5 Questions to Ask Before Paying Off Your Mortgage

Blog posted On December 09, 2021

Entering retirement without any debt sounds ideal but rushing to pay off your mortgage might set you back more than you think. Before you rush to pay off your mortgage, ask yourself these five questions.

1. Where will you get the funds to pay off your mortgage?

Few people actually buy their homes outright and spend $450,000 upfront. Mortgages are typically paid over a long period of time. But if you’re looking to pay off your mortgage in full, you will likely need to have a lump sum of money prepared. The size of the lump sum will affect your ability to pay off your mortgage. Let’s say you have $15,000 of mortgage payments left before you own your home in full. If you have $15,000 of extra cash in your bank account, then it might be worth paying off your mortgage right away. But if you have something like $115,000 left on your mortgage, you might want to think twice about paying it off in full. Dipping into retirement savings and withdrawing money might be considered a taxable withdrawal, which could push you into a higher tax bracket. Regardless of the amount left on your loan, you want to make sure that you’re not raiding your retirement savings to pay off your mortgage and putting yourself in a tight position financially.

2. Could the funds be earning more money somewhere else?

Even if you do have the extra money lying around, it might be put to better use elsewhere. Rather than spending it all on your mortgage right away, you may want to consider investing in stocks. If you’re already comfortable with your current stock investments, paying off your mortgage might not be a bad idea.

3. Can you deduct mortgage interest?

Tax deductions on your mortgage interest are one of the biggest benefits to paying off a home loan. If you pay off your mortgage in full, you won’t be able to deduct your mortgage interest from your taxes anymore. Tax deductions on mortgage interest are particularly useful for homeowners who live in areas with high taxes. The higher your income and property value, the more valuable mortgage deductions are.

4. Can you get a HELOC?

A HELOC, or home equity line of credit, is another useful advantage to paying a mortgage gradually. With a home equity line of credit, you can use the equity earned in your house to finance other investments. Unlike a cash-out refinance, a home equity line of credit allows you to withdraw money whenever you need it. You could either go with the conventional HELOC, or our unique, proprietary All in One Loan™.

5. Would you be able to qualify for another mortgage?

Getting another mortgage and retirement can be hard. So, unless you’re planning on retiring in the house you want to pay off, you might want to hold onto your money.

Although it can be tempting to wipe your debt slate clean before you went to retirement, there are a lot of factors to consider. If you would like to compare different payoff scenarios, visit our mortgage calculator page. If you’d like to discuss your options with a loan expert, let us know.

Sources: Forbes