You might want to pay off your mortgage early if …
You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.
Opportunity costs To be fair, Ramsey does not advise paying off your mortgage as a first step. He wants you to pay off all of your other debt first and then start setting aside 15% of your money to stick in mutual funds. Only after you do these things does he tell you to pay off your mortgage.
40% of Americans Pay Off Their House — Are They Doing Better Financially? For most Americans, a home mortgage is the biggest financial obligation they will ever have. A traditional mortgage spans 30 years and is often in the hundreds of thousands of dollars, so the interest charges can be enormous.
As of 2019, a plurality of millionaires in the United States, 43 percent, owned only one house. This compares to 8.5 percent of millionaires who owned five or more properties.
The famed wealthy entrepreneur Andrew Carnegie famously said more than a century ago, “Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined.
Because of rising housing costs, these young millionaires opted to rent instead since it is more affordable. Moneywise, citing a RentCafe report, said that the number of millionaires who are opting to rent a flat or an apartment instead of owning their dream home has tripled in the last five years.
That makes sense, of course, as older Americans have had a longer time to make payments. But with nearly two-thirds of retirement-age Americans having paid off their mortgages, it means that the average age they have gotten rid of that debt is likely in their early 60s.
A growing percentage of American homeowners have no mortgage on their property. According to the U.S. Census Bureau, nearly 40% of homes in the country were mortgage-free last year.
For example, if you plan to travel frequently in retirement, you may want to aim for 90% to 100% of your pre-retirement income. On the other hand, if you plan to pay off your mortgage before you retire or downsize your living situation, you may be able to live comfortably on less than 80%.
Using your extra funds to pay off your mortgage reduces the amount of money you have for other expenditures. For example, you may need to build an emergency fund, pay off other high-interest debt, or buy a new car.
When You're Nearing Retirement: Orman has consistently recommended that homeowners aim to have their mortgage paid off by the time they retire.
The 2% rule states that you should aim for a 2% lower interest rate in order to ensure that the savings generated by your new loan will offset the cost refinancing, provided you've lived in your home for two years and plan to stay for at least two more.
Peace of mind, saving on interest and building equity are three benefits of paying off your mortgage. Downsides include opportunity cost, reduced liquidity and removing a major tax deduction.
You decide to increase your monthly payment by $1,000. With that additional principal payment every month, you could pay off your home nearly 16 years faster and save almost $156,000 in interest.
Similarly, states along the Pacific Coast—where home values skyrocketed during the pandemic—have some of the lowest rates of free-and-clear homeownership among the working-age population. California (22.7%), Washington (22.8%), and Oregon (22.9%) sit at 45th, 44th, and 43rd out of all 50 states, respectively.
The benefits of paying off your mortgage
Being mortgage-free can make it easier to downsize in other ways – such as going part time – and usually makes it cheaper and easier to buy and sell your home. Generally, a smaller mortgage gives you greater freedom and security.
Nearly 40% of homes were owned outright in the U.S. between 2017 to 2022. 1 Older people who want to keep costs down as they age can benefit from not having a mortgage, as can younger individuals and families who want to live frugally while setting aside more funds for other savings and investments.
Absolutely. The Equal Credit Opportunity Act's protections extend to your mortgage term. Mortgage lenders can't deny you a specific loan term on the basis of age.
"Shark Tank" investor Kevin O'Leary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60. Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued.
"If you want to find financial freedom, you need to retire all debt — and yes that includes your mortgage," the personal finance author and co-host of ABC's "Shark Tank" tells CNBC Make It. You should aim to have everything paid off, from student loans to credit card debt, by age 45, O'Leary says.
A Wall Street Journal report released Monday highlighted the surprising uptick in millionaires opting to rent instead of owning their homes despite their ability to afford pricier properties.
New York (54.3%), California (55.3%), and Hawaii (61.3%) have the three lowest rates of homeownership among states.