Which is better paying off a mortgage or funding retirement accounts for early retirement?

Answer 1

The recent high gains notwithstanding, homes average about a 5 percent annual gain over long periods of time. Your return by paying back your mortgage early is probably only slightly higher than that.

You can easily beat those returns in a balanced stock/bonds portfolio. Some reason that they'll pay off the mortgage early, and then invest whatever funds would have gone toward the mortgage into retirement accounts. Seems reasonable, but this approach forgets the power of long term compounding possible in tax deferred retirement accounts. A dollar invested today to pay down your mortgage would be worth easily five times that after 20 years of compounding.

And finally, don't forget that while your house is going up in value, so is the relative cost of other homes. When it's time to retire and sell your house, you'll have to move into a new place, are you willing to significantly downgrade to have enough money left over to live on?

Answer 2

My opinion, go for the retirement savings. The amount you earn with a decent fund will be better than the interest you pay on the mortgage. When you retire, it doesn't matter if you own your house free and clear if you have no money to live on. You would just have to sell it for living expenses, or try to find a lender that would give a loan to someone with no job. Never mind the fact that you just took out a new mortgage on a house that you worked to pay off, which caused you to have no retirement savings.

Answer 3

The younger you are, the better it is to fund the retirement account. If you expect to retire soon then:
a) if your govt provides support based on yearly income, get rid of the mortgage debt.
b) if your govt provides support based on net assets, keep mortgage debt.

I would say that if you're younger than 45-50, your retirement account could use the boost more, and if you're older, you would benefit from not having to pay the mortgage payments when you retire at 65.

Answer 4

If your really makeing good $, then I suggest you split the difference. This way you'll be way ahead. Like one month make a double mortgage payment then next month make a single mortgage payment and put that extra money in a seperate account for retirement. If you do it this way you'll always have a good reserve and at a point if you have enough in your savings pay off mortgage But still continue to make payments, but only to your saveings account to replace what you used.

Answer 5

Paying off your mortgage means all that money that you spend monthly or yearly can go to funding retirement. Besides that you get equity, and collateral if you ever need to buy anything. You can even use your house as a way to buy other property to rent out and pay for itself and after it is paid off the rent will go in your pocket, or retirement. Also if you ever get in a tax bind you could always use your property as a write off.

Bless

Answer 6

There may be an account with a higher interest rate, the type where you have to give notice to withdraw - would be good as a long term investment. The amount you estimate to get would give you an income of around £30,000 per annum, for a period of 20 years. this may not be sufficient given inflation and the fact that you may live to 100! Once you have a considerable 'pot' of savings it may be worth looking into an investment plan which would also give you an income. But for that you would need an independant financial adviser - the man at the bank will no doubt be biased towards the people who pay him!

Answer 7

depends if you get charged for an early pay off fee. get a cd from your local bank and use this towards your retirement. the cd rolls over so many months and the money doubles. say you put 500 on a cd, in 6 months, it rolls over to 1000, and so forth. just ask your bank if interested in this. plus this will be additional money by the time you retire and you can use that money earned from the cd to go on vacation or whatever wants you have. Early retirement isnt always the best road to go. What happens after you run out of retirement funds, because you settled for less, you could lose everything or might have to go back to work to make bills meet on time and not be behind.

Answer 8

Paying off the mortgage. You are making the banks richer... your house is also a mode of savings!