In most cases, it would be preferable to retire without a mortgage. Few people will benefit financially from this debt, and fixed-income payments may become more challenging to manage. However, paying off a mortgage before retiring isn't always possible.
As for the ideal age to debt-free, don't get too caught up in the comparison game, says Sanborn Lawrence. A good goal is to be debt-free by retirement age, either 65 or earlier if you want.
While many older homeowners own their properties free and clear of a mortgage payment, this is not a feasible reality for many seniors. In fact, more than 10.5 million Americans at or over the age of 65 still pay into a forward mortgage loan, according to a study conducted by LendingTree.
Suze Orman's Perspective on Mortgages
It depends on several factors, including a homeowner's financial situation, life stage, risk tolerance, and overall financial goals. Orman generally advises against carrying unnecessary debt. However, she considers a mortgage to be 'good debt.
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.
In fact, the average millionaire pays off their house in just 10.2 years. But even though you're dead set on ditching your mortgage ahead of schedule, you probably have one major question on your mind: How do I pay off my mortgage faster?
There is no specific age to pay off your mortgage, but a common rule of thumb is to be debt-free by your early to mid-60s.
But debt more than quadrupled in households headed by people aged 65 to 74 in that period (from $10,150 to $45,000 per household, on average), and for those 75 and up it has increased sevenfold (from just under $5,000 to $36,000).
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%.
Dave Ramsey, the renowned financial guru, has long been a proponent of financial discipline and savvy money management. This can include paying off your mortgage early, but only under specific financial circumstances.
There's no age limit for getting or refinancing a mortgage. Thanks to the Equal Credit Opportunity Act, seniors have the right to fair and equal treatment from mortgage lenders.
This includes all types of consumer debt, including credit cards, student loans, auto loans, mortgages and even home equity lines of credit (HELOCs). Paying off debt is often easier said than done. But the good news is you don't have to wait until retirement to become debt-free.
An unmortgaged home was once a retirement perk
Mark Iwry, nonresident senior fellow at the Brookings Institution. But that pattern is changing. In the Michigan study, researchers found that the share of retirement-age homeowners with mortgages rose from 38% to 51% in a generational span of about 25 years.
The lack of a mortgage doesn't make your home a better investment, or somehow build your equity better. The value of your home is that you live in it, and it's yours, mortgage or not. Sure, you might like to be done with the mortgage payments, but that's not a reason to speed things up.
There are good reasons to own a home after retiring, but there are also plenty of arguments for renting. Renting can be less expensive as you skip the burdens of property taxes and maintenance costs. However, owning can be less stressful since you don't have to worry about a landlord raising your rent.
More and more Americans carry debt into retirement. The amount of debt held by those aged 65 to 74 quadrupled from 1992 to 2022, according to the Federal Reserve. The range of outstanding debt was from $10,000 to $45,000 per household. The reasons vary, although inflation is a big factor.
Mortgage debt remains uncommon among homeowners age 65-plus relative to their younger counterparts; in fact, the fraction of homeowners age 65-plus who had a mortgage in 2022 (34 percent) was less than half that of homeowners under age 65 (70 percent) 3.
At the close of 2019, the average household had a credit card debt of $7,499. During the first quarter of 2021, it dropped to $6,209. In 2022, credit card debt rose again to $7,951 and has increased linearly. In 2023, it reached $8,599 — $75 shy of the 2024 average.
To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.
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 mortgages that are 3% or less, it doesn't make sense to pay off, since better returns are available in the stock market, Collins said. For mortgage rates that are 6% or more, paying that balance off will provide a guaranteed return.
If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.
You'll likely need an annual salary of at least $250,000 to finance a $1 million dollar home with a 30-year mortgage, assuming a 20% down payment and low escrow costs. The income required to purchase a million-dollar home varies based on your location, loan amount, mortgage rate and other affordability considerations.
Putting money in savings, even with today's very low returns, may be better than paying down a mortgage. Paying down might result in a better 'return' than an alternative investment, but houses aren't liquid—they aren't a source of immediate cash—especially in today's market.