There are many people who, upon retirement, receive a lump sum payment. While it could be very tempting to pay off the mortgage, is this really a wise move? The lump sum payment could also be used to pay off loans which have been taken out in the past and which have high interest rates. Many seniors like the idea of being debt free but is this really a wise move?
It depends upon the amounts involved and whether the payments are easy to make to a certain extent. Of course, those loans that have high interest rates would be the first to consider, but the mortgage may not be a sensible choice to pay off.
It also depends upon any tax relief that is gained for having a mortgage and also upon whether the lump sum payment is of more use to the senior as a means of doing something they want to do, rather than paying off their mortgage.
Alternatives At Retirement
Back in the days when the mortgage was arranged, it’s quite possible that the payments were fairly small. If this is the case, then keeping the mortgage on is a good idea. If, however, the monthly payments on the mortgage are proving difficult on a reduced income, then payment may be a sensible option.
Before deciding, it’s worth finding out how that lump sum could be invested to increase the monthly revenue rather than simply assuming the payment of the mortgage is wisest. If an investment of the lump sum can give you a better income, then investing is wiser than paying off the easily manageable mortgage.
Another alternative is to buy into property. Perhaps the lump sum is sufficient to buy an investment property. This could be either a house that could to be renovated and flipped for a good return, or that could generate rental income.
Making The Decision About What To Do
Before parting with that retirement lump sum by paying off the mortgage, do the calculations. High interest loans will cost more long term, so you need to work out how much more they will cost. Then, work out the investment value of the money placed in a monthly income account.
It’s also worth bearing in mind that if you pay a mortgage before its term is finished, you may be penalized and have prepayment fees to pay which make it more costly nit. The retirement lump sum causes a great deal of worry to some seniors. Asking your bank for advice may help you in making a wise decision.
Paying the mortgage off should not be a high priority, unless you are struggling to meet payments. Even in the case of difficulty, it may be possible to arrange with the bank to pay reduced payments on the existing mortgage, making it more manageable and allowing you to have the retirement lump sum still available as a potential investment to make life easier.