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October 22, 2014
Discuss your mortgage retirement plan with a professional lender. Whether or not to keep a mortgage in retirement is dependent on your financial situation.When you dream about retirement, you imagine more time with family, for yourself, and a chance to take longer vacations. With proper financial planning, these scenarios can be a reality. Many approaching retirement wonder how they will manage mortgage payments with a drop in their income and rising healthcare costs. Yet many people retire with a mortgage. Here are steps you can take and questions to ask to find out if paying off your mortgage early makes sense for you.

National Trends

A good number of baby boomers are entering retirement with a home mortgage. A recent report from the Consumer Financial Protection Bureau (CFPB) highlights the trend as a hardship on seniors and a threat to retirement security.

Taking into account Census data, the CFPB found the percentage of homeowners 65 and older with mortgage debt increased from 22 to 30 percent between 2001 to 2011. The median amount these homeowners owed on their mortgages increased 82 percent, from roughly $43,400 to $79,000.

Pros of Paying Off Your Mortgage Early

One of the biggest advantage of paying off your mortgage before retiring is the ease of cash flow you will experience. By nixing your mortgage, you don’t have to worry about your next payment and can spend the money elsewhere. You should also look at your current interest rate and how much time you have left on your mortgage. If timed correctly, you could be saving beaucoup of dollars. More of the monthly payment will go toward the principal amount and the deduction decreases when you are closer to paying your mortgage off.


If you are thinking about how you can reach an early payoff, don’t take funds from your 401(k) or IRA. You will be penalized for withdrawing early. And the money is viewed as a taxable income. If substantially more, it could push you into a higher tax bracket.

Likewise, review your mortgage agreement. There might be a prepayment penalty built in to your mortgage contract.

Cons of Paying Off Your Mortgage Before Retirement

On the flip side, many argue for retiring with a mortgage in case of a financial emergency. For instance, maybe you only have $20,000 left on your mortgage, and you feel you can pay that off now. But if there’s an emergency or a large general expense that needs to be made in the near future, it could put you in a financial bind. You should assess whether there’s enough funds to cover your needs post payoff, including property taxes and insurance.

Additionally, it may be more lucrative to keep your mortgage and invest your money elsewhere. Finally, it might make sense to not pay off your mortgage if you are planning on moving in the near future or are considering downsizing.

Related resource: Types of reverse mortgages

Before finalizing your decision, speak to as many professionals as possible, from your financial advisor to mortgage lender to a tax consultant. Be armed with your mortgage interest rate and current market rates, investment portfolio, debts, expected costs, known health issues and the effects of aging, and your end goals. No matter the type or length of your mortgage, know First Option’s qualified lenders want the best for you.

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