4 Questions To Ask Yourself Before Paying Off Your Mortgage

By K. Bridget Schneider, CFP®, CRPC®

paying off your mortgage

Paying Off Your Mortgage

Paying off debt can provide such a good feeling that it’s no wonder many retirees set a goal to have their mortgage paid off at retirement.  An obvious reason is to free up some of their retirement income for other things.  But before you decide to do the same, I suggest you consider these questions.

1 Where Will You Get the Money?

Once you reach retirement age, you may be so determined to eliminate that monthly mortgage payment that you consider withdrawing the payoff amount from your retirement accounts.  If these are pre-tax retirement vehicles like traditional IRAs or pre-tax 401(k)s, then this can have big tax consequences.  Not only will you owe income tax on the amount withdrawn, but this amount combined with your other income could move you into a higher tax bracket.  Paying off your mortgage may cause more of your Social Security income to be taxed as well.

Even if you have money in accounts that wouldn’t trigger a large tax bill, such as Roth IRAs or other non-tax qualified investment accounts, you should be careful not to exhaust them.  These types of accounts can be a tax-favored source of monies if needed in the future.

2 What Is Your Time Horizon?

If you haven’t yet reached retirement age, you may still have time to achieve your goal of paying off your mortgage by retirement.  You might consider recalculating your payments so that you can be mortgage-free sooner.  This doesn’t mean you need to refinance your loan.  Instead you might make an additional principal payment every month to get the balance paid off more quickly.

3 Can You Deduct the Interest?

For some taxpayers the ability to deduct mortgage interest has been a key component to their income tax strategy in previous years.  However, following the 2017 Tax Cuts and Jobs Act fewer taxpayers will be itemizing deductions.  This is the result of higher standard deductions and the reduction or loss of expenses that were fully deductible.  But just because the mortgage interest deduction may be less useful now, it may be useful in the future depending on changes to tax law or a taxpayer’s situation.

4 What Are Your Other Needs?

Are there more pressing goals on the horizon other than paying off your mortgage?  Look at your whole financial situation including credit card debt, other loans, and your emergency fund.  Consider whether you are on track for saving what you will need to fund your retirement.  If not, there may be other strategies to consider to help you pursue your goals.

That’s where our financial advisors may be of service.  We can be your friendly financial guide and ally to help with those decisions.  Let us help you make sense of your financial life.  We offer retirement readiness consultation as well as financial planning.  Visit our website today or click here to schedule an initial meeting.

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax advice.  Tax laws and provisions are subject to change.  We suggest that you discuss your specific tax issues with a qualified tax advisor.

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