Thursday, October 2, 2014

Paying off a Mortgage before Retirement

As we get older and closer to a retirement age, it is important to have a comprehensive retirement plan in place. This includes a steady flow of income of which you will survive on after retiring. To achieve this, it often requires you to reduce outstanding dues, debts, loans, or mortgages as much as possible.

Mortgage payments that are high will eat into your retirement plan, and this may lead to a financial future that is not as secure as you intended. This is why most people prefer to pay off their mortgages before retiring, or reduce the outstanding balance to manageable levels.

There are various ways in which one can successfully pay off their mortgage before retirement is apparent. You will still need to pay associated fees like home owners associations and property insurance taxes. However, eliminating the principle and interest from you list of bills before retiring will significantly improve your income. Paying off a mortgage depends on a lot of factors including:

• Current budget and income
• How deep into payment you have reached
• Loan terms and balances

It is important to clearly map out your budget and income to see places you can adjust to provide increased payments towards the mortgage. This usually results in increasing monthly payments so that the duration is shortened.

Refinancing is a possible option for reducing the period of repayment. Refinancing for a shorter term may reduce your paying period by five or more years depending on the amount you are capable of comfortably paying. Refinancing does have additional closing costs and transaction fees.

Some people will be better off paying extra costs in their current payment scheme rather than refinancing and then incurring closing costs. One of the most effective ways of paying off mortgages before retirement is through extra payments. Add extra payments during the course of payments or better yet, pay lumps of money after receiving reliefs like tax-deductions or refunds. This will have a big difference in your overall interest. Your outstanding balance will also be significantly reduced. Adding extra payments will definitely give you the liberty of being mortgage free a few years before the original plan. It also goes a long way in reducing the total amount of interest you end up paying.

It is important to contextualize your mortgage payoff decision. This does not only set defined targets and commitments but also clearly exposes impractical solutions. Eliminate other side-debts that are not tax-deductible before you begin paying off a mortgage. You may want to see an experienced financial planner and lender to discuss your status and options.

Paying off mortgage interests and principle before retiring is very important. The steady income used in payments during working years is no longer available, and paying mortgage from your pension plans may be strenuous on your budget. It is also important to ensure you make all the necessary payments in time to avoid rising interests and penalty fees that may extend your owing period.

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