Homeownership, Mortgage Debt & Retirement -What you need to know

Homeownership, Mortgage Debt & Retirement, are all things to think about when buying a home. Purchasing a home is a dream for pretty much everyone. Why throw good money behind bad rent money? Why pay someone else's mortgage? Owning a home is one key to building wealth, capital, and a strong financial future, but how you go about it matters.

However, taking on a massive debt can prevent you from retiring earlier, sending the kids to college, or taking a dream vacation. As with any other debt, if you’re able to get rid of your mortgage as soon as possible, the better off you’ll be down the road.

When you think about retirement, you probably think it goes something like this:  

  • Feeling some sense of relief from everyday work stress
  • Not working as much or at all and enjoying your life
  • Taking up hobbies
  • Traveling and doing the things you always wanted to.

You’ve worked hard all your life and now it’s time to focus on you and relax. By your golden years, you should have paid off your debt, built up a big pot of savings, and be able to face the years ahead without fear.

The future is not quite shaping up like that for millions of retirees. In fact, it seems retirees are in more debt than ever. The reality is according to Transamercia Center for Retirement Studies says:

  • Retirees are working longer than ever.
  • The median debt for older Americans shot up 400% between 1989 and 2016, according to the Federal Reserve.
  • 4 out of 10 retirees are focused on paying off debt as their financial priority.
    • 29% are struggling with credit card debt
    • 17% are still paying off a mortgage and
    • 11% are dealing with consumer debt like medical bills or student loan debt and some are coping with a combination of both.

While this sounds disheartening, and overwhelming, there are a few simple  things you can do to set yourself apart and set yourself up for financial security and hit a home run as you approach retirement.

Nevada offers many opportunities to retirees, great weather, entertainment, and lifestyle communities, as well as low property taxes and no state income tax.

Purchase a Home You Can Afford

Live beneath your means. Yes, I know this screams what your mother told you, and if she did, then she was rightIf you want to own a home, more than likely you will need to finance. Most people do not have a lump sum of cash sitting around. When financing, understand your budget and what you can actually afford, not what the bank tells you, you can afford.

 The bank is going to look at your overall financial picture and spit out an amount that you’re likely to get an approved loan for. Some people use this number to set a housing budget, but you may not want to use that figure, it may be higher than you can comfortably afford.

  • The bank is using a formula based on income to assets to determine what you can afford.
  • The bank does not take into consideration your star-bucks habits, your gasoline, groceries and utility bills.
  • They also can’t take into account any new debt you plan on acquiring after the home closes, like new furniture, appliances or remodeling costs.

Pay down your other Debts - Two Effective Methods:

  • Debt Avalanche Method – (My preference)
    • This method involves paying off the highest interest debt first.
  • Debt Snowball Method
    • This method involves paying off the smallest balances first.

I've used both methods and I much prefer option 1, the Avalanche Method. Using this method of pay down, you start with the higher interest debts and credit cards that interest does not overtake the amount of money you can reasonably pay on minimum or just above minimum payments. Once paid off, use this money to pay down other high interest debts. Which one you may want to use depends on your financial situation. The goal of each method is debt reduction. This will help free up money to make extra mortgage payments and put towards your rainy day fund.

How Paying Extra Helps Make You Financially Stronger

`Here are some options for paying extra and examples of how extra payments will affect the average $220,000, 30-year mortgage with a 4% interest rate:

 An extra Mortgage payment each year, could save you $27,000 in interest and pay off your loan 4 years early.


Divide your payment by 12 and add that amount to each monthly payment or pay half of your payment every two weeks, also known as bi-weekly payments. You’ll make one extra payment each year, saving you $24,000 and shaving four years off your mortgage. Alternatively, you can round up your payments so you’re paying at least a few extra dollars a month.


Frugality is simply being more mindful and conscious on what is important to you. This allows you to put your resources towards reaching your personal goals. In simplest terms, it means living below your means and understanding your path to financial freedom.  

Some people grow a garden and eat their own fruit and vegetables, they watch their utilities and water and also cut extras out that are slowly draining their money (Starbucks, cigarettes, gambling, drinking, eating out all the time, extra cable or tv). Whatever it is that you do, there are ways to cut back on spending without always sacrificing on access, it can also make you a little healthier and in the end also save money, which is the whole point.

Being frugal can help you not only attain personal goals, but stay focused on the future, set new goals, help you into retirement earlier, and help you  pay-off your mortgage faster.  Some people who have dual incomes find ways to cut back on spending and realize they can make it on one income and are able to save the other income once debt and overspending have been cut back.

Other Strategies

As noted earlier, the way to quickly pay off your mortgage is to make extra payments as long as your mortgage allows you to, but for many it is a goal out of reach & much easier said than done. Another strategy could be to spend your tax refund on your principal or even split the tax refund between savings and mortgage.

  • Use raises, bonus’s or unexpected windfalls to pay down your mortgage. I never advise everyone to spend their last dollar paying down their mortgage but rather split between savings and mortgage. You need to save as much as you need to pay your mortgage off sooner.
  • Change the loan to a bi-weekly payment, which means you actually make 13 payments in 52 weeks.
  • Refinance to a lower interest rate and continue to make the same higher payment.
  • Recast your mortgage – Recasting is different that refinancing. You keep your existing loan, but you just a pay a lump sum toward the principal. The bank will adjust your amortization schedule to reflect the new balance.  There are some fees associated with recasting but pale in comparison to that of refinancing.

Final Thoughts

Eliminating a mortgage payment means you'll need less income to cover your daily expenses in retirement. Early payoff can result in paying less in interest during the life of the loan. Additionally, it can provide homeowners with an asset that could be leveraged. Homeownership is about financially leveraging yourself and self financing if you had to.

Our society, is based on capitalism. Capitalism embodies and values consumerism and debt. Our society views different debt with a different lenses. For example Consumer perception of debt differs, depending on the kind of debt in question. While most see a home mortgage as a positive investment, they increasingly look at student loan debt as a negative debt. With education costs increasing, people in the United States are incurring more student loan debt. Credit card debt also has negative connotations.

When people are paying down debt & not racking up credit card bills it affects consumer confidence. When markets rallying on high consumer confidence, it actually means HIGH CONSUMER DEBT. A better analogy is provided by investopedia, Consumer debt results in increased consumer spending and production, thereby growing the economy, and achieves a smoothing of consumption

Remember these are not your only options, these are suggestions to get you on the road to financial success. It is NEVER too early to start looking at retirement.

Finally, I’m not a financial advisor, I'm a Realtor who doesn't want to contribute to your financial insecurity. When you buy or sell a home, I want it to be a great financial decision for you. Please do your own research before deciding whether or not to pay off your mortgage early.

Many people think it’s not even possible to pay off their mortgage early, but it truly is. For me, I am invested in my clients well being and if you are buying a home, selling a home, or thinking about real estate in other forms, I am going to help you and provide you with all the tools needed so you can make the best choice for you.


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