It IS Possible to Retire Mortgage Free
It is never too early to think about retirement. If you are looking to retire mortgage free, there are steps that can help you prepare and achieve your goal. The ability to do so is often based on affordability and preference. Retiring mortgage free can make a limited pension – one that is substantially less than your salary – go much farther.
The benefits of retiring without a mortgage allow you more financial freedom, getting the most out of your savings without having to reimagine your desired retirement lifestyle.
Continue to save
You don’t want to rush to pay off your mortgage in lieu of building your retirement savings. However, if your retirement savings plan is well on track, directing extra money towards paying off your mortgage will benefit you in the long run.
Pay a little extra on a monthly or yearly basis
A home mortgage is usually the largest living expense that people have. If you are able to pay a little extra towards your mortgage each month, or year, you will pay off your mortgage substantially faster. The extra money you put towards your mortgage each year and/or month is applied directly to the principal loan. Decreasing your loan principal will also decrease the interest you pay in the long run. For example, if you pay one extra mortgage payment each year, or biweekly mortgage payments, you can eliminate up to 7 years off the term of your mortgage.
You also have the option of getting a new mortgage. For those who are closer to retirement, having a 15 as opposed to a 25 year mortgage can be advantageous. A shorter term mortgage will have higher payments, but it will also building equity faster, meaning that you are closer to entering retirement mortgage free.
Leave the equity in your home
As we discussed in our last blog, refinancing and equity loans are a great way to lower your monthly mortgage amount and open up cash flow if you are looking to eliminate other debt; these options are good for acquiring fast cash. However, when you borrow against the equity in your home you are increasing your mortgage amount and it will take you longer to pay off; this will set you back in your plan to retire mortgage free.
If necessity requires you to take out equity in your home, take only what you need, and be careful not to extend your mortgage beyond your retirement goals. Likewise, try to refinance for the same duration instead of refinancing for a 25 year term.
Adjust your living situation to maximize your savings
Finally, if you want to retire mortgage free sooner than later, you may want to consider downsizing to a smaller home or moving to an area with a lower cost of living.If you are able to purchase your new home using the cash from selling your current home, this will enable you to eliminate your mortgage payment and continue to build and get the most our of your savings.
Original post courtesy of Mikey Ross