Since most home loans are for about 30 years, this leads to older individuals paying off their loans into their retirements. The average age to pay off a mortgage in Australia is 62.
How long, on average, does it take to pay off a mortgage? Most Australian home buyers' mortgages last between 25 to 30 years. The loan term depends on the deposit size, the cost of the property, and the mortgage lenders.
But if you want to live a life of financial freedom, then it's important to shed all of your debt, says Shark Tank personality Kevin O'Leary. In fact, O'Leary insists that it's a good idea to be debt-free by age 45 -- and that includes having your mortgage paid off.
Across those 50 metros, an average of about 19% of homeowners who are 65 and older still have a mortgage.
Paying off the mortgage ahead of retirement can be a real stress reducer. Your monthly expenses will be cut, leaving you less vulnerable to a sudden property tax increase, an emergency repair, or the impact of inflation. You'll save on the interest you would owe by keeping the mortgage.
Paying it off typically requires a cash outlay equal to the amount of the principal. If the principal is sizeable, this payment could potentially jeopardize a middle-income family's ability to save for retirement, invest for college, maintain an emergency fund, and take care of other financial needs.
21%! While most Americans expect to have their mortgage paid off by retirement, more than one in five of those individuals are still paying off their homes at age 75.
And yet, more and more Americans are still carrying a mortgage when they reach retirement age. According to a 2019 report from Harvard's Joint Center for Housing Studies, 46% of homeowners ages 65 to 79 have yet to pay off their home mortgages. Thirty years ago, that figure was just 24%.
Paying off your mortgage may not be in your best interest if: You have to withdraw money from tax-advantaged retirement plans such as your 403(b), 401(k) or IRA. This withdrawal would be considered a distribution by the IRS and could push you into a higher tax bracket.
If your mortgage rate is high, or you have an adjustable-rate mortgage that has already reset to a higher rate, it probably makes sense to pay off your remaining loan balance before you retire, says Edmisten at Next Phase.
In 2018, Kelvin O'Leary, a personal finance author, said that 45 years old is the ideal age to be debt-free. This means that if you've made the right financial choices, by the age of 50 you should be in a place where you are debt-free, and your retirement savings should be enough to give you a comfortable life.
When you have no debt, your credit score and other indicators of financial health, such as debt-to-income ratio (DTI), tend to be very good. This can lead to a higher credit score and be useful in other ways.
Being mortgage-free can make it easier to downsize in other ways – such as going part time – and usually makes it cheaper and easier to buy and sell your home. Generally, a smaller mortgage gives you greater freedom and security.
Home ownership data from the 2021 Census show a home ownership rate of 67%, down from 70% in 2006.
Early repayments are particularly valuable if you have a large amount of savings. This is because your mortgage interest rate is often higher than the rates you're getting for your savings, meaning the amount you're earning from your savings is less than what you're paying on your home.
It's typically smarter to pay down your mortgage as much as possible at the very beginning of the loan to save yourself from paying more interest later. If you're somewhere near the later years of your mortgage, it may be more valuable to put your money into retirement accounts or other investments.
When you pay down your mortgage, you're effectively locking in a return on your investment roughly equal to the loan's interest rate. Paying off your mortgage early means you're effectively using cash you could have invested elsewhere for the remaining life of the mortgage -- as much as 30 years.
Some 38% of owner-occupied households in the U.S. are completely paid off, and mortgage-free homeownership is even higher among low-income families and in small cities with low housing costs, according to a new study by Construction Coverage, a Los Angeles-based construction content website.
Carrying a mortgage into retirement allows individuals to tap into an additional stream of income by reinvesting the equity from a home. The other benefit is that mortgage interest is tax-deductible. On the downside, investment returns can be variable while mortgage payment requirements are fixed.
You'll have to go back to work
If you run out of money in retirement, you will need a way to make extra money. The best way to do that may be to get a job. That can be a tough decision to make if you've been retired for several years.
Almost one in 10 Australians of retirement age is still paying off a mortgage.
Advantage: reduce total loan cost
Paying your mortgage off early, particularly if you're not in the last few years of your loan term, reduces the overall loan cost. This is because you'll save a significant amount on the interest that makes up part of your payment agreement.
Once your mortgage is paid off, you'll receive a number of documents from your lender that show your loan has been paid in full and that the bank no longer has a lien on your house. These papers are often called a mortgage release or mortgage satisfaction.