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Should You Pay Off Your Mortgage Before You Retire?

Jun 29, 2022

For lots of new homeowners and prospective buyers, the mortgage pay-off date is so far away that it hardly seems real. However, you're wise to keep your golden years in mind when making money moves.

Like many others who own their homes, you might be wondering, “Is it smart to pay off a mortgage before retirement?” There's no one-size-fits-all answer to this question, but our Oregon community credit union broke down the key considerations to help you decide what's best.


Advantages of paying off your mortgage before retirement

Owning your home in full is a huge accomplishment, and there are many reasons to strive for it. Check out the main advantages of paying off your mortgage before retirement below.


Reduced monthly expenses

One of the most logical reasons to pay it off is that, in most cases, you'll no longer be earning income beyond interest on your retirement investments. While you may be living off a smaller budget, the idea is that not having a housing payment, outside of property taxes, shaves a substantial chunk off your monthly expenses.


Less interest paid

Simply put, longer mortgage terms mean more interest paid over the life of the loan. Paying yours off sooner than later—whether by refinancing to a shorter term or paying more each month toward the principal—can save you tens or even hundreds of thousand dollars in interest.


Less liability, more flexibility

Paying off your home will also give you more flexibility later in life. You can choose to continue living there without a mortgage payment, rent it out for additional income, or sell it and use the profits to fund housing costs in a retirement community or assisted living facility.


What to consider before paying off your mortgage early

The pros and cons of paying off a mortgage before retirement aren't exactly cut and dry. Here's what to consider before deciding for yourself.

Retirement savings
If you're behind in retirement savings, increasing your monthly contributions should be a top priority. Starting as early as possible and being consistent is crucial, but it's never too late to open an IRA or 401(k) plan.

Other debt
For many, paying off a mortgage is the final step to becoming debt-free—an undoubtedly appealing concept. However, if you're still carrying other debt, like student loans or credit cards, it's usually best to knock those off first, as they typically have higher interest rates.

Emergency fund
On a similar note, saving up about six months' worth of living costs should typically come before debt repayment. Why? If you lose a job or have emergency medical bills, you won't have to borrow more money to cover the unexpected expenses.

Interest tax deduction
As mentioned, the longer your mortgage term, the more interest you'll pay over the life of the loan. While it's generally good to pay as little interest as possible, bear in mind you can deduct it from your taxes each year you make payments.

Before deciding to pay off your mortgage early, it's important to consider your savings, other debt, and more.

How to pay off your mortgage sooner than later

There are a few routes you can take to pay off your house before retirement. But first, figure out how many years you have before retirement so you can crunch the numbers for each strategy.

Refinance with a shorter termThere are a variety of ways to pay off your mortgage early, including refinancing with a lower interest rate and more.
If your expected retirement date is significantly earlier than your mortgage pay-off date, you might be able to refinance to a shorter-term loan. Though you'll likely pay less interest overall, keep in mind your monthly payments may be significantly higher.

Refinance with a lower interest rate
Another option is to refinance with the same term length and a lower interest rate. This will reduce your monthly payments, but if you can still afford the previous amount, continuing to pay the higher amount can help you pay off your loan much sooner.

Pay more toward the principal each month
Even without refinancing, you can always opt to pay more toward the principal each month. Just like a credit card balance, paying more than the minimum amount due will not only help you get out of debt quicker, but you'll also pay much less interest overall.

Our mortgage calculator can help you see how the numbers shake out with different interest rates, monthly payment amounts, and loan terms.

Mortgage solutions from our Oregon credit union

Whether you're a first-time homebuyer or currently own a house, you can count on CCCU for low-interest loans, flexible mortgage solutions, and personalized support for managing your finances.

We proudly serve people who live, work, worship, own a business, or and attend school in Multnomah, Clark, Washington, Hood River, Clackamas, and Yamhill, Columbia, and Skamania counties, or are a relative of a current member. We have three physical branches in Portland and one in Hood River, convenient mobile banking, plus access to 5,600+ CO-OP Shared Branches and over 30,000 surcharge-free CO-OP ATMs nationwide.

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