Fast-track Your Mortgage Payoff, Lower Your Retirement Debt

When retirement looms, financial stability is a growing concern for most people.

“Have I saved enough?”

“What will inflation do to my nest egg?”

“Will Social Security remain solvent?”

“What are the health wildcards I haven’t planned for?”

As such, it’s wise to slash expenses and debt as much as possible, with the idea of entering retirement debt-free.
For some, that means paying off the mortgage by accelerating their mortgage payoff.

Experian found that the average mortgage balance debt by generation in 2022 was:

• Generation X (age 42-57): $274,406
• Baby Boomers (58-76): $189,155
• Silent Generation (77+): $139,999

If you’re able to afford to put extra cash toward your mortgage, doing an early payoff can be a powerful strategy that not only cuts interest payments but lightens the financial and emotional load during retirement, bringing peace of mind, more money for hobbies, vacations, and funds for healthcare and long-term care expenses.
Before deciding, it is important that you take a complete look at your financial picture to be sure that a faster payoff is the best way to achieve your goals and to understand the potential sacrifices and downsides of such a move.
Here are nine considerations.

  • Understand the risks. If you have a relatively low mortgage rate, could you be missing out on higher returns on your money by putting the extra toward your mortgage? Will you miss out on mortgage interest deductions? By devoting money to your mortgage, you’re lowering your liquidity. Will that lack of liquidity adversely affect your other long-term goals or short-term needs? For example, are you hoping to give a chunk of money to help a child with a down payment or planning to pay some of your grandchild’s college costs?
  • Examine your debts. If you have credit cards, personal loans, and other obligations, paying those off is better before accelerating your mortgage payments. First, pay off debts with higher interest rates than your current mortgage because consumer debt typically carries higher interest rates than mortgages. 
  • Understand your mortgage agreement. Read your agreement’s fine print and talk to your lender to be sure there are no prepayment penalties and that you’re allowed to make extra payments.
  • Calculate your savings. How quickly do you want to pay off your mortgage? Can you afford to shave five years or ten years off your mortgage? Use an online mortgage calculator to see how much principal you must pay every month or year to pay off a loan in a certain number of years and how much you’ll save with an early payoff. The savings can be significant. According to a NerdWallet calculator, for example, if you took out a $300,000 30-year fixed loan at 5.5%, have ten years left, and decide to pay it off in five years, you’d have to pay an extra $206.75 monthly. The move would save $89,796.84 over the life of the loan. 
  • Develop your repayment plan. Will you make an annual lump-sum payment or extra payments monthly or bi-weekly? One advantage of spreading the additional payments across the year and making bi-weekly payments is that you lower your principal balance each month, creating a smaller balance on which interest is calculated. 
  • Look at your budget. How much extra money can you afford to put toward your mortgage? Where can you cut back? Also, consider the sacrifices you’ll need to make and decide if missing out on a vacation or cutting back on hobbies is worth it.
  • Don’t sacrifice retirement savings. Have an adequate emergency fund before shifting money to speed up your mortgage payoff. Also, be sure you’ll still be able to max out all your retirement vehicles like 401ks, Roth IRAs, and Health Savings Accounts and make catch-up contributions.
  • Pay the right way. Be sure to tell your mortgage holder that your extra payments will be applied to the loan principal, not the next month’s mortgage payment.
  • Talk to experts. Remember that there’s no one-size-fits-all approach with finances, so get advice from financial pros—your accountant and financial planner, for example—to understand the risks and the impact an early mortgage payoff would have on your other goals.

If you’re plans lead you to that you maybe need to downsize and/or move to something better suited for your needs at this stage in life, consider speaking with an experienced, local real estate professional in your area. Many can offer you a free, comprehensive property valuation and market report to give you an idea of what your property may sell for in your current market.