January 7th, 2014 4:09 PM by Robin Bain
Some people enjoy the peace of mind that comes with being free from debt in retirement. But warm and fuzzy feelings should be weighed against solid financial facts. Whether it makes financial sense to retire your mortgage when you retire depends on many factors in your individual situation—and there's no easy answer.
The interest rate on your mortgage may be the single biggest factor in this decision. If the rate on the mortgage is low, prepaying the loan might not be the best option. It may be better to maintain liquidity of your funds and diversify your assets.
Consider these things:
If your mortgage has no prepayment penalty, an alternative to paying it off entirely before you retire is paying down the principal. You can do this by making an extra principal payment each month or by sending in a partial lump sum. This tactic can save a significant amount of interest and pay off the loan much quicker while preserving liquidity and diversification. In some circumstances, refinancing with a lower interest rate may make sense.
The best strategy for any individual depends on the mortgage's interest rate, as well as on his or her goals, preferences and circumstances.
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Should You Pay Off Your Mortgage Early Before You Retire? Dana Bain Premiere Mortgage Services Inc. 978-422-2311