Paying Down Your Mortgage For Retirement

mortgage at retirement gives you the peace of mind that your house is all yours and lowers your expenses for your lower retirement income. Here's more of what this means...
With a mortgage, your lender has a claim on your house. That means if you can't make your mortgage payments, you lose your house. That can produce a lot more expenses and loss of your home's equity, too, Play it safe by paying down your mortgage.
Most likely your income drops in retirement and your Social Security income isn't taxable for you, either. So, you're tax rate is a lot lower than when you were working. This reduces the advantage of deducting your mortgage interest payments.
You may not even be able to itemize because your two main itemize deductions - state income tax and mortgage interest payments - may be too small. Your state income tax is small since you're not working.
Besides, many near-retirees are making mortgage payments with very little interest. If they have held their mortgage for about two thirds of its term, their yearly payments are mostly going to paying off the loan principal - and not interest!
*Interest portion of your mortgage payment decreases while equity portion increases over the term:
Consider how the constant (fixed) mortgage annual payment of $8,000 for a $100,000, 7%, 30 year mortgage is partitioned between interest and principal parts. In the first few years, about $7,000 of your $8,000 payment is interest payment while only $1,000 goes to paying back equity of the loan. In year 20, (2/3 through your loan term) half the payment is interest, half equity. In the last few years, less than $1,000 is interest while the balance is equity. So, you can see that in the later years you're really paying down your mortgage equity -while interest payments are quite small - leaving little for mortgage deductions on your taxes.
Higher interest rate mortgages increase mortgage payments and force the principal payments portions more to later years with smaller contribution in earlier years.
Remember, you itemize only if your deductions add up to more than the standard deduction for your status. Unless your itemized deductions are significantly larger than your standard deduction, you're not getting much of a deduction for the meager interest payments you're making.
Those that want to get big itemized interest deductions on their mortgage really need to refinance so they're paying on the 'early' years of their new mortgage. Perhaps they have high earnings they can earn in their other investments which they can fund by not paying off their mortgage. But be sure you won't lose on those investments; your house is riding on them!
So, if you don't want to refinance but pay off your mortgage, you can do so by either taking funds from elsewhere to do so. Or, if indeed you're within the last third of your mortgage term, you can just keep making your mortgage payments. They're mostly all - and increasingly so- principal payments; so, you are paying it down fast. And without itemizing you're still getting the standard deduction, too.
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