3 Killer Reasons You Shouldn’t Rush to Pay Off Your Mortgage During Retirement
After retirement, you’ve definitely got better things to do with your money, like saving for retirement, purchasing a new house or even living it up a little. Today, people are carrying much more mortgage debt in their mid-ages than their ancestral did at their time. While some individuals are willing to invest again to purchase another home, and a large amount of people are looking for an easy way to get rid of their mortgage debt forever.
According to a recent study, the debt payments are higher than their incomes for a great percentage of individuals, and this tendency has been rising at their highest level during the last couple of decades. As a result, a huge number of elderly families are now likely to find them at a severe risk of changing lifestyle after retirement.
“Don’t be afraid to take a big step. You can’t cross a chasm in two small jumps.” — David Lloyd George
Prior to take a refinancing decision into a shorter-term loan or making additional payments in order to pay off their mortgage, individuals should make sure they have considered these following three steps:
First, Pay Off All Your High-Interest Debt:
You need to pay off all your high-interest debt (credit card debts) at the very first time after retirement, if you want to live a debt-free life. You can easily improve your credit score by paying off all your credit card bills and limiting using less than 30% of your available credit limit. The more your credit card score will improve the more you will get the best available rate on your mortgage. This would likely to help you if you think to re-invest at near future.
Start Maximize Your Contribution for Retirement Savings:
You need to start maximize the contribution limit for the retirement savings even from when you’re working. This would help you get a tax break. There are tax benefits when lower-income people make retirement contributions. As a result, you save taxes on the money going in. It’s true that you will owe taxes when the money comes out, but for the most number of people tax rate falls in a great extent after retirement comparing to the time when they are working. Hence, you can spend your money in the market and get better returns compared with paying off a low-interest rate debt.
Keep Your Emergency Fund Ready:
It’s always more important to saving money in an emergency fund in the years leading up to retirement than spending money for a different reason. After all, your emergency fund in the bank can pay your utility bills, which a home equity will never can.