Not every homeowner manages to kick off retirement mortgage-free. But if doing so is a possibility for you, then it pays to get that mortgage debt knocked out before your career comes to a close and you enter a new stage of life. Here are a few compelling reasons to pay off your home before your golden years begin.
1. You'll have one less bill to worry about when you're on a fixed income
Many seniors retire with minimal savings, and as such, are limited to a fixed income that consists largely of Social Security benefits. As such, paying off your mortgage prior to retirement will leave you with more disposable income at a time in your life when flexibility is key. Remember, healthcare costs tend to climb for seniors, and as your home ages, you could find yourself on the hook for costly maintenance. Having one less monthly debt payment to worry about could, therefore, be a lifeline.
2. You could save money on interest
The sooner you pay off your mortgage, the less interest you'll pay your lender. And that means you'll then have an opportunity to take the money you save on interest, invest it, and use it as an income source later on.
Let's say you have $30,000 left on your mortgage as retirement nears and that you have five more years left on that loan. Let's also assume you have a fixed loan charging 5% interest. By paying off your mortgage immediately, you could save yourself over $8,000. That's money you can then invest for the future.
Of course, it is worth noting that if you were to invest your $30,000 mortgage payoff, you might conceivably score a higher return on that sum than 5%, thereby making the argument to avoid an early payoff. But if you're about to retire, you're probably less inclined to go heavy on stocks due to the market's inherent volatility, and if you stick to conservative investments, like bonds, the return you'd get on your money would likely be lower than 5%, at least in today’s environment.