As retirement nears, sorting out financial affairs becomes a top priority. A mortgage is often one of the largest debt payments families have to pay. Low interest rates mean families can keep their mortgages at a lower cost, but paying off the house is still beneficial. If paying off the mortgage requires you to dip into your retirement savings, weigh the benefits to determine if they warrant using that money.
Entering retirement without a mortgage payment provides a sense of financial security and peace of mind. Even those who have prepared for retirement may face a financial disaster that would drain those accounts. Without a regular paycheck coming in, covering basic expenses can become a challenge if your retirement situation changes. By eliminating the largest debt payment every month, retirees have a smaller financial obligation each month if retirement funds are suddenly decreased. When you own your home outright, you have the security of a place to live even if your situation changes.
If you pay off the mortgage well before you retire, you free up that money each month to go toward other areas in the budget. The amount you once paid to your mortgage each month can go toward savings, investments or expenses. When you retire, you have a larger amount of money to go toward other expenses, traveling and hobbies you want to pursue, because the mortgage isn't eating up your retirement income. You can also reduce the amount of money you need to retire, since you won't have a large mortgage payment each month.
With your mortgage is paid off, you create a greater sense of flexibility for your retirement years. You reduce the need for a part-time job in retirement to keep up with expenses, allowing you more flexibility in your activities. Traveling is an option when you can leave behind a house you own outright. Retirees aren't completely tied to a home that is mortgage free.
Without a mortgage tied to your home, you have more real estate options. Should you need money for a particular expense, you have the option of a home equity loan or reverse mortgage. The lack of a mortgage on the property means you have greater equity to borrow against in that situation. You also have greater flexibility to sell your home when you don't owe a large amount on it. You won't find yourself underwater on the house if the market changes significantly. If you decide to downsize, you are more likely to make enough off the sale of your home to pay for your new place.