Suze Orman: This is when to pay off your mortgage (2024)

Personal finance expert and best-selling author of "Women & Money" Suze Orman says that you should pay off your debt as soon as possible, and that probably includes your mortgage.

"If you're going to buy a house, be responsible with it. And if you're going to stay living it that house for the rest of your life, pay off that mortgage as soon as you possibly can," she tells CNBC Make It.

Orman recommends that you aim to be mortgage-free by the time you retire. That's because everything you owe, including your home, costs you money, but it can affect your mental health as well. "Debt is bondage," she says. "You will never, ever, ever have financial freedom if you have debt."

Debt can affect other important parts of your life, too, keeping you from earning more and getting what you want, professionally. "When you are in debt, you feel it," Orman says, and "your boss can feel that," too. In essence, "you render yourself powerless."

That's why, she emphasizes, you shouldn't put off anything you can take care of now, like paying off your home.

Save on your home from day one

Planning ahead when you buy a home can also help you minimize the total amount you owe. One way to save big, Orman says, is to choose a cheaper, 15-year fixed rate mortgage over a 30-year one.

In March of 2017, for example, "the average rate for a 30-year fixed rate was 4.3 percent, while a 15-year [had] an average fixed rate of just 3.5 percent," Orman wrote in a post on her blog. "That's nearly a percentage point less!"

A 1 percent variance can make a huge difference. On a $250,000 loan, paying 4.3 percent for 30 years amounts to $195,000 in interest, according to Orman, while 15 years at 3.5 percent comes out to only $72,000. That's more than $100,000 in savings.

On Tuesday, the 30-year fixed rate mortgage was at 4.78 percent, while the 15-year fixed rate mortgage was at 4.08 percent, according to Bankrate, so the difference between the two options has shrunk. But the shorter-term loan can amount to significant savings when the rates are similar as well. On a $250,000 mortgage, you'll pay $78,000 in interest over the full term of a 15-year plan and $169,000 for a 30-year plan, even if they both offer 3.8 percent interest rates, according toBankrate's mortgage calculator.

However, a 15-year mortgage isn't the right choice for everyone. While the lower interest rate saves you money in the long term, the monthly payments are much higher.

What to do if you haven't paid off your mortgage by retirement

If you're nearing retirement age and still owe a significant amount on your home, consider continuing to work until age 70. That gives you more time to pay down your debts while still earning income. "Stop saving at work and plow the extra money that will pop into your paycheck to reducing your mortgage debt ASAP," Orman wrote for Money.

Working even a few more years helps increase your retirement savings substantially, she says: "Your retirement accounts will last you longer and hopefully have grown over that period of time, which hopefully will generate more income for you."

Additionally, "every year you wait between your normal retirement age and 70, Social Security will add a guaranteed 8 percent to your eventual monthly payout," Orman wrote in a recent feature for AARP The Magazine.

With your mortgage paid off, you'll be able to make your retirement savings stretch even farther. And you'll notice other positive changes as well, she says: "If you're out of debt, when you're being responsible with your money, what happens? You feel powerful! And other people can feel that you're powerful."

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Don't miss: Suze Orman: Pay off debt ASAP, and not because it costs you money

Suze Orman: This is when to pay off your mortgage (1)

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Suze Orman: Here's the No. 1 thing to do now if you want to buy a home soon

Suze Orman: This is when to pay off your mortgage (2024)

FAQs

Does Suze Orman recommend paying off a mortgage? ›

When You're Nearing Retirement: Orman has consistently recommended that homeowners aim to have their mortgage paid off by the time they retire. The logic here is that in retirement, your income is likely to decrease.

What does Dave Ramsey say about paying off your mortgage? ›

Paying off your mortgage early will rev up your wealth building.” However, one of his more controversial pieces of advice revolves around not paying off your mortgage early, even if you can do so. This advice counters the traditional wisdom of becoming debt-free ASAP.

At what age should my house be paid off? ›

To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.

Why is it not a good idea to pay off your mortgage? ›

Opportunity Cost

Putting extra money toward your mortgage means you may miss out on other financial opportunities that could be greater than the benefits of paying off your housing debt early. Instead, you could use those funds to try to generate higher returns.

Should an elderly person pay off their mortgage? ›

There may be good reasons to pay off your mortgage. It can save you thousands of dollars in interest, depending on the current size of your debt, and give you peace of mind that no matter what happens in the future, you own your home outright.

Is it better to pay off your mortgage when you retire? ›

Key Takeaways. Paying off a mortgage can be smart for retirees or those who are just about to retire if they're in a lower income tax bracket, It can also benefit those who have a high-interest mortgage or who don't benefit from the mortgage interest tax deduction.

Do millionaires pay off their house? ›

In fact, the average millionaire pays off their house in just 10.2 years.

How do you know if you should pay off your mortgage? ›

When early mortgage payoff can make sense. If your emergency savings and your retirement plan are fully funded, and you have paid all higher-interest debt, then you may want to consider paying off your mortgage.

How much do you need to retire if your house is paid off? ›

In simplest terms, take a $2,500 mortgage payment out of the picture and you've just reduced your annual expenses by $30,000. Now, factor that against the amount of money you'll need to manage retirement: between 55% to 80% of your current annual income, according to Fidelity.

What percentage of Americans pay off their mortgage? ›

40% of Americans Pay Off Their House — Are They Doing Better Financially? For most Americans, a home mortgage is the biggest financial obligation they will ever have. A traditional mortgage spans 30 years and is often in the hundreds of thousands of dollars, so the interest charges can be enormous.

Is it financially smart to pay off your house? ›

You might want to pay off your mortgage early if …

You want to save on interest payments: Depending on a home loan's size, interest rate, and term, the interest can cost hundreds of thousands of dollars over the long haul. Paying off your mortgage early frees up that future money for other uses.

Is it good to be mortgage free? ›

If you're intending to stay in your current home during retirement, eliminating monthly payments might be a good move. However, for some homeowners, their financial situation and goals might mean it is prudent to focus on other priorities while chipping away at their home loan.

Should I completely pay off my mortgage? ›

If you can afford to make extra payments, overpaying your mortgage means you pay less interest in the future and pay off your mortgage sooner. This means you could save a lot of money.

Is there a negative to paying off mortgage early? ›

Prepayment penalties are usually equal to a certain percentage you would have paid in interest. So, if you pay off your principal very early, you might end up paying the interest you would have paid anyway. Prepayment penalties usually expire a few years into the loan.

Is it better to not have a mortgage? ›

The lack of a mortgage doesn't make your home a better investment, or somehow build your equity better. The value of your home is that you live in it, and it's yours, mortgage or not. Sure, you might like to be done with the mortgage payments, but that's not a reason to speed things up.

Is it better to pay off mortgage or keep cash? ›

It might make sense, for example, to put the money into paying off your mortgage early if you struggle with keeping money in the bank. Your home can be a forced-savings tool, and making extra mortgage payments can save you thousands of dollars in interest over time, plus help you build equity in your home faster.

Should you pay off your mortgage completely? ›

If your mortgage is your only debt then paying it off is the best way to become debt-free for life. There may be costs involved with paying your mortgage off early, so even if you have enough to pay it in full, speak to a mortgage adviser to make sure you'll be able to afford it.

What is the smartest way to pay your mortgage? ›

Tips to pay off mortgage early
  1. Refinance your mortgage. ...
  2. Make extra mortgage payments. ...
  3. Make one extra mortgage payment each year. ...
  4. Round up your mortgage payments. ...
  5. Try the dollar-a-month plan. ...
  6. Use unexpected income.

What is the best age to pay off mortgage? ›

There's no need to pay off your mortgage by a certain age, although one common rule of thumb says you should pay off your mortgage before you retire. The idea is that getting rid of one of your biggest monthly expenses means you need less income to cover your living expenses.

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