Homeowners in their 40s and 50s may find themselves with a great problem to have. There’s extra room in the budget, and if you’re like any smart planner, you’re trying to figure out how to best invest those funds into your future. Do you invest more in your 401(k) or some other retirement account or do you pay down the mortgage?
This choice will depend entirely on your situation.
The upsides of retiring your mortgage early
Add up the advantages of eliminating your house payment for good, and it’s easy to see why you might be all in on this option.
Peace of mind: When you don’t have a house payment to worry about, especially when you reach retirement age, having that monthly expense off your ledgers can give you a nicer budget to work with.
Interest savings: Depending on your mortgage balance, if you pay it off 5, 10 or even 15 years ahead of schedule, you stand to save thousands and thousands, money that can accumulate and grow retirement funds.
ROI: Houses make sound investments, because property, more often than not, accumulates value. Without interest payments to counteract the gains when it’s time to sell, your net worth benefits. Making payments is a risk-free way to grow wealth in the long run.
Reasons to put off paying ahead for now
Making this decision will depend on your unique financial situation. Here are a few things to consider.
Missed opportunity: By investing your extra cash into your house, you may miss out on market gains from investing in your 401(k) — money that could potentially pay down your mortgage payments later. If you’re locked in to an ultra-low interest rate on your mortgage, that can amplify the advantage.
House poor: Once you put your extra money into your house, your capital is locked up until you sell. If times get tough, that can put you in an even tougher position. Before you go gung-ho on paying down the balance, build your safety net. For most people, having three to six months’ worth of expenses on hand is considered a good emergency fund.
Flexible options: Some retirement accounts let you make early withdrawals in certain circumstances, which offers more options if you need to tap into it. For example, you can access your Roth IRA funds to pay for health insurance or medical bills if you’re unemployed.
Figuring out which path is best for you will require meeting and talking with a financial professional. If you need to unlock the capital of your house or you’re ready to refinance, the helpful lenders at Minnwest Bank are there to help you reach your goals.