Having a paid off house by retirement age is a worthy financial goal that provides security, flexibility, and peace of mind. With careful planning and disciplined saving, it may be possible to pay off your mortgage years before retirement. Below we’ll explore the factors that determine the ideal age to have your home paid off.
The benefits of an early mortgage payoff
Paying off your mortgage early has several advantages:
- You’ll save money on interest. The less interest you pay over the life of the loan, the more money you’ll save.
- You’ll build home equity faster. Extra mortgage payments go straight to principal, building your equity more quickly.
- Your cash flow will improve. Not having a monthly mortgage payment frees up cash that can be invested or used for other goals.
- You’ll be insulated from housing market fluctuations. With no mortgage payment, you won’t be impacted if home prices drop.
- You’ll have peace of mind and financial flexibility. Owning your home free and clear gives you security and options.
These benefits make an early mortgage payoff a worthy financial goal. The next question is: when is the right age to have achieved this goal?
Factors that influence target payoff age
Several personal factors influence the ideal age to have your mortgage paid off completely:
- Current age and mortgage terms. The younger you are when you buy a home and take out a mortgage, the more time you have to pay it off before retirement age. Longer mortgage terms (e.g. 30 years versus 15 years) also give you more time.
- Income and expenses. The more disposable income you have after covering necessities, the faster you can make extra mortgage payments and pay off your loan early.
- Lifestyle goals and priorities. If travel, hobbies, or providing for children are higher priorities, you may accept a later mortgage payoff date.
- Job security and health. If your income is less certain years before retirement or health issues are a concern, your target date may be closer to retirement.
- Risk tolerance. If having a paid off home gives you peace of mind, you may push to pay off your mortgage sooner than someone more comfortable with debt.
Understanding how these personal factors impact your situation can help you choose a realistic target age to have your home paid off.
Common target ages for an early mortgage payoff
Looking at all the above factors, here are some common target ages that may be realistic for paying off your mortgage:
- 45-55 years old – If you bought your first home in your late 20s/early 30s, this gives you 15-25 years to pay off a 30-year mortgage.
- 55-65 years old – Paying off your mortgage right before or soon after retirement allows more flexibility for those years.
- 65-75 years old – Focusing on retirement savings first, then paying off the mortgage shortly after retiring.
A survey conducted by financial website Bankrate in 2021 asked homeowners when they felt it was important to pay off their mortgage. The top three responses were:
| Age | Percentage |
| Before age 65 | 32% |
| By retirement | 28% |
| Doesn’t matter | 26% |
While over half felt paying off their mortgage by age 65 or retirement was important, a significant portion said the timing was not a concern. This aligns with the fact that your own personal factors should determine your target payoff age.
Strategies to pay off your mortgage early
Once you’ve set a target payoff age, here are some proven strategies to help you meet that goal:
Make extra principal payments
Making extra payments directly to your mortgage principal is the most direct way to pay off your loan faster. Even an extra $100/month can shave years off a mortgage. The key is consistency, making these extra payments as early and often as possible.
Refinance at a lower rate
Refinancing your mortgage at a lower interest rate reduces your overall interest costs. This allows more of your payment to go to principal instead of interest each month. Shop around for the best rate whenever there is a downward trend in mortgage rates.
Pay biweekly instead of monthly
Making half your normal payment every two weeks means you end up making 26 half-payments per year. This equates to 13 full monthly payments, allowing you to pay off your mortgage a full year early.
Pay lump sums
Tax refunds, work bonuses, inheritance money – any large lump sums can be put directly toward your mortgage principal to make a big dent in your remaining balance.
Avoid cash-out refinancing
While refinancing your rate lower helps pay off your mortgage faster, cash-out refinancing has the opposite effect. Taking cash out increases your principal balance and interest costs.
Cut housing and lifestyle costs
Reducing your housing costs by downsizing or renting out part of your home gives you more room in your budget to make extra mortgage payments. Cutting back discretionary spending also frees up more cash flow.
Implementing several of these strategies starting early in your mortgage term can have a compounding effect. Consistent extra payments and lump sums over time help you steadily chip away at your principal.
Should you make mortgage payoff a priority?
While striving to pay off your home by retirement is a worthy goal, it should be balanced with others like:
- Saving for retirement – Maxing out tax-advantaged retirement accounts like 401(k)s and IRAs should take priority, given their tax benefits.
- Building your emergency fund – Aim for a minimum of 3-6 months of living expenses in savings as a safety net.
- Contributing to college savings – If you have kids, setting aside funds for college avoids student loans down the road.
Run the numbers to find the right balance between extra mortgage payments, retirement and other savings based on your situation. An early mortgage payoff is impactful, but shouldn’t come at the expense of other important goals.
Alternatives to strive for if early payoff isn’t feasible
For some homeowners, paying off their mortgage decades early simply isn’t realistic. Children, high living costs, job uncertainty or other factors can limit the ability to make extra payments. In those cases, here are some alternative goals to reduce interest costs and mortgage risk:
- Pay down 20% of the principal – Reaching at least 20% equity protects you from expensive private mortgage insurance.
- Build a larger emergency fund – Having 12-24 months’ expenses saved gives a strong safety net if your income is disrupted.
- Pay off other debts first – Credit card, auto loan and student loan debts often have higher interest rates than a mortgage, so pay those down aggressively first.
- Refinance your rate lower – Even if you can’t pay extra, refinancing your mortgage rate down can save you tens of thousands in interest.
While not as impactful as paying off your mortgage completely, these alternatives still put you in stronger financial shape.
The path to an early mortgage payoff
Here are the key steps to follow to work towards paying off your house before retirement:
- Set a target payoff age based on your personal situation and priorities.
- Make a detailed budget to find opportunities for extra principal payments.
- Build emergency savings and take advantage of employer retirement plans.
- Start making extra mortgage payments as early as possible.
- Have your progress annually reviewed to stay on track.
- Refinance your rate lower whenever there is opportunity to do so.
- Stick to your budget and be consistent with extra payments.
With discipline and commitment to consistency, you can make an early mortgage payoff a reality. This takes your retirement housing costs down to just insurance and property taxes. The peace of mind of owning your home free and clear is well worth the extra effort.
Conclusion
Aiming to pay off your mortgage by retirement is a smart strategy that leads to financial security. But your own personal situation should drive the target age that is right for you. Those able to make extra principal payments consistently from an early age are most likely to achieve this goal. For others, even paying down 20% of the principal or refinancing for a better rate makes a meaningful impact. With some discipline and focus, an early mortgage payoff can become a reality for many homeowners.