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Should You Pre-pay Your Mortgage?

Category: Financial and taxes in retirement

March 22, 2011 — You are about to retire, but perhaps you didn’t quite pay off the mortgage on your home before you got your gold watch (remember those days!). That might put you in a quandary – you have the money in your retirement account that could pay it off, and you know that CDs and T-bills are not going produce anywhere near the interest rate you are paying to the bank – even if you did refinance recently. And in addition, your income has dropped so that home mortgage deduction doesn’t have the same effect as in your higher income days. So what to do?…..

Pre-paying your mortgage is a complex decision that involves looking at your individual situation carefully. Your financial planner is a good place to start for advice, and believe it or not, so is your mortgage banker. Recently we saw a press release from Freedom Debt Relief that listed 6 points to consider to determine if prepayment is a good option for you. We thought they sounded useful, so here they are:
1. Are all other needs under control? If you owe credit card debt, pay that first!
2. Is a move coming up? If so, you’d be better off putting the money into a larger downpayment.

3. Check for prepayment penalties.
4. The earlier, the better.
5. Analyze the mortgage interest deduction. Talk to your accountant about this one.
6. What else could be done with the money?

The release offers additional tips to consider. But another option to consider is refinancing. If you haven’t refinanced in the last few years and decide to keep a mortgage, you should probably refinance, as long as you save more in the long run than any fees you might have to pay.

What do you think?
Have you paid off your mortgage? Do you think you might, or are you going to wait? Please share your ideas in our Comments section below.

Posted by John Brady on March 22nd, 2011


  1. This is the single biggest issue with my husband and I as we work towards our retirement in, hopefully, 3 years (we’ll be both 68). He wants the house paid off so we don’t have the debt hanging over our heads. So we have been adding up to $2k per month to the principal, which sometimes places a strain our our current financial situation. I can’t help but wonder if we shouldn’t be saving that money instead. I intend to work part-time or seasonally in retirement and I don’t think having a mortgage payment would be a big issue. Plus when the house gets paid off, we’ll have all that equity sitting there doing nothing. At the same time I can see my husband’s point about having it paid off – we’ll never have to worry about a roof over our heads. Then I pick up the paper and read about a couple who lost their home (which had been free & clear) when they were sued by someone they had a car accident with. The more equity you have, the more there is to sue for… not that I plan on getting sued mind you. Anyway, as you can see, it’s an issue I am still vascillating over even as I write this month’s principal payment check. Would love to read input from others in this situation.

    by Genie — March 23, 2011

  2. Depends on mortgage rate. We just purchased a retirement home and obtained 4.25%. Over time, even with low rates, I believe I can do better with investments. However, we did put 60% down to reduce monthly payment substancially.

    by recently retired — March 23, 2011

  3. My husband and I were RABID about getting our mortgage paid off by the time we were 50. While in our 20’s, 30’s and 40’s, our friends were going on vacations, driving new cars, upgrading their homes. We tied our vacations to my husband’s business trips, meaning we would have to pay only my expenses, drove our used cars until the wheels almost fell off, and upgraded our home only to the extent it would help resale. Living carefully all those years really paid off for us. We’re both still working (at age 60) but since getting the mortgage paid off, we’ve been able to visit 6 of the 7 continents, saving Australia until we retire and can stay for several months. With only basic expenses to cover, we always have money left over at the end of the month. Delayed gratification is the way to go. And as for the “being sued,” premiums on a $2 million umbrella insurance policy are pretty darn cheap.

    by Sharon — March 23, 2011

  4. We paid off the mortgage when I was 60 and my wife 58. Monies formerly used for the mortgage have gone to bulk up our emergency fund and for investments

    by Jim — March 23, 2011

  5. my husband and i will retire next year and plan to use a portion of our 401k to pay off our mortgage of approximately $60,000. we will both have pensions and social security, but we want to enjoy retirement, as who knows how long we may live. we didn’t work all these years just to retire and kick the bucket before we can enjoy the time.:smile:

    by susan — March 28, 2011

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