Retirement is time for many things: traveling, deepening friendships, and developing hobbies.
Traditionally, it has not been a time for continuing to make mortgage payments.
And yet, over the past few decades, that’s become the case increasingly.
Between 1989 and 2022, the share of homeowners aged 65 to 79 with a mortgage rose by 17%, and the median mortgage debt jumped by over 400%, according to Harvard University’s Joint Center for Housing Studies.
If you’re staring down the possibility of carrying your mortgage well into your retirement years, you may want to start putting in place strategies for paying off your home loan earlier than planned.
Although there’s nothing inherently wrong with still having a mortgage at age 78, not having to deal with it sounds much more relaxing, doesn’t it?
Explore accelerated payment strategies
The most obvious solution to paying down your mortgage more quickly is doing exactly that: making extra or accelerated payments to finish off your loan.
This is—as Jake Vehige, president of mortgage lending at Neighbors Bank, puts it—“the most straightforward method.”
“Due to how amortized loans are structured, much more of your payment goes toward the interest at the beginning of the loan,” says Vehige. “The more quickly you pay down the principal, the more of your payments go toward principal.”
Remember: When you take out a mortgage, your monthly payment to your lender is split between the principal—what you borrowed—and the interest you owe. At first, your payments mostly go toward your interest. Later, they go more toward your principal. By paying off your principal more quickly, less interest will accrue on your next bill.
You can make extra payments toward your loan at any time. Just be sure to note to your lender that this payment is entirely for the principal, with a separate check or transfer that is labeled as such.
Confirm with your servicer the best way to make this happen before committing to it.
In addition, if you took out a loan that required you to include private mortgage insurance (which typically happens if you put less than 20% down at the start), taking that off the table is a great shortcut.
“With values increasing at the rate that they have been, most servicers will allow you to get an appraisal completed on your home to prove that you have enough equity to drop private mortgage insurance early,” explains Vehige. “That move alone can save people a ton of money.”
If you’ve been making PMI payments every month comfortably, and now you can apply those payments directly to your principal, you’ll speed up your loan payoff.
Think about a recast or refinance
If you’re looking to adjust your mortgage to make it easier to pay off, you might consider recasting or refinancing your loan.
A recast is a simpler and cheaper option: Make a lump sum payment, then have the lender reamortize the loan—essentially recalculating it based on a new, lower balance but keeping your interest rate and remaining term.
The small fee associated with this is likely worth the smaller monthly payment.
A refinance, on the other hand, totally replaces your loan with a new mortgage at a new rate or shorter term.
If interest rates have dropped, this can save you significant money, but it requires going through the process of loan origination all over again.
Which is better?
According to Vehige, it all comes down to the math, of course.
“A recast only lowers your required monthly payment. It doesn’t really pay down your principal any quicker on its own. However, if you continue to make your previous monthly payment after the recast, the difference in payment is essentially all principal paydown, which does pay it off quicker,” he says.
In today’s environment, where interest rates are higher than they were just a few years ago, a refinance is unlikely to save you enough to make a difference—but it all depends on your current loan.
Think about downsizing early
Downsizing to a smaller home is not a new concept, but it may be an especially useful move in today’s housing environment, where many property values are higher than they’ve ever been.
“Downsizing early is the move nobody talks about enough,” says Gerardo Gonzalez, a real estate agent at Compass in Miami. “I see this all the time in South Florida: A couple in their mid-50s sitting in a four-bedroom house they bought for $400,000 that’s now worth $750,000. The kids are out. They’re heating and cooling rooms nobody uses and paying property taxes on square footage they don’t need. If they sell that house and buy a smaller place in cash using the equity, they just eliminated their biggest monthly expense a full decade before retirement.”
The benefit of doing this earlier than expected and having more proceeds to play with than anticipated can be a game changer for some homeowners.
“I’ve walked clients through this exact scenario, and the look on their face when they realize they could be completely debt-free by 57 instead of 67 is something else,” says Gonzalez.
Consider the opportunity cost
There’s another side to this equation that is worth factoring in: the opportunity cost of putting money toward your mortgage rather than other financial priorities.
“Mathematically, if you’re sitting on a 3% mortgage and the market is averaging 8% to 10% over time, the numbers say invest. But I’ve sat across the table from plenty of people who just want that payment gone. They sleep better. There’s no spreadsheet that accounts for that feeling,” says Gonzalez.
His general advice to clients is that if the mortgage rate is below 4%, invest the surplus.
If it’s over 6%, pay it down aggressively.
Living without a home loan as you head into retirement is a worthy finish line.
Whether you speed up your payments, adjust your mortgage, or downsize early, just make sure the pursuit of that goal doesn’t come at the expense of your others.
The only thing worse than sitting on the beach worrying about mortgage payments is sitting on the beach worrying about your other debt.
