As you approach your golden years, the prospect of retiring without a mortgage payment can significantly enhance your financial freedom and peace of mind. Clearing your mortgage before retirement reduces financial strain and allows you to allocate your funds to something likely a bit more fulfilling.
While paying off your mortgage is fulfilling, we’re guessing you can come up with other ways you’d rather utilize that money each month. Here are a few tips for accelerating your mortgage payoff.
Increase your monthly mortgage payment
When making a mortgage payment, you have the option to add additional funds to the principal. When paying extra towards the principal, the extra amount paid is subtracted directly from your mortgage balance. If your mortgage payment is $1,500 per month, you know your balance does not go down by $1,500 each time you make a payment. Your taxes, interest, and insurance are likely all lumped together, which is why it takes so long to feel like you’ve put a real dent into your balance.
What if you can commit to adding an extra $500 to your mortgage payment each month? This is a great strategy if you have a solid emergency fund. That’s $6,000 per year, which can greatly reduce the number of years remaining on your mortgage.
This type of strategy is popular amongst people who have smaller balances remaining on their mortgage. Younger homeowners should consider all avenues when it comes to how to allocate that extra $500 per month. While paying down your mortgage is never a bad idea, consider the interest rate. If you’ve had your mortgage for several years, you may have an interest rate under 4%. Now consider if you put that $500 into the stock market and saw a 9% return.
This is simply an example, but you can likely see where we’re going. Some will choose to not increase their mortgage payment as they believe they can make more with their money through investing than they would save by paying down their mortgage.
One consideration is made before bumping up your mortgage payment, make sure you’re properly prioritizing your debt. If you have other consumer debt, at a higher interest rate, you may save more money in the long term by paying down other debts first.
Pay Your Mortgage Bi-Weekly
Another common strategy that may be more realistic is to split your monthly mortgage payment into 2 payments by paying bi-weekly. Not all lenders will allow for this, but it’s worth checking in to. By using this payment schedule, you will make 26 payments per year, which equates to 13 full payments.
This strategy is a simple way to make one full extra payment each year, which will save you thousands in interest and can shave years off your mortgage.
Accountability
No matter what mortgage payment approach you take, you’ll have to commit to it long-term to see a big impact. Consistency is the name of the game — it’s how we win at most things in life. While the concepts may be simple, remaining consistent is often not easy.
Accountability is a great way to stick to it. Do you have a friend that you openly talk about finance with? Consider going at it together, it’s a win-win and you can encourage each other along the way. Getting your spouse or partner on board is also key when making any big financial strategy changes. Lastly, lean on us! We’ll always be here to help you determine the best strategy when it comes to utilizing extra funds in your budget.
If paying off your mortgage is high on your priority list, let us cheer you along while simultaneously prioritizing your retirement. It’s common to have questions revolving around your mortgage when you’re considering retiring. While paying off your mortgage is certainly an accomplishment, don’t let it stop you from living your life.
We’re here to help you navigate challenges just like this — schedule a meeting with Burt to learn more about prioritizing both your mortgage and retirement savings today.
About Integrated Wealth Management
Integrated Wealth Management is owned by Burt Hutchinson, CPA, CFP®. We’re a CPA-led organization, meaning we’re here to handle your complex tax scenarios and provide cost-saving insight related to your financial plan.
We’re here to guide you through the 3 stages of retirement:
Uncertainty Stage: When you are within 10 years of retirement and have questions about how to make it work
Stability Stage: When you have reached the financial milestone to retire comfortably and confidently
Reflection Stage: When you are looking to leave a legacy
We are also here to provide experienced, empathetic support during times of loss, such as the death of a life partner. You need confidence and a sense of security to enjoy retirement. As fiduciaries with a fee-only structure, we never receive commissions. Free of ulterior motives, you can be sure we’re focused on your goals.
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Disclosure Statement:
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax, or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, Past performance is not a guarantee of future results.