August 26, 2015
Two schools of thought exist in this present age regarding paying off your mortgage before retiring or not. Of course, most people dream of celebrating the day by burning their mortgage papers in a cathartic revelry. Advocates of paying before leaving your career insist financial security is all but finalized the day following the party. And they wouldn’t necessarily be wrong.
Yet popping up more often now are specialists propping up the second school of thought. These men and women warn that the prospect of financial freedom can bring about a false sense of security and cite a bevy of reasons why not to rush to pay off your mortgage before retiring. And they wouldn’t necessarily be wrong.
Chief among the reasons given for holding on is a low-interest rate environment. Given the only real means of turning a profit on your home is to sell or borrow against it, in some cases it can be better to make a small monthly payment into retirement rather than rushing to pay it off by using assets that can be better allocated.
Other reasons that have been used to validate the cause of those who believe it is best to maintain a small mortgage payment include the following: retirement savings are not being maxed out; a significant tax break is being given on the mortgage interest; assets are tied up in retirement plans. Also remember, it certainly makes no sense to make extra payments on a low-interest rate mortgage if, as but a couple examples, you hold high-interest student loans or credit cards.
Again another factor to consider when determining whether to pay off in full or not is whether you are in need of paper and plastic money. In retirement, any number of unforeseen costs – from living accommodations to cosmetic procedures – can creep up that tap into pensions and savings. If your mortgage is paid off you would need to borrow against your home using a reverse mortgage, sale or home equity line of credit.
While we have said much and stated many reasons used to justify holding a mortgage payment into retirement, there is still really no substitution for a debt-free portfolio. Though in some instances it can be required, even beneficial at times, it is still best to stay the course and burn those papers with a smile on your face, as fast as you possibly can!