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How to pay off your mortgage before retirement


Close-up of a front door painted teal with a gold doorknob

It’s easy to see why entering retirement debt-free (or as close to debt-free as possible) is ideal. Eliminating a big debt early on could save you thousands of dollars in interest, freeing up money that could be added to your retirement savings and start gaining compound interest instead.

Another thing to consider is that keeping up with large debts becomes more difficult in retirement. As your income takes a dip, a mortgage is one of the most common expenses that’s hard to maintain.

While many believe mortgage tax deductions are enough to balance out mortgage interest, that’s not always the case. A mortgage tax deduction is not a dollar-for-dollar payback; it only covers a percentage of it. Another relevant factor is the 2018 tax reform. As the standard deduction rose, so did the requirements for itemized deductions. Items such as mortgage interest and local taxes now need to exceed the standard deduction amount in order to qualify.

So, how can you pay off your mortgage early?

Setting up additional payments is always a great idea, but first make sure your bank will not charge you any early payment fees.  

Every dollar you pay above your regular monthly balance puts a dent on your principal balance and helps speed up your payoff date. That doesn’t mean you need to start doubling up on your monthly payments. In fact, applying an extra $100 month to the principal on a $200,000 loan with a 5% interest rate on a 30-year term can save you around $36,000 and speed up your payoff by five years.  

Make an extra payment each quarter

If you can’t commit to an extra payment every month, then focus on an extra monthly payment each quarter. Making an extra payment four times in one year could subtract 10 years from your payoff date.

Let the calendar do the work for you

Instead of paying your monthly mortgage, pay half your amount due every two weeks. This method adds up to 26 half payments in a year, which equates to 13 full monthly payments—one additional monthly payment per year that you may not even notice.

Refinance from a 30-year to a 15-year loan

Shorter-term mortgages carry a smaller interest rate. But if you already have a fairly low interest rate, then it might be better to save the closing costs and simply start paying your 30-year loan at the rate of a 15-year loan.

Speak to a financial advisor

There’s peace of mind that comes with owning your home outright. If this is one of your retirement goals, then speaking to a financial advisor can help. They can create a plan to fit your unique needs.

Please note: Financial advice should be tailored to individual circumstances. The stories shared are based on personal experiences and should not be viewed as recommendations. Any specific applications and services noted are not necessarily endorsed by John Hancock or any of its affiliated businesses.

Advisory services offered through John Hancock Personal Financial Services, LLC, an SEC Registered Investment Adviser. Boston, MA 02116. 888-955-542.