Should I pay off my mortgage before I retire?
See what you'd pay if you only make the regular payment, how much extra payments save, and the age your home is paid off.
Your answer
Your mortgage is paid off at about age 75.
- Interest you save
- $64,928
- Compared with only making the regular payment
- Paid off sooner by
- 5 yrs 6 mo
- Regular payments finish at about 80
- Still owed when you retire
- $160,098
- At age 65
Your mortgage balance by age
- With extra payments
- Regular payments only
What different extra payments do
Each row adds that amount to your regular payment every month.
Not financial advice. This is an estimate for education only. It assumes a fixed rate and that every extra dollar goes to principal. Your lender's numbers may differ slightly.
Pay it off, or keep the money?
- Paying extra is a sure returnEvery extra dollar you put on a 6.5% mortgage saves you 6.5% interest, guaranteed. Few safe investments pay that much.
- But that money gets locked inMoney paid into your home is hard to get back without selling or borrowing. Keep an emergency fund first, and don't skip a 401(k) match to pay extra.
- No payment in retirementOnce the house is paid off, your monthly costs drop, and your savings have less to cover. Many retirees find that peace of mind worth a lot.
Common questions
Should I pay off my mortgage before I retire?
Many people do, because it lowers what they need each month in retirement and removes a big bill. It makes the most sense when your rate is high, you already have an emergency fund, and you are getting any 401(k) match. If your rate is low and the extra money would otherwise sit in savings earning less, there is less to gain. The calculator above shows what being done by retirement would take.
How much do extra mortgage payments save?
More than most people expect, because every extra dollar cuts the balance that interest is charged on. On a $250,000 balance at 6.5% with 25 years left, $200 extra a month saves about $65,000 in interest and finishes about 5½ years early. Enter your own loan above to see your numbers.
Is it better to pay off my mortgage or invest?
Paying extra earns exactly your mortgage rate, with no risk. Investing in stocks has averaged more over long periods, but it can drop, and it can drop right when you retire. Many people split the difference: keep investing for retirement and put some extra toward the mortgage.
Do extra payments go to principal?
They should, but check. When you pay extra, tell your lender to apply it to principal, either with a box on the payment form or a note. Your next statement should show the balance going down by the extra amount.
Is there a penalty for paying off a mortgage early?
Most home loans today have no prepayment penalty, but some older or special loans do. Your loan papers will say, or you can ask your lender.
Will I lose a tax break if I pay off my mortgage?
Only if you itemize deductions. Most households now take the standard deduction, so they get no tax benefit from mortgage interest. A tax professional can tell you what applies to you.
Should I use my 401(k) or IRA to pay off my mortgage?
Be careful. Money taken from a traditional 401(k) or IRA is usually taxed as income, and a big withdrawal can push you into a higher tax bracket. Before age 59½ there is often a 10% penalty too. Spreading extra payments over several years usually costs less.
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