It’s the American Dream to own a home, but it’s also part of the American Dream to be out of debt before retirement. So does this mean you should pay off your home loan before you retire? For some people it is the right answer, but for others, it may not make sense to do so.
Keep reading to learn when it makes sense to pay your loan off before you retire.
Do You Have the Money?
First, and most importantly, you have to determine if you have the cash to pay off your mortgage. You obviously have the money or you wouldn’t be considering it. But, do you have enough money to function? Is it a huge sacrifice to pay your loan off before you retire? Will it leave you without any cash? If it will put you in a bind, it doesn’t make sense to pay your mortgage off before retirement. If your payments go well into retirement, then so be it. You make the payments and keep your cash available for your other expenses.
It won’t do you any good to say that you own your home free and clear. You can’t turn your home in into cash – it’s not a liquid investment. You need to make sure that you have plenty of money available should an emergency occur. In other words, you need liquid assets and a home is not one of them.
Do You Have a Home Equity Line of Credit?
Some people that want to pay their home off because it makes them feel better, keep a HELOC on hand. They don’t withdraw any money from it, but they feel better knowing that the money is there should an emergency arise. If you have a HELOC available or you know you can get one quickly, then you may be in good shape to pay your mortgage off early. It’s like having your cake and eating it too. You own your home free and clear, but you have a backup plan just in case something goes awry.
Do You Have Other Investments?
If you have other investments that are currently tying up your money, it may not make sense to liquidate them just to pay off your mortgage. Are those investments profitable? Why stop a good thing? Instead, just keep the mortgage and make your payments as scheduled. You’ll own your home free and clear eventually. But in the meantime, let the other investments make you money that you can use during retirement.
Does Having a Mortgage Bother You?
Some people don’t like the feeling of having a mortgage hanging over their head. They would rather pay their mortgage off and have that peace of mind, even if it means having less cash lying around. If this describes you, then pay the mortgage off before retirement. It may mean sacrificing other investments and possible profits, but sometimes peace of mind is worth a lot more.
Do You Have Other Debts?
One of the benefits of retirement is that you shouldn’t have to work. If you want to work that’s one thing, but being required to work to make ends meet could make some people frustrated. If you have other debts that you know will still exist during retirement, it may make sense to pay off your mortgage now. Get rid of the largest debt so that the other debts are easy to afford. It may mean that you can work a little less and enjoy your retirement years.
Your home is likely your largest asset. Owning it free and clear can be a great feeling. You know you have a giant nest egg that if need be, you can sell and use the cash as necessary. If you want to enjoy your retirement and not worry about a pesky mortgage, pay the loan off and enjoy those years. If it will make you feel strapped for cash, though, you may be better off leaving it as is and paying the mortgage as you always have.