Older couple enjoying their retirement life.

Should I pay off my mortgage before I retire?

Ideally, retirement would be worry-free. These tips could help you retire with less debt.

Home ownership has always been one of the hallmarks of the American dream. Traditionally, owning a home has been a symbol of financial stability and a reliable retirement nest egg. For many, owning a home is the biggest investment in a family's financial portfolio. But will you still be making mortgage payments when you retire?

One way to retire with less debt is to consider paying off your mortgage ahead of schedule. Depending on your personal financial situation, this option might help you enjoy your golden years with less monetary worries.

The case for paying off your mortgage early

If you have the financial means to pay off your mortgage sooner, there are some economic benefits for doing so, including:

  • Freeing up cash. By paying off your home loan ahead of schedule, you'll have more disposable income to use as you see fit.
  • Saving on interest. Retiring your mortgage early can save you money in interest payments.
  • Reducing debt load. Lowering your overall debt early will give you less to worry about when you retire.

When paying off a mortgage early might not work

Of course, paying off your mortgage early might not be right for everyone. Depending on your current financial situation, other monetary priorities might trump this option, such as:

Housing options for an easier retirement

There are several practical things you can do today to help make your retirement more comfortable, including:

  • Making extra mortgage payments. Paying off your mortgage early can help save you thousands of dollars in interest. Making biweekly instead of monthly payments can reduce the term of a 30-year loan to about 25 years. You can also opt to pay enough extra each month to total one extra payment by the end of the year.
  • Considering a shorter-term, lower-interest loan. If you originally carried a 30-year loan, consider refinancing to a 15-year mortgage instead. The current interest rates might even be lower than when you first bought your home.
  • Moving into a smaller home. Consider downsizing to a smaller home if you realize you don't need as much space and your payments would decrease. You might even be able to purchase a smaller residence outright with the cash from the sale of your larger home.
  • Relocating to a less expensive city. If you're planning to retire soon, consider moving to a city or town that has a lower cost of living. With the money you made on selling your original home, you might be able to buy a smaller home or condo outright.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

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