If you are coming up on retirement, you may still have a balance on your mortgage. Perhaps you have sufficient funds to pay off the rest of the mortgage. Should you do it? It depends on your situation.
The Advantages of Paying Off Your Mortgage Early
The advantages of paying off your mortgage and retiring are pretty obvious - it is one less bill to worry about, and you will be able to stop paying interest on it as well. You will then be able to plan your retirement finances around your remaining monthly bills and any potential unexpected expenses. Another consideration is that if you end up wanting to take out a reverse mortgage, you should be able to, assuming you meet all other requirements. If you carry a balance on your mortgage, you might also qualify for a reverse mortgage, however, so long as you have sufficient equity.
The Disadvantage of Paying Off Your Mortgage Early.
Putting a large amount of money into paying off the rest of your mortgage takes money away from other things, like savings, emergency funds, investments, etc. It might even require you to take money out of your retirement accounts. Ask yourself, can you earn more money from your investments than you pay in interest?
Consider Paying Off Your Mortgage Before Retiring If …
- You will still have an emergency fund available to use after paying off your mortgage (you should not eliminate your emergency fund to pay off your mortgage).
- You will be able to continue to easily pay for all of your monthly expenses after you make the large payment.
- It will save you a lot of money in interest.
Consider Continuing to Pay Your Mortgage Into Retirement If …
- Putting the money into other investments might be more lucrative for the time being. As long as you earn more money from your investments than you pay in interest you are better off and you can pay off your loan anytime in the future if the investment income does not pay all of your interest.
- You should also ask yourself if you might need to borrow money shortly for other things. You will probably pay a higher interest rate for almost anything else you borrow including auto loans, equity loans, credit cards, etc. You should also consider your mortgage is being paid off over a longer period than most loans. That means the monthly payment is much lower per dollar allowing you to keep your monthly expenses lower. If any items you can imagine getting a loan for in the future might have a higher rate or higher payment per dollar borrowed than your current mortgage you would be better off keeping your mortgage and using your savings for other possible higher interest rate purchases.
- Will your income decrease in the future making it difficult to borrow for other things you might need or want? If so, you should consider keeping your mortgage and retaining your invested savings.
- You might wind up in a higher tax bracket due to pulling from a 401(k) or another retirement plan to pay off the mortgage.
- You will be able to continue to easily pay for all of your monthly expenses while juggling the mortgage alongside your other debts and bills.
After weighing the pros and cons of carrying a mortgage into retirement vs. paying it off now as pertains to your scenario, you will be able to figure out what is the right choice for you.
Buy a Home or Refinance in Seattle
Do not forget that if your interest rates have become unwieldy, you can always consider refinancing your mortgage as you head into retirement. To discover your options, please get in touch with them at (206) 352-6453 to discuss your options. They work with customers in Washington State and Colorado. You can also use their instant rate and price tool with no personal information required https://www.bluesquaremortgage.com/rates/ to explore their low rates for yourself or subscribe to their rate tracking alerts to receive regular rate notifications.
