We all dream of financial freedom, whether that means living debt-free or just being able to get the slightly more expensive option at lunch. But the ultimate form of freedom we all look forward to is retirement and most importantly, retiring without a mortgage. After we’ve put in all the long hard years of work, we get to kick back, put our feet up and enjoy the fruits of our labour. Whether it’s travelling the world, getting to enjoy our hobbies, or just living life on permanent vacation… but nothing ruins this idyllic mental image like the idea of still needing to pay off debt.
Many work towards a prospective retirement date based on how much more time they’ll need to pay off their mortgage. For others, it’s just not feasible to keep working that long. If you want to retire without a mortgage, read on for our top tips and strategies to get you there.
1. Getting ahead of the game
It might seem obvious, but having a strategy to retire without a mortgage and get ahead of the curve with some extra repayments can help you significantly. Make sure you have a principle and interest repayment program on your home loan as soon as you can, rather than just interest, and look into your options when it comes to making extra repayments and having an offset account attached. Assess your disposable income and how much of it you can reasonably divert to reduce your home loan, especially in periods of low interest rates, so that when interest rates rise again (like we are experiencing now, as of September 2022), you won’t have to suffer through larger-than-necessary repayments. Manage your funds strategically to get you ahead of your mortgage repayments a lot sooner.
2. Review your home loan
Take a conscientious approach to your home loan, and remember that as the market changes, new opportunities and options for refinancing will arise. Make a note to check back in on your home loan every 2 – 4 years and conduct a full review to see if any banks have introduced new specials or windows for a possible home loan restructure.
3. Balancing other investments
Whether it’s other assets or investment loans, it’s easy to get caught up thinking that you should consolidate them for retirement or sell them off to put the money back into your own pocket. However, from the point of view of a mortgage broker, we don’t think having debt on an investment property is a bad thing when retiring, as you always have the opportunity to sell it in the future. Over-focusing on clearing loans and reducing investment debt is not so important, though reducing your loan to value ratio, and having the property in question largely maintaining itself, is tremendously helpful.
At the end of the day, it’s always going to be more favourable to have your home loan cleared – not just so that the debt isn’t hanging over your head, but so that whatever disposable income you have can go towards your living expenses. Whether it’s pension, self-managed super or superannuation, it’s always going to be better to have this at your disposal rather than servicing a mortgage longer than it needs to.
Many get stuck in the spiral of paying off the large family home they have lived in for most of their adult lives – but do you really need to? Particularly for empty nesters, it may be worth downsizing by selling off a large home you don’t need anymore in favour of a smaller and more suitable property. It may even help you become a property owner with little to no mortgage at all. Selling high and buying low means you can more easily clear away remaining debts, but it also means you might be eligible for government incentives to make it all the more beneficial. For eligible owners, when downsizing you can now put up to $300,000 per owner of the house – so for example, a husband and wife can put in up to $600,000 in their super – for the long term strategy of return retirement.
5. Use windfalls to get you across the finish line
When you come into a large sum of money, avoid the temptation to splash out on something extravagant and put it towards reducing a large chunk of your home loan. This might be when tax time rolls around, if you come into some inheritance money, a nice bonus at work or any number of scenarios.
This tip relies on your willpower, so ensure you approach any windfalls with the frame of mind that you never had the extra money to begin with, and continue on with your usual budget and spending behaviours. Commitment to retire without a mortgage is key!
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