7 Instances You Ought to Not Pay Off a Mortgage Earlier than Retiring


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Paying off a mortgage before retirement is a common goal, but not always the best financial strategy.

It could cost you in the long run – for example, when you don’t have savings to cover unexpected expenses or without the flexibility to take advantage of an opportunity to get better returns on your money.

Here are some financially smart reasons to retire your mortgage debt.

1. You are planning to sell your home

Many people choose to downsize before or after they retire. They find that a smaller, more affordable home fits their retirement lifestyle better, as detailed in “7 Surprising Benefits of Downsizing as a Retiree”.

If you have a potential to sell your home soon, think carefully before paying off the mortgage on that home. Selling a home can provide money to pay back your home loan without using up your savings.

2. You are planning to rent your house or room

Does your retirement plan include moving and renting out your current home? Paying back a home loan is not mandatory if the rent payments made by the tenants cover future mortgage costs.

You could avoid tapping into savings to pay off the loan. You can even make a profit after your mortgage bill is paid each month.

That could also apply if you stay at home and simply rent out a guest room through a vacation rental site.

A 2018 analysis by Homes.com found that in some cities, a homeowner can make enough cash to cover a monthly mortgage payment by renting a room for just four or five nights a month. We detailed the results of the analysis in “Do this a few days a month and watch your mortgage go away”.

3. It is more important to repay debt at higher interest rates

Before you commit to paying off a mortgage, consider whether there are better ways to spend your money.

For example, if you’ve bought or refinanced a home in the past decade, your home loan is likely to have a relatively low interest rate. And if so, you will be better off financially if you pay off higher-interest debt, such as credit card debt, first.

If you pay the highest interest rate debt first, you will save more money on interest payments over the life of the debt.

4. You are still saving for retirement

Not everyone completes their careers with enough cash to enjoy a comfortable retirement. As a result, many Americans continue to work after age 65, the traditional retirement age.

If you are depositing into a retirement account, e.g. For example, an individual retirement account (IRA) or a 401 (k), it may make more sense to use extra cash to build retirement savings rather than prepaying the mortgage over time.

Retirement accounts are tax-privileged. So now if you are saving money, you can now likely lower your taxable income or avoid taxes when withdrawing funds from the account in retirement, depending on whether it is a Roth or a traditional account.

5. Your cash reserves are low

Maintaining an emergency fund is critical to financial stability. If paying off a mortgage depletes cash it could leave you in a debilitated position. Nobody can predict when an emergency will arise.

Corey Vandenberg, a mortgage banker in Lafayette, Indiana, says that people who prepay their mortgages often have a lot of home equity but no money in the bank.

“This position is not financially sound,” he told Money Talks News. “You have to have an emergency fund for unexpected life events.”

6. You prefer to maximize your income by investing

When you pay off the mortgage, you have less money to spend. Much of your wealth will be tied up in the value of your home. The only way to do this is to sell the home, borrow against your home equity, or take out a reverse mortgage.

Without cash, it becomes more difficult to seize an investment opportunity.

7. You want to deduct mortgage interest

One of the benefits of being a homeowner is the ability to deduct the interest you pay on a home loan from your tax form.

The Tax Cuts and Jobs Act of 2017 – the federal tax reform act – put new limits on deduction, but it’s still beneficial for some homeowners.

However, mortgage interest is an individual deduction. This means that you can only benefit from listing prints individually, as opposed to the standard print. And the 2017 tax reform significantly increased the standard deduction.

As a result, far fewer taxpayers are now choosing to itemize deductions on their tax returns as they will make more money using the new standard deduction.

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