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Want to be mortgage-free by retirement? Here’s your game plan.
Key points
- Many people aim to be mortgage-free by retirement, because that’s when their income tends to drop.
- If you’re strategic about how you borrow and how you make your payments, you can finish paying off your home before your career wraps up.
Retirement can be a financially stressful period. That’s because many people move over to a fixed income during retirement, and at that point, they need to live on less income than what they made while working full-time. As such, it’s a good goal to aim to have your home paid off by the time retirement rolls around. If you follow these five steps, that goal may be more than attainable.
1. Don’t overborrow to start with
The more affordable a mortgage you take out to begin with, the easier it will be to pay off. Before signing up for a home loan, run some numbers to see what mortgage amount works well for your budget, keeping in mind your total monthly housing costs, including your mortgage, property taxes, and insurance, should not exceed 30% of your take-home pay.
2. Be mindful of your mortgage’s term
If you’re buying a home a bit later in life but want to make sure it’s paid off before retirement, you’ll need to choose your loan term carefully. If you’re 45 years old and think you’ll retire at some point in your 60s, you may want to stick to a 15- or 20-year loan. If you take out a 30-year loan, you’ll have lower monthly payments, but your home may not end up getting paid off by the time your career wraps up.
3. Make your mortgage payments every two weeks instead of once a month
Most home loans are set up so borrowers make a payment once a month. But if you split that monthly payment into two equal payments and make it every two weeks, you’ll pay off your mortgage a bit sooner. That’s because the math will work out in a way that has you making an extra payment every year.
Imagine your monthly mortgage payment is normally $1,000. That means you’re paying $12,000 a year into your loan. But if you make 26 payments of $500 each, you’ll end up paying $13,000 into your loan annually instead, resulting in a faster payoff.