Paying off your mortgage can be a game-changer for your financial health and overall financial confidence. Data collected by NASDAQ suggests that while only 28% of homeowners below retirement age have paid off their homes, nearly 63% of those 65+ have done so. These statistics highlight Americans’ importance in entering retirement with freedom from what is usually their highest monthly fixed cost.
Achieving the goal of being mortgage-free by age 50 is ambitious – student loans, college savings, and retirement planning often crowd out the 15-year mortgages or double payments needed to be debt-free by middle age. However, entering your 50s with a paid-off primary home is possible through strategic planning and disciplined execution. Here are a few keys that provide a roadmap on how you can do it.
Paying off a mortgage is a major financial milestone for homeowners While a 30-year mortgage is the most common loan term, many borrowers pay off their home loans years before reaching the end of the term The average age that most people pay off their mortgage may surprise you.
Why Paying Off a Mortgage Early Matters
Owning your home free and clear offers many benefits
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You’ll no longer have a monthly mortgage payment, freeing up cash flow. This extra money can be invested or used to meet living expenses.
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Your home is a valuable asset. Eliminating the mortgage builds your net worth.
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You’ll save money on interest charges. You’ll pay less interest over time if you pay off the loan faster.
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It provides peace of mind and financial security knowing you own your home.
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You’ll have one less bill in retirement when funds can be tighter.
Because of this, financial experts often say that if you want to get out of debt faster, you should make extra mortgage payments. But in reality, how soon can the average borrower get rid of their mortgage?
Average Age When Most Pay Off Their Mortgage
According to the U. S. The Census Bureau says that the highest rate of home ownership is among people aged 65 and up, when almost 80% of those aged 65 and up own their own home. It’s important to note that almost 263 percent of Americans aged 65 and up have paid off their mortgage.
This data indicates most people pay off their home loan in their early to mid 60s. Industry research suggests the average homeowner pays off their mortgage around age 63.
This tracks closely with the original length of most mortgages. The most common loan term is 30 years. If you take out a 30-year mortgage in your mid 30s, which is typical, you would pay it off before retirement in your early to mid 60s.
Of course, this is just an average. Many people pay off their mortgages years earlier or later. Factors like your mortgage term, interest rate, income, expenses and extra payments change the timeline.
Why Some Pay Off Mortgages Earlier
While the average payoff is the early 60s, it’s possible for many homeowners to become mortgage-free sooner. About 28% of homeowners under age 65 have paid off their mortgage, per the Census. Why do some pay off loans decades before the end of the term?
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A shorter mortgage term is better because it takes longer to pay off a loan with a longer term. If you choose a 15-year mortgage over a 30-year mortgage, you can pay off your loan in 15 years instead of 30.
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Making extra principal payments – Adding extra to your monthly payment goes directly to the loan balance, helping you pay the mortgage down faster.
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Refinancing to a lower rate – Refinancing your mortgage can lower your interest rate, which reduces the total interest paid over the loan’s life, getting you to payoff sooner.
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Paying off with a lump sum – Some people pay off their mortgage all at once with funds from an inheritance, business sale or other windfall.
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Prioritizing mortgage payoff – Some households decide to aggressively pay their mortgage before other financial goals, making major lifestyle cuts to put as much money toward the mortgage as possible.
The Case for Paying Off Slowly
While paying off your home ASAP sounds ideal, some experts argue it can make sense to take a more balanced approach. Here’s why:
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Mortgage rates have been around just 3-6% recently – lower than average historical returns in the stock market. Some argue you may come out ahead investing extra funds instead of putting it all toward your mortgage.
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Having a paid off house can lead to a false sense of financial security. You still need liquid savings and proper insurance.
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Money tied up in home equity can’t be accessed easily for other needs compared to liquid accounts.
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Low rates mean the interest portion of a mortgage payment is smaller now. Less money goes to interest vs principal each month.
The reality is there is no one size fits all approach to paying off a mortgage. Each homeowner’s situation is different. While being mortgage-free by retirement is ideal, it may not happen by age 63 for everyone.
Tips To Pay Off Your Mortgage Early
For those looking to pay off their home faster, here are some tips:
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Make bi-weekly payments instead of monthly to shorten your term and reduce interest.
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Cut discretionary expenses and redirect the savings to extra mortgage payments.
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Refinance to a shorter term loan like a 15-year fixed rate mortgage.
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Recalculate your payment to ensure you’re paying extra, not just the minimum.
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Avoid cash-out refinancing which goes against the goal of paying off your mortgage.
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Consider making a lump sum payment with any windfalls like bonuses or tax refunds.
Paying off a home by retirement is a major feat. While the average payoff age is the early 60s, with focus and discipline, you may be able to become mortgage-free faster. Analyze your budget, crunch the numbers and explore strategies to determine the optimal payoff target for your situation.
Make Bi-Weekly Mortgage Payments
If your lender lets you, switching from monthly to bi-weekly mortgage payments is a good way to get rid of your debt faster. Instead of making one payment per month, make half of your monthly payment every two weeks. This results in 26 half-payments, or 13 full payments, over the course of a year, effectively giving you one extra payment annually. This additional payment goes directly towards the principal, helping to reduce the loan balance faster. Note: You’ll need to figure out how much of the payment goes toward your monthly mortgage payment so that you don’t pay your insurance and/or property taxes twice.
The Wall Street Journal highlights that homeowners who switch to bi-weekly payments can save thousands of dollars in interest and pay off their mortgage several years earlier than those who stick to monthly payments. This strategy also aligns your mortgage payments with your bi-weekly paychecks, making it easier to manage your finances and maintain consistent payment schedules. By making bi-weekly payments, you can significantly reduce the time it takes to pay off your mortgage and achieve financial freedom sooner. According to the WSJ’s analysis, this means the payoff date of a 6.5% mortgage is in Year 24 instead of Year 30.
Create a Realistic Budget and Stick to It
Creating a realistic budget is the first step toward paying your mortgage early. One of the foundational principles in budgeting is the 50/30/20 rule, which suggests allocating 50% of your income to necessities, 30% to wants, and 20% to savings and debt repayment. However, for high-income families, this distribution can be adjusted. With more disposable income, it’s feasible to contribute a larger percentage to spend down any outstanding debt faster, plus increasing your allocation toward savings and investments. You can make significant progress over time by redirecting such funds toward your mortgage. People who can maintain their investment plan are more likely to achieve their goals, including early mortgage payoff. According to Kiplinger, using budgeting tools and apps can help you track your spending and ensure you stay on target between meetings with a financial professional. Consistently adhering to your budget allows you to make extra payments toward your mortgage principal, which reduces the overall balance faster and saves on interest in the long run. This disciplined approach is essential for achieving financial freedom before age 50.
At what age should you pay off your mortgage?
FAQ
Should you pay off your mortgage by age 45?
First, it’s important to realize that many Americans are not in the financial position to pay off their mortgage by age 45. New data shows that the average age of a first-time homebuyer is now 36, which is the oldest age it has ever been. That only gives the average homeowner 9 years to pay off their mortgage, which most people will find short of enough time.
How long should a mortgage be paid off?
The most common mortgage term in the U. S. is 30 years. A 30-year mortgage gives the borrower 30 years to pay back their loan. Most people with this type of mortgage won’t keep the original loan for 30 years. In fact, the typical mortgage length, or average lifespan of a mortgage, is under 10 years. What age should you have mortgage paid off?.
How many people are still paying off a mortgage?
In fact, across the country, nearly 10 million homeowners who are still paying off their mortgage are 65 and older. How long does the average person take to pay off their mortgage? The most common mortgage term in the U. S. is 30 years. A 30-year mortgage gives the borrower 30 years to pay back their loan.
What percentage of Americans pay off their mortgages?
However, there are some data points from reliable sources like the U. S. Census Bureau that can shed some light on the mortgage-paying habits of average Americans. For example, according to the Census Bureau, fewer than 28% homeowners below retirement age have paid off their homes completely, as opposed to almost 63% of those 65 or older.
Do you expect to be over 65 before paying off your mortgage?
Over one-sixth of people think they will be over 65 years old before they pay off their mortgage in full. Opinionum did a survey for Hargreaves Lansdowne in May 2017, and 2017 of the 2,000 people who were asked said they planned to be over the age of 65 by the time their mortgages were paid off.
Will you ever pay your mortgage if you’re over 70?
Almost one in ten people expect to over the age of 70 before they are mortgage free. While 9% of the survey respondents did not believe that they would ever pay their mortgages. Among those who are over the age of 55 and currently have a mortgage, one in five believed that they would still be making mortgage payments over the age of 70.
What age does the average person pay off their mortgage?
What percentage of people pay off their mortgage?
40% of Americans Pay Off Their House — Are They Doing Better Financially? For most Americans, a home mortgage is the biggest financial obligation they will ever have. A traditional mortgage spans 30 years and is often in the hundreds of thousands of dollars, so the interest charges can be enormous.
What does Dave Ramsey say about paying off a mortgage?
Opportunity costs To be fair, Ramsey does not advise paying off your mortgage as a first step. He wants you to pay off all of your other debt first and then start setting aside 15% of your money to stick in mutual funds. Only after you do these things does he tell you to pay off your mortgage.
Do most people have their mortgage paid off when they retire?
The conventional wisdom is that you should pay off your mortgage before you retire. Yet many in their senior years do not, choosing instead to retire with a mortgage. Indeed, over 10 million homeowners paying off their mortgage are 65 and older, according to a study by mortgage broker LendingTree.