Follow One Simple Rule To Retire Mortgage Debt Free

No one wants mortgage debt on their house when they retire. Want to know how to be debt free when you retire? Follow one simple rule and payoff your mortgage before you retire. It is one of my favorite tips to become debt free and own your home outright without living in a tiny home. I don’t know about you, but I don’t want to have to worry about making mortgage payments when I retire.

Sadly, many seniors still have mortgage debt when they retire.

In fact, 30% of people age 65 or older had mortgage debt in 2011 according to a report from the Consumer Financial Protection Bureau.

Rather than worry about how to pay the mortgage on a fixed retirement income, you can make sure you have your mortgage paid off before retirement by following just one simple rule.

While the rule is simple, it can be very tempting to break it. Here’s what you need to do.

The Simple Rule

When you buy your first house, don’t take out a mortgage that is longer than the number of years you have until you retire.

For instance, if you’re 35 and plan to retire at 65, don’t take out a mortgage longer than 30 years. This way, your mortgage will be paid off right on time if you stick to the payment schedule.

While it seems easy to follow the first part of the rule, the second part is where people have more trouble.

Whenever you get a new mortgage, either through refinancing or buying a new home, make sure the mortgage is the same length or shorter than what you still owed on your last mortgage.

This second part is where people fail.

It’s Tempting To Opt For A Lower Mortgage Payment When Refinancing

When you refinance your loan, almost everyone tries to get you to refinance to a brand new 30 year term loan. Why? This will make your new payment as small as possible.

Since you’ve been paying on your mortgage for a few years, you’ve paid off some of the loan balance. Refinancing a smaller loan balance over a longer period of time will result in a lower payment, even if the interest rate stays the same.

Combine the new 30 year mortgage with a lower interest rate and your payment will be even lower. Sadly, you’ll be stuck with almost no progress toward your goal of retiring without a mortgage and you’ll have another 30 years of mortgage payments to look forward to.

A lower payment isn’t the goal when you’re refinancing, the goal is to save money. You can still refinance your mortgage to take advantage of lower interest rates and save money, but you’ll need to opt for a shorter loan term.

Believe it or not, it is possible to get 5, 10, 15, 20 and 25 year mortgages. You don’t hear about them as much, but they do exist and you should seriously consider them.

It’s Easy To Buy Too Much Home With A 30 Year Mortgage

When you buy your first home, you pay attention to your budget and make sure you can afford the payments on a 30 year mortgage.

However, whenever you decide to sell your current home and buy your next home, chances are you’re still looking to see if you can afford the payments on a 30 year mortgage. That’s a major mistake.

Unless you’re young enough to pay off a 30 year mortgage before you retire, you may be buying too much house by picking a 30 year mortgage for your new home.

In your original home, you worked hard for years to pay off principal of your loan and move closer to no longer having a mortgage.

If you give in now and upgrade to a bigger or fancier home and take out another 30 year mortgage, you’ll have a major setback toward your goal of retiring mortgage free.

Similar with the refinancing situation above, you should seriously consider a shorter term loan when upgrading to a bigger or nicer home.

If you can’t afford the payments on a shorter mortgage that can be paid off before you retire, chances are you can’t afford to upgrade to a newer, bigger or nicer home.

The Key To Retiring Without A Mortgage

Retiring without a mortgage can give you great peace of mind, since what is likely your largest expense will almost completely disappear. Of course, you’ll still have to pay for insurance, taxes and maintenance, but your overall housing cost should plummet.

In order to retire without a mortgage, any mortgages you take out after your very first mortgage should be the same length or shorter than the number of years you have left on your current mortgage.

To do this, find out how many years of payments you have remaining on your mortgage and round down to the nearest five years. For instance, if you still have 21 years of payments left, opt for a 20 year mortgage.

You may have some wiggle room if you bought your first home before age 35, but paying off a mortgage before you retire is a great option, too.

If you did buy your first home extremely young, you may be able to get a 25 year mortgage when your current mortgage only has 23 years left, but you’ll be paying more in interest to do so.

The key is making sure that your mortgage pay off date comes before your planned retirement date.

There Are Other Ways But They Don’t Work As Well

Of course, there are other ways to make sure you retire mortgage free.

Many people will say that you can still get a 30 year mortgage and pay it off as if you had a 10, 15, 20 or 25 year mortgage. This way, if an unexpected event pops up, you can still pay your mortgage and pay for the unexpected event.

While I agree with this methodology in principle, people rarely stick to their goals with this method. A couple years into the mortgage, something will pop up.

You’ll want to buy an RV or you have to replace the air conditioner in your home. You’ll find a way to convince yourself that you can lower your payments for just a few months while things get settled then you’ll start making extra payments again to meet your goal.

However, after reducing your payments, you realize it’s nice to have a bit of extra money laying around, so you never increase your payments back to the amount needed to pay off your mortgage before you retire. Not everyone falls victim to this, but many do.

It isn’t worth the risk if your goal is having a mortgage free retirement.

You May Not Have The Fanciest House

Sticking to the methodology of never increasing the length of your mortgage, even when refinancing and buying a new home, isn’t easy. Your friends and family will probably buy newer, bigger homes that come with another 30 years of mortgage payments.

Don’t give in. Don’t lengthen your mortgage. You’ll be able to retire mortgage free and at a reasonable age while your friends and family could be struggling to figure out how they’ll meet their income needs in retirement.

Chances are your friends may even have to sell that big fancy home and downsize just so they can afford to retire while you’ll be sitting in a paid for home.

Do you want to pay off your mortgage before you retire? What do you think about simple rule to retire mortgage free? Let me know your thoughts in the comments.

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.


  1. As of right now, we have our mortgage payoff date set for about 10-12 years before I plan to retire. It’s actually right now within a goal that I wanted to have it paid off before our kids start college, and as it stands, it would be paid off at the start of our oldest’s senior year in high school.

    • That’s an awesome goal! I think that may be a bit aggressive for some, but it should definitely free up some money if you want to help pay for their college education!

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