates your largest monthly expense, freeing up cash and giving you more choices. With no mortgage payment, the possibilities for your post-paycheck lifestyle get a whole lot broader.
Asset allocation flexibility. Retirees with a mortgage typically have a greater need for their investment portfolio to generate income than those without. But with retirement likely to last 20 years or more, you’ll still need to invest for growth to stay ahead of inflation. No mortgage payment gives you the flexibility to be more aggressive with your asset allocation.
No payment beats low rate. Pleased with the low interest rate you snagged for your mortgage? That’s great. But doesn’t no payment sound even better? Remember Willy Loman’s lament from Death of a Salesman: “Work a lifetime to pay off a house. You finally own it, and there’s nobody to live in it.” The American dream isn’t to pay off your mortgage just before you die. It’s to pay off your mortgage when you still have plenty of life to live
No payment beats tax deduction. Homeowners sometimes resist paying off their mortgage because they like the tax deduction. This makes little sense. If you pay $1,000 in mortgage interest, you might save $250 in taxes if you’re in the 25 percent bracket. That’s nice, but wouldn’t it be better not to pay the $1,000 at all? Besides, retirees often land in a lower tax bracket, reducing the value of the deduction.
Equity cushion. When you own your home outright, you have access to a relatively safe equity cushion that isn’t subject to the vagaries of the investment markets. If an emergency arises that outstrips your ready cash, you can tap your equity to help see you through.
No spending temptation. What’s the alternative for the extra cash you might devote toward your mortgage? If you’re sure you’ll invest it, that’s great. But if you suspect there’s a chance you’ll just end up spending the money, you’ll be happier on retirement day if you steer it toward the mortgage now.
Peace of mind. The biggest reason for paying off your mortgage before retirement isn’t monetary. It’s peace of mind. The financial nuances of the decision can be debated, but the emotional justification is unambiguous. Retirement is better without a mortgage payment.
Plenty of options. What’s the best way to rid yourself of mortgage debt before retirement? It could be as simple as making extra principal payments. Depending on your remaining term and balance, a biweekly mortgage, where you make the equivalent of 13 monthly payments each year, might get you to your goal. Fidelity Bank also offers the option of refinancing into an accelerated mortgage with a term as short as eight or 10 years*. The interest rate is lower than longer terms, so payments can be surprisingly affordable.
Is a pre-retirement mortgage payoff always advisable? No. But it’s always worth considering. A Fidelity Bank mortgage pro can analyze your situation, weigh the variables, and suggest your smartest move.
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*Annual Percentage Rate (APR)is fixed, subject to change without notice, and is accurate as of 10/17/17. Minimum term of Freedom Mortgage is eight years, or 96 months. An 8-year term with an APR of 3.448% is repayable in 96 monthly installments of $11.84 per $1,000 borrowed. Other restrictions may apply and all credit is subject to approval.