Should I pay off my home or should I overlook it? This has been one of the biggest and most asked questions by federal employees especially those who are approaching retirement. It is a great question since you should be sure of the best step to take if you want to have an easy time dealing with a mortgage after retirement.
This issue can be handled from two perspectives which are the psychological element and financial element.
People view debts differently. There are those that really hate the idea of being indebted, and they never feel at peace knowing that they owe anyone. In this case, they can live comfortably bearing in mind that they have a mortgage to pay. This is a psychological element, and it can push them to pay their houses off just to get away from the debt.
Some advocates also follow a script from the Bible which says that the borrower is the slave to the lender.
Dealing with debts and retirement
This is one aspect that every individual who is approaching retirement should evaluate. For example, if you are married, you have to discuss the matter with your spouse and decide how you will go about it. How do you feel about debts and more importantly, how do you think about mortgages after retirement? Do you think that having debts will make your life after retirement hard or, can you handle it just fine? This will guide you into saving towards paying for the mortgage. Retirement should never be taken lightly and therefore, if you feel that paying off the mortgage will make your life more comfortable, then it would be a great idea if you focus on doing that first.
This is the second aspect that you need to assess when considering whether to pay off your mortgage or not. This issue comes down to several factors like; the mortgage rate, the loan term and the period until you pay the mortgage off.
Also, consider if there are any tax benefits if you continue having the mortgage. In 2018, new tax law was passed, which may alter the benefits you get from having a mortgage. Previously, families with kids would itemize their taxes, but this has become harder in 2018.
Families that had already itemized their taxes before the law enforcement will find themselves getting the standard deduction. With the new law, personal deductions have been eliminated, and both the local and state taxes have been limited to $10, 000. This has made itemizing hard for the families. The only way the middle-income families will be able to enumerate if they have huge yearly charitable deductions. With this in mind, there is a likelihood that federal employees this year and through 2025 will be taking $24,000 annually as the standard deduction.
How long will it take to pay off the mortgage? If you wish to invest assets for about five years, then there is a possibility that you will lose money to the stock market compared to when you decide to invest up to 10 or 30. Consider the gain you get from investing versus what you lose from interest and weigh your options.
Principal versus interest
How much is your mortgage and what is the interest rate? If you only have a few years left to complete the mortgage, then you have little to gain by paying it off. You can just pay it off and get rid of that one fixed expense. It will give you peace of mind and flexibility after retirement.
Things to avoid when paying down a mortgage
Rule number one; do not use money from your TPS to pay off your mortgage. Regardless of how badly you want to do away with debts, using your TPS money is ever recommendable. It will profoundly affect your taxes since every dollar you take out gets taxed.
Three approaches when paying your mortgage;
- Pay the loan sooner as you save for retirement
- Keep the mortgage and keep investing
- Take an extra amount if you are not sure of the better option between the first and second approach
There is no exact answer to mortgage payment questions. It all goes down to your personal needs and how you view debts. All in all, you have to be cautious before taking any step.