A mortgage is the biggest debt most people will take on in their lifetimes. Paying off a mortgage can take many years, with a standard 30-year term being common. However there are differing opinions on when is the optimal time to aim to pay off your mortgage. Here we’ll examine the key considerations around what age you should target being mortgage-free.
The Case For Paying Off Early
Paying off your mortgage earlier than the full term is advocated by many personal finance experts Here are some of the main benefits
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More Cash Flow – Once your mortgage is paid off, the amount that was going to your monthly payments now stays in your pocket. This extra cash flow provides more flexibility in retirement.
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Interest Savings – Paying off the balance early reduces the total interest paid over the life of the loan. This puts money back in your pocket rather than paying the bank.
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Reduced Risk – Eliminating your mortgage removes a recurring monthly bill. This reduces risk if you were to lose your job or face unexpected costs.
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Peace of Mind – Being mortgage-free provides a psychological benefit for many. The security of outright home ownership is comforting.
Personal finance guru Kevin O’Leary is a strong advocate for paying off your mortgage as early as possible, ideally by age 45. His rationale is that once the mortgage is eliminated, you can aggressively invest the freed-up cash during the remaining years leading up to retirement.
The Case For Taking Longer
Paying off slowly isn’t always the wrong approach. Here are some situations where it may make sense:
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Low Interest Rate – Today’s historically low rates mean the cost of carrying mortgage debt is minimized. Investing surplus cash may earn a higher return than the interest rate saved.
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Tax Deductions – Mortgage interest can be tax deductible, so your effective cost is reduced. Drawing down investments that don’t benefit from tax deductions may leave you worse off.
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Alternate Goals – You may have higher priorities for spare cash, such as saving for your children’s education or for a dream vacation. There are opportunities lost if all money is poured into your home loan.
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Uncertainty – Paying off quicker involves making larger payments and tying up more money in your home. This reduces financial flexibility should your situation change unexpectedly.
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Peace of Mind – For some, having a paid-off home provides little extra security. They would prefer to maintain liquidity in their finances.
Essentially, the math comes down to whether your mortgage interest rate is higher than the likely return from investing surplus funds elsewhere. And your peace of mind about having a mortgage needs to be considered.
Average Mortgage Payoff Age
So at what age is it realistic to have your mortgage paid off? According to U.S. Census Bureau data, homeowners below retirement age who have fully paid off their mortgage stands at just 28%. However, this jumps dramatically for seniors aged 65+ to almost 63%.
This indicates that the average mortgage payoff age is in the early 60s, assuming 30-year mortgages taken out in a person’s 30s. Financial website 538.com suggests the average age is around 63 based on wider industry data.
However, the average age is just that – an average. In reality, there is significant variation between individuals depending on factors like:
- Age of first-time home buying
- Mortgage term length (e.g. 30 vs 15 years)
- Size of original mortgage loan
- Consistency and amount of extra repayments
- Income changes allowing step-ups in payments
So while age 63 is the average, it’s certainly possible to be mortgage free 10 or 20 years either side of this figure with the right approach.
Key Considerations For Your Situation
Rather than relying on averages, think carefully about your own specific situation when considering what mortgage payoff target makes most sense:
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Interest rate – The higher your rate, the greater benefit in paying off sooner.
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Term length – A 15-year mortgage will be paid off much earlier than a 30-year loan with the same repayments.
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Current equity – If you have already built up equity through years of payments, you’re closer to the finish line.
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Retirement plans – If aiming to retire early, be mortgage free well before you stop working.
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Sustainable payments – Don’t stretch your budget too thin trying to pay off quicker than you can realistically afford.
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Investment opportunities – Weigh your other potential investment options beyond just paying off your mortgage.
The optimal age to target being mortgage free is the one which best balances your own financial situation and peace of mind. While averages provide a guide, your personal circumstances should drive the decision.
There are good arguments on both sides of optimal mortgage payoff age. While some financial gurus like Kevin O’Leary advocate paying off outrageously early by age 45, the average American pays off their mortgage in their early 60s.
Rather than blindly following averages or the advice of others, carefully think through the pros and cons for your specific situation. Find the mortgage payoff target which best aligns with your financial circumstances and priorities.
Ellevest’s Rachel Sanborn Lawrence weighs in on why you shouldn’t necessarily try to be debt-free by age 4Updated Tue, Jun 6 2023
“Shark Tank” investor Kevin OLeary has said the ideal age to be debt-free is 45, especially if you want to retire by age 60.
Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, OLeary argued. It helps you free yourself from financial obligations at a time when your income is presumably stable and potentially even growing. You can ramp up your savings so you can ensure a comfortable life in retirement.
“Most careers start in early 20s and end in the mid-60s,” OLeary said in the 2018 interview with CNBC Make It. “So, when youre 45 years old, the game is more than half over, and you better be out of debt, because youre going to use the rest of the innings in that game to accrue capital.”
While OLearys advice may resonate with some, Rachel Sanborn Lawrence, advisory services director and certified financial planner at Ellevest, says that aiming to be debt-free by 45 may be ill-advised. Not only is it unrealistic for many — it might also mean you leave money on the table.
Ahead, CNBC Select spoke to Sanborn Lawrence about who should be most cautious about heeding OLearys advice, and why.
Why not everyone should pay off all debt in their 40s
If being debt-free in your mid-40s sounds like a dream, thats understandable. Debt can often feel weighty, especially when its in the five- and six-figures. For many consumers who graduate with student loan debt in their early 20s, the thought of carrying that debt around for decades can be anxiety-inducing. Not to mention, you might be concerned that your debt can disqualify you from homeownership or other financial milestones (which is often not the case).
But mathematically, theres not always an incentive to be debt-free so soon, argues Sanborn Lawrence. If the interest rates on your debt are below 5% to 10%, it often makes most sense to invest your extra cash in the stock market, which has historically earned at above this rate, rather than rushing to pay off debt.
Mortgages, for instance, are at historic lows right now, so someone with an interest rate at 3% or below shouldnt feel pressed to pay off their home quickly and instead let their money grow in the market.
“If you are borrowing money at a lower rate than youre able to make on that money, youre going to end up net positive,” says Sanborn Lawrence.
Want to invest in the stock market?: This 3-question checklist will help you determine when youre ready to invest your money
At what age should you pay off your mortgage?
FAQ
At what age should you have your mortgage paid off?
There is no specific age to pay off your mortgage, but a common rule of thumb is to be debt-free by your early to mid-60s. It may make sense to do so if you’re retiring within the next few years and have the cash to pay off your mortgage, particularly if your money is in a low-interest savings account.
What is the 2% rule for mortgage payoff?
What does Suze Orman say about paying off your mortgage early?
Personal finance guru Suze Orman says it depends. While the possibility of job loss can trigger financial panic, Orman advises against rushing to drain your savings to pay off your mortgage early. Even if you have enough money saved to wipe out your mortgage, don’t pull the emergency cord until absolutely necessary.
Is it better to pay off a mortgage or leave a small balance?
They typical answer is that paying down the mortgage is better financially for you, but these are odd times with climbing rates and people with extremely low mortgage rates. You can easily make a small spread with no risk and give you more down payment on your next home compared to just paying down on the home.