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.