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In Your 40s? How to Pay Off Your Mortgage Before Retirement

By Todd Campbell - Jan 23, 2016 at 9:00AM

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Tips that can help make sure that you're mortgage-free in your golden years.

Image source: Flickr user 401kcalculator.org.

Paying off a mortgage can go a long way to insuring a financially secure retirement because a mortgage is the average American's biggest expense, yet 30% American retirees still owe money on their homes and that means retirees are on the hook for thousands of dollars per year in mortgage payments even as their income winds down.

In order to avoid the risk of mortgage payments putting a crimp in your retirement, consider these mortgage-busting strategies when you're still in your 40s.

Round up
Rounding up your monthly mortgage payment probably won't break your budget and it can shave months off the length of your loan and thousands of dollars in interest payments.

For example, Sandy is 40 years old and she just got a $200,000 30-year mortgage at a 4.5% annual interest rate. Her monthly payment is $1,013.37, but if she rounds that payment up to $1,100, then she will pay off her mortgage in 25.4 years, or at age 65. Importantly, rounding up allows Sandy to lower the total amount of interest she will pay on her loan by $28,377 -- savings that will go a long way toward living the type of retirement she's planning.

13 instead of 12
If your monthly budget is a bit tight because your income varies throughout the year, making an extra payment at the end of every year  is a great way to cut years off the life of a loan and pocket tens of thousands in interest savings, too.

For example, if Sandy makes her normal $1,013.37 payment every month and then makes an additional $1013.37 payment at the end of every year (say, after she gets a holiday bonus), she would reduce the length of her mortgage from 30 years to 25.75 years and save $26,698 in interest.

15, not 30
The first two strategies cut enough years off a loan that someone in their early- to mid-40s can be mortgage-free when they're in their 60s, but if you're in your mid- to late 40s and still want to retire mortgage-free, a better bet could be to refinance your 30-year mortgage into a 15-year loan.

In addition to taking the guesswork out of making accelerated payments, 15-year loans offer lower annual interest rates than 30-year loans, which can translate into big savings in terms of interest.

For example, if Sandy was turning 50 and she converted a 200,000 30-year loan into a 15-year loan, she would pay her loan off at 65 and save $92,156 in interest payments over the life of the loan. That's because the national average 30-year mortgage rate is currently 4.05% and the average 15-year rate is 3.29%, and at those rates, Sandy would pay $145,817 in interest over the life of the 30-year loan and only $53,661 in interest payments on a 15-year loan.

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