You considered the neighborhood. You looked at the surrounding schools. It wasn’t perfect, but you knew that with some landscaping and shiplap, the house could turn into a home.
So you did what everyone does. You took out a 30-year mortgage and bought it.
Little did you know that what you did with that mortgage can make an incredible impact on your retirement, for better or worse.
Retirement years are typically characterized by lower income. Therefore, the presence of a housing (mortgage or rent) payment can immediately consume a large portion of the lowered income.
The presence of a housing payment greatly limits what you are able to do during retirement. But the absence of a housing payment provides great freedom.
For many, the mortgage payment is seen as part of life. It’s like a utility bill, something you pay for the rest of your life. And as they go through life, they rarely pay it down. Instead, they use the available equity to purchase a larger home, rolling one mortgage into the next.
This is a mistake.
One of the wisest financial decisions you can make for retirement is to eliminate the presence of a housing payment by paying off your mortgage. It is a key retirement strategy that most never consider.
Homeownership is a long-term strategy to free up future cash flow.
To work toward a retirement that is free of house payments do the following:
1. Don’t overspend. Don’t push the limits of what type of house you can afford. This will leave you with very little margin to pay down the mortgage more quickly.
2. Don’t upgrade your home just because you can. Regularly upgrading your house usually keeps you further away from being mortgage-free.
3. Don’t really take 30 years to pay off your mortgage. Even if you have a 30-year mortgage, put additional money toward the mortgage’s principle.
However, make sure that before you work on paying off your mortgage that you become debt-free from all non-mortgage debt, grow a 3-6 month emergency fund, and invest 15% of your gross income into retirement. Don’t let a housing payment consume a significant portion of your retirement income. Pay off your mortgage. Be free from a house payment. And live with open hands during your retirement years.
This article was originally published by Art Rainer on his website. Art Rainer is a Vice President at Southeastern Baptist Theological Seminary. He holds a Doctor of Business Administration from Nova Southeastern University and an MBA from the University of Kentucky. He writes widely about issues related to finance, wealth, and generosity. You can read and hear more from Art at his website here!