Paying Off Your Mortgage before Settling Into Retirement

At one point in time, retirement meant enjoying your post-working years with a comfortable amount of money in the bank, collecting your retirement benefits or pension, and truly enjoying this time in your life that came as a reward for years of a job well done.  In today’s world, this scenario is unfortunately not the case for many individuals that are nearing retirement age, as the economy has left many hard working individuals with extra debt and financial stress, and many homeowners are refinancing their mortgages at a lower rate and carrying them into retirement.

While extending the loan in order to make smaller monthly payments is definitely helpful in some aspects, carrying this debt into retirement can lead to additional financial stress, especially if the amount of income you are bringing in is significantly lower than your usual paycheck.  It is definitely a good idea for homeowners approaching retirement age to look into paying their mortgage off early, as it allows for a variety of benefits.

Social Security Benefits and Taxes

Many retirees that carry their mortgage into their retirement may find themselves drawing from their retirement IRA or 401k in order to make payments on their mortgage.  When this happens, social security benefits are taxed, and the more you withdraw, the higher amount of social security tax you will need to pay.  By paying your mortgage off early, you will most likely be withdrawing less money from your IRA or 401k, in turn lowering the amount of tax paid on your social security checks.

Using Your Home as a Financial Safety Net

Paying off your mortgage before retirement can also be helpful in the event that you wish to take out a reverse mortgage in the future.  A reverse mortgage is a home loan that is specifically designed for homeowners aged 62 or over, and it allows for homeowners in good standing to draw on their home equity if they are in need of extra funds.

Reverse mortgages do not need to be repaid until the homeowners move out of the home permanently, and you can use the money for home repair, day to day expenses, or simply hold onto the extra funds as a financial safety net.  In order to qualify for a reverse mortgage, the original mortgage must have a low balance or be completely paid off, so paying off your mortgage before retirement will allow you this option in the future.

Lower Your Debt Considerably

Since the mortgage payment tends to be the highest monthly expense for most homeowners, taking steps to pay this debt off early can open up the door to financial freedom in your retirement.  Paying off your mortgage when you are still working will allow for overall lower monthly expenses, and when you are bringing in less income during retirement, this can definitely be helpful.

Weigh Out Your Options

If you have a few years before retirement, there is time to weigh out your options when it comes to paying off your mortgage early.  You will want to consult with your lender in order to determine the best route to go, as there may be certain fees assessed for early repayment.  By taking a few simple steps and negotiating with your lender, you will be able to take care of your mortgage in an expedited fashion, allowing for a comfortable and financially secure retirement.

How to Save on your Monthly Mortgage Payments

If you are like most homeowners in today’s world, chances are your mortgage payment takes up a large portion of your overall monthly income.  In today’s economy, every penny definitely counts, especially for those who are earning less income due to cut hours or job loss.  The good news is that there are ways to save on your monthly mortgage payment as well as lower your overall expenses for the month, it just takes a little bit of reconfiguring on your part.  Here are some strategies that can help you save money each month, as well as allow you to put a little aside for future use.

Make a Sizable Mortgage Payment

Since the mortgage payment is most likely your highest monthly expense, the sooner you can pay this off, the more financial freedom you will have.  By making a lump sum payment towards your mortgage, you will not only move the process along, you may also be able to lower your monthly mortgage payments until 2014.  These monthly savings can be put toward additional debt, or they can simply be moved into a high interest savings account, allowing for a nice savings cushion.

Carefully Consider Bi-Weekly Payments

Making bi-weekly mortgage payments is becoming an increasingly popular practice among homeowners, simply due to the fact that it allows homeowners to save money by paying off their mortgages faster.  The catch, however, is that there is often an upfront fee that lenders charge in order to allow this type of payment option, which in many cases, can defeat the purpose.

Research Your Rate Options

If you are looking to lower your overall mortgage rates, you can consult with your current lender regarding refinancing, and you may be interested in shopping around with different lenders in order to find a loan that is a more suitable fit.  It is important to note however, that lowering your rates may generate a new set of fees that in turn could end up minimizing your overall savings.

Extend Your Loan

While many homeowners are looking to pay their mortgages off early, the alternative is actually to extend the life of your home loan.  This will definitely lower your overall monthly payments, allowing you to take care of additional debt and put aside a little savings each month.  By refinancing and extending the life of your loan, you can potentially lower your payments for an entire year, allowing for substantial savings.  Additionally, if you change your mind later on down the line, you can start making larger payments each month in order to pay down your mortgage at a faster pace.

HAMP Eligibility

The Home Affordable Modification Program allows qualified homeowners loan modification due to financial hardship.  If your income has changed due to the economy, your lender may be able to assist you in modifying your loan payments if you meet specific criteria.  This will definitely help you save each month, as well as help you put some money towards any additional debt you may have.

In today’s economy, many homeowners are looking for ways to save money wherever they can, and while certain regulations regarding home loans have been tightened, there are varieties of options for borrowers that are looking to lower their payments.  By consulting with your lender and learning what options are available to you, you should be able to find a common middle ground that will satisfy the lender while at the same time allowing you to save money each month, allowing for a secure financial future.