Should I Pay Off My Mortgage Early? - 2024

Paying down, or paying off, your mortgage will open up a world of possibility.

There are a lot of people who often wonder whether they should think about paying off their mortgage early. The answer is rather simple. Most of the time, the answer to any given situation would be a resounding “yes”.

There can be a world of freedom and happiness out there for you once you have the biggest monthly expense no longer looming over your head.

Regardless of what stage you are at in life, it is important to recognize that the most successful and happiest retirees are those who eliminated their mortgage payment or at least drastically reduced it before they started in on their retirement. Quite simply, no matter what you are age, the stress of a mortgage being lifted will end up being well worth its weight in gold. After all, paying off your mortgage will end up taking a huge concern off of your plate.

Of course, having a outstanding mortgage can give you the flexibility to essentially walk away from a bad purchase with limited liability, as many people did in 2008 and 2009. And, you never know just how the market is going to go and there is no guarantee it will go up.

Nevertheless, in an ordinary environment, you do not easily walk away from a mortgage with complete impunity. It is a liability that is not going to easily be forgiven, and any proper retirement planning does not involve defaulting on a mortgage. If you are able to pay your mortgage off by the time that you retire, you will have added peace of mind. It cuts back on the amount of income that your safety net for retirement will need to take care of. If the burden of paying your mortgage goes away, you will have more freedom with your budget for the happier things in life.

At any stage in life, extinguishing a mortgage creates what is known as a deflationary moment. A deflationary moment is something that will not happen often in life, as there are not a lot of services and goods in our daily life that are becoming less expensive. (It doesn't matter if you are looking at daycare, gasoline, land, groceries or something else, things are always getting pricier. With this sort of inflation, when will you see deflation? The answer is actually rarely, if ever.) The prices will generally always be on an upward climb.

The deflationary moment happens because you deflate the money that goes out the window for daily life without impacting your lifestyle. After you no longer have a hefty mortgage, you gain flexibility that allows you to live where you want and in the size home that you want. Some folks will choose a home that is a bit smaller and fits their needs a bit better after retirement.

When you own a home without a mortgage, you can easily transition into a smaller home that is a lot easier to maintain. Maybe you want to have the money so that you can buy two homes that are in very different locations, such as the one that is in the mountains, or one that is at the beach. When you want to spend several months in one location with your grandchildren or extended family, or you are hoping to take care of someone in need, you will not have to worry about a mortgage payment while you are away.

The flexibility will dramatically increase after you pay off your home, which will give you a chance to live where you want and how you want.

When should you think about pulling the trigger to pay off your mortgage?

Whenever people ask how much they have to have in the bank for paying off their mortgage, it is difficult to have an actual number. The best advice is the one-third rule. This means that if you can pay off your mortgage while not using any more than one-third of the non-retirement savings that you have, you should consider paying off your mortgage today.

As an example, if you owe about $55,000 on your house and you have roughly $190,000 in your savings, excluding any IRA or 401(k) funds, you can look at the one-third rule. You will have the ability to pay off the mortgage, plus you will have plenty of cushioning left over for any unexpected expenses. If it will cost you more than one-third of any non-retirement savings that you have to pay your mortgage off, you should wait. It can cause more stress over the long term if you are lacking the cash in your bank simply because you paid off your mortgage.

Here are 5 steps that you can follow early in life to pay off your mortgage faster:

1. Buy A Home You Can Afford

When you are looking to finance a house, you will need to be prequalified. The bank is going to look at the overall picture of your finances and then spit out an amount that you can get a loan for. Some will use this amount to set a budget for housing. However, keep in mind that the bank is just guessing. Examine own your monthly budget and determine what you want to spend on a home. If you are a prudent financial planner, you may decide that is is much less than what the bank tells you that you can afford.

2. Get A 15-Year Mortgage

When you calculate the differences between 15 and 30-year mortgages, a 15-year will involve higher monthly payments as there is greater amount allocated to the amortization component monthly, but the advantage is that you save on total interest over the life of the loan due to the shorter term and, usually, lower interest rate.

Check out the best 15-Year Mortgage rates where you live now.

3. Set A Target Payoff Date

Take a look at BestCashCow’s online mortgage payment calculator to help you determine a goal for a payoff. Post reminders of the goal so that you can remember that you have a strong plan in place.

4. Start Automatic Payments

Most loan providers will allow you to set up automatic bi-weekly payments, but some may only do so for a fee. You can call your mortgage company to go over all of your payment options to see what works best. However, you will see that an automatic payment will be easier to deal with than trying to remember to send out a payment each month or every two weeks.

5. Cut Expenses And Increase Earnings

Review your budget all the way through and try to cut expenses where you can, while also working to boost your earnings. This could be as simple as cutting out the use of your credit card, as those purchases can really add up and your finances take a blow because of it.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to bank transparency and the climate crisis. Since co-founding BestCashCow in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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