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Friday, August 15, 2025

Ought to You Pay Off Your Mortgage Earlier than Retirement?


A reader asks:

I’m 46 and plan to retire by 55. I’ve calculated that I’ll attain my retirement quantity in one other 6 years giving me an honest buffer for retirement. I’ve a $500k mortgage at 5.625% with 28 years left. I’m comfy with debt and don’t see a giant concern. I agree along with your ideas on liquidity, and inflation decreasing the debt load. The one concern is retiring with the mortgage. We plan to maneuver after retirement and never keep at this home. I’ve run calculations and there’s no important distinction both means. Discretionary spending is barely lowered till retirement within the payoff state of affairs however will increase by $50k over lifetime. It looks as if it’s in the end my choice. I’d admire any options on the right way to strategy it. -Raj

There are a number of good private finance angles to this query.

Initially I’m all the time fascinated as to why folks invariably choose 55 as their early retirement age. I get questions like this on a regular basis. The age is rarely 53 or 57. It’s all the time 55. Possibly folks similar to spherical numbers.

Paying off your mortgage early is a hotly debated private finance matter. Each side of the argument have sturdy emotions.

I’ve talked to loads of individuals who have paid off their mortgage early and none of them remorse it. It’s extra about peace of thoughts than a spreadsheet choice. That’s comprehensible.

Nonetheless, I do really feel strongly that it principally by no means is sensible to repay a low-rate mortgage early. And loads of folks nonetheless have ultra-low charges from the pandemic:

Ought to You Pay Off Your Mortgage Earlier than Retirement?

Round 60% of all mortgages are 4% or much less. While you issue within the tax breaks and inflation it simply doesn’t make sense to me why you’ll need to do away with debt at such favorable charges. You’ll should pry my 3% mortgage from my chilly, useless arms.

To every their very own I suppose.

Nonetheless, I feel the calculus adjustments when contemplating early retirement.

Retirement itself entails a seemingly never-ending listing of unknowns — future returns, inflation, your lifespan, rates of interest, sudden occasions, household circumstances, sequence of returns, withdrawal charges, and so forth. Retirement requires taking an enormous leap of religion. Retiring early solely provides to the diploma of issue.

I like the truth that Raj ran the numbers right here to know the monetary impression of paying off the debt.

As a lot as I hate paying off your mortgage early, I truly like the thought of getting no mortgage in retirement. It presents an added margin of security and peace of thoughts.

One of many causes a fixed-rate mortgage is such an excellent deal is as a result of your wages ought to develop over time. While you retire there are not any extra wages to depend on to assist shoulder that month-to-month mortgage burden.

However there may be one other piece of knowledge he shared with us right here that’s related — Raj and his spouse don’t plan on staying in the home after they retire. That adjustments the equation for me.

You nearly have to take a look at this from extra of a monetary asset perspective than a private finance angle.

In case you’re planning on promoting the home if you retire anyway I don’t see the necessity to repay your mortgage. Both means, you’ll obtain the proceeds from your house fairness if you promote. Sure, the quantity could be a lot bigger when you paid it off earlier, however that additionally means you’ll be tying up that cash as an illiquid asset within the meantime.

Who is aware of what the housing market will appear like if you go to promote in a decade? What when you can’t promote as rapidly as you want to?

That is the sort of selection the place there probably isn’t any proper or improper reply. All of it relies on your relationship with debt, illiquidity and threat.

You additionally should keep in mind that 9 years is a very long time. Possibly your plans change. Possibly circumstances change.

I might put a premium on flexibility.

We coated this query on this week’s Ask the Compound:



Barry Ritholtz joined me on the present this week to debate questions on timing market corrections along with your financial savings account, how your portfolio ought to look heading into retirement, managing your dad or mum’s monetary plan and the right way to power your self into splurging a little bit when you’ve gotten greater than sufficient cash.

Additional Studying:
How A lot is a 3% Mortgage Price?

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