Mortgages in Retirement
Anyone who has gone through the process of mapping out their retirement knows there can be a lot to keep in mind. Saving, investing, anticipating medical costs, and making sure you have enough tucked away for years to come is just the start. One question many people overlook is: “Should I pay off my mortgage before I retire?” The answer is more complicated than you may think.
Maintaining a Mortgage in Retirement
Imagine you have $300,000 set aside to pay off your mortgage. But rather than using those funds to pay off your mortgage, you instead invest that money. Sure, it’s tempting to stop making a monthly payment, but what if that $300,000 earned a hypothetical 6% for the next five years. You would have a little more than $400,000. Yes, your house may appreciate over the same period, but you should consider all your choices for that lump-sum of money.
Eradicate (Other) Debt
Before you pay down your mortgage, any extra cash might be better suited to paying off other kinds of debt that carry higher interest rates, especially non-deductible debt, such as credit card balances.2
Make Your Mortgage Work
Some homeowners benefit from a mortgage interest deduction on their taxes. Here's how it works: the amount you pay in mortgage interest is deducted from your gross income, which reduces your federal income tax burden. But remember, the further along you are toward paying off your mortgage, the less interest you’re paying.
Home Is Where the Heart Is
There’s a value to your home beyond money. It’s where you raised your children, made fond memories, and you may want it to remain in the family. Paying off the mortgage may help make your home part of your legacy. Afterall, some things you just can’t put a price on.
Sleep at Night Factor
Last but not least, you should always consider the decision to pay off your mortgage before retirement in the context of your overall risk tolerance. Will having a mortgage in retirement keep you tossing and turning at night? If so, you may want to go ahead and pay off that mortgage, despite giving up some financial benefits.
For help analyzing whether you should pay off your mortgage, please contact us today!