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Military Finances 101: Should I Pay Off My Mortgage Early? 5 Things to Consider

Managing Your Finances

Plenty of military members ask me if they should pay off their mortgage. I always give them the same answer (the Weapons School standard), "It depends." Here are 5 things you should consider when you make your decision.

1. Money is Relatively Cheap

While not as low as a year ago, mortgage rates are currently still lower than historic averages. I don't presume to predict the future, but if we use the last 30 years as a guide, there is a pretty good chance that inflation will exceed the interest rate you're paying on your loan. If that happens, you're "making money".

2. Liquidity Matters

If you sink all your money into your home, you'll be in a tough spot if you need income or have to pay for a big expense. Getting money back out of your house is not easy or inexpensive. And, after your ultimate retirement, qualifying for a mortgage or home equity line of credit can be more challenging than before retirement.

3. You May Be Forced to Take Out a Reverse Mortgage

There is a reason you see so many reverse mortgage advertisements on TV. Seniors can be house rich but income poor and they need money. As mentioned above, a new mortgage or Home Equity Line of Credit (HELOC) may not be an option. So, they turn to reverse mortgages. A reverse mortgage like any other financial tool, can be a good option. But, you don't want it to be the only option for funding your retirement expenses.

4. You'll Still Have Payments

There is an old saying, "You never own your home, you just rent it from the government." You'll still have to pay property taxes (or the government will take your home) and insurance. While less than a mortgage payment, it is a payment just the same.

5. It Might Be Better to Put Your Money Elsewhere

Paying off your mortgage does provide you with a "risk-free" rate of return equal to the interest rate. Your long-term financial health may be better served by accepting some risk and potentially growing your nest-egg and your net worth to more than by paying off the mortgage.

There is no right or wrong answer to the question. Like I said, "It depends". A financial planner should be able to help you with this decision. If you'd like advice on these types of questions, we're ready to help.


If you liked this article, you might enjoy the following blog posts:

Military Finances 101: 8 Real Estate Books to Read Before Buying Your First Home


4 Common Mistakes Made by First Time Home Buyers


Military Finances 101: Liquidity Risk





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