Wouldn’t it be nice to not have to worry about your mortgage payment? Wouldn’t it free up a lot of extra cash for other expenses?
Here are a few ways you can benefit from paying off your mortgage early:
- Reduce your expenses: Your mortgage is a large monthly expense. Taking it out of the equation will substantially lower your expenses heading into retirement.
- You’ll save money on interest: When paying off your mortgage early, you’ll pay less in interest.
- Allows you to invest elsewhere: With the extra cash you’re freeing up once it’s paid off, you now have funds to contribute to your retirement accounts, such as your IRA accounts or 401(k) account.
- Gives you peace of mind: It will also eliminate stress and worry about potential dips in your income over retirement.
So, how do you achieve this goal before retirement? Here are a few options:
Increase your monthly payment
Each month, pay a little extra toward your mortgage principle. This will help you save on interest payments down the line.
Look at your budget and determine areas where you may be able to shift more money to your principle. Restructuring your budget will not only help you find extra cash to put toward your mortgage, but it can help save you some money.
If you go this route, be sure to specifically tell your lender that the extra money is for “principle only.”
Switch to bi-weekly payments
This basically means you would pay half of your mortgage every other week. Doing it this way means you’d be making 13 full-sized payments within a year instead of the normal 12… yet you wouldn't have to make a huge financial sacrifice to make the extra full payment.
Refinance your mortgage to a shorter term
Depending on your interest rate, this may lower the amount you’ll pay in interest over the term of your loan. Keep in mind that shortening your loan term may increase your payment. Make sure you can afford the new payment before moving forward.
If refinancing seems like a financial burden, this may not be the best option.
Put ‘found money’ towards your mortgage
Just receive a bonus at work? Have extra cash from your tax refund? No matter where the extra money comes from, try to put all additional funds toward your mortgage principle.
The Simply Money Point
If you decide to move forward and pay your mortgage off early, always be sure to check with your lender to see if there are early payment penalties.
And while we at Simply Money Advisors generally advise paying off your mortgage before retirement, you need to make sure that strategy makes sense for your particular situation. You don’t want to be pumping all your money towards your house at the sacrificing of saving. Work with a trusted financial planner (we recommend a CERTIFIED FINANCIAL PLANNER™ or Chartered Financial Consultant®) to help you develop a personalized financial plan to meet your financial goals and objectives.
Need help planning for retirement? We’ve just launched “Retirement Resources,” a brand new educational section of our website! You’ll find free downloadable guides, online tutorials, and live events – all designed to educate you on retirement planning, how to select a financial advisor, Social Security, and more.