For most families, a home mortgage represents both their largest single expenditure and their biggest monthly obligation. According to credit bureau Experian, the national average mortgage loan balance in 2017 was $201,000. Tennesseans carried an average of $150,000, while in Georgia the mean loan balance was $170,000. Obligations of this magnitude carried into retirement are likely to seriously impact your standard of living once the paycheck stops, particularly in the era of the self-directed 401(k) and the waning of traditional pension plans.
Christopher A. HopkinsTherefore, it makes sense to revisit your mortgage terms and take any steps you can to retire or reduce your loan balance and minimize your cumulative interest payments. And while the lowest mortgage rates in our lifetimes are now behind us, recent declines have provided one last opportunity to lock in a lower rate and stuff a few more dollar bills into the retirement pot.
The most obvious and impactful move is to refinance into a shorter term. Moving from a 30-year to a 15-year loan term will save you a wad of cash over time that you can spend later on. Halving the repayment period saves many thousands in interest and helps you arrive in debt-free nirvana much sooner.
Consider a typical 30 year, $150,000 mortgage loan at the national average fixed rate of 4.5 percent. Monthly principal and interest payments will run $760, which means you will shell out a total of $124,000 in interest costs alone to the bank over the life of the loan. Now, consider a 15 year loan at the current national average rate of 4 percent. Monthly P&I rises by just $350, but you will save a total of $75,000 in finance charges and be able to burn the mortgage in half the time. Think of the impact of an extra 75k in the bank for your golden years.
Of course some homeowners are simply unable to absorb the higher monthly obligation of a 15-year loan. Nevertheless, there are still a few tricks you can apply that will have a material impact. Most traditional mortgages allow early prepayment (you should verify this with your lender). Adding just one hundred bucks a month to the regular payment in our example will knock $30,000 off the total interest cost for the home and retire the mortgage six years early.