Typically, a mortgage represents the largest debt an American has ever taken on, frequently totaling hundreds of thousands of dollars. Although it may seem like a significant amount of money to repay, most mortgages only last for 30 years.
Depending on the timing of your mortgage, it frequently implies that you will have paid off your home in full before you retire. Furthermore, you might become mortgage-free even sooner if you’re one of the many conscientious Americans who choose to either take out a 15-year mortgage or make extra payments on a regular 30-year mortgage along the way.
While many financial experts, such as “Shark Tank” star Kevin O’Leary, advise paying off debt as quickly as possible, others argue that taking your time will ultimately benefit your finances in the long run. Here are the benefits and drawbacks of each position, as well as the typical age at which most Americans become mortgage-free.
The average age most Americans become mortgage-free is 63 However, this number can vary depending on several factors, such as income, mortgage type, and personal financial habits.
Factors Affecting the Average Age of Mortgage Payoff
- Income: Higher income earners can typically afford to make larger mortgage payments, which can help them pay off their mortgage faster.
- Mortgage type: A 15-year mortgage will be paid off faster than a 30-year mortgage, even if the monthly payments are the same.
- Personal financial habits: Making extra mortgage payments or refinancing to a lower interest rate can help you pay off your mortgage faster.
Why Are Older Homeowners Still Paying Off Their Mortgages?
There are a few reasons why older homeowners may still be paying off their mortgages
- Refinancing: Many older homeowners refinanced their mortgages in recent years to take advantage of low interest rates. This can extend the length of their mortgage and increase the total amount they pay in interest.
- Buying a home later in life: The median age of first-time homebuyers is increasing, which means that many people are taking out mortgages later in life. This can also extend the length of their mortgage and increase the total amount they pay in interest.
- Rising home prices: Home prices have been rising faster than inflation in recent years, which means that many people are taking out larger mortgages. This can also extend the length of their mortgage and increase the total amount they pay in interest.
Pros and Cons of Paying Off Your Mortgage Early
There are both pros and cons to paying off your mortgage early
Pros:
- Save money on interest: You will pay less interest over the life of your loan.
- Build equity faster: You will build equity in your home faster.
- Have more financial flexibility: You will have more financial flexibility in retirement.
Cons:
- Miss out on potential investment returns: You could miss out on potential investment returns if you use your money to pay off your mortgage instead of investing it.
- Tie up your money: Your money will be tied up in your home, which could make it difficult to access if you need it for an emergency.
The Best Path for You
The best path for you will depend on your individual financial situation. It might be a good idea to pay off your mortgage early if you can comfortably make additional mortgage payments. But if you can’t afford to make additional payments, it might be wiser to invest your money.
Ultimately, the decision of when to pay off your mortgage is a personal one. There is no right or wrong answer, and the best decision for you will depend on your individual circumstances.
Frequently Asked Questions
What is the average mortgage payment in the United States?
The average mortgage payment in the United States is $1,763. However, this number can vary depending on the size of the mortgage, the interest rate, and the location of the property.
How much should I save for a down payment?
Generally speaking, it is advised that you set aside at least 2020% of the cost of your house as a down payment. This will help you avoid having to pay for private mortgage insurance (PMI).
What is the best way to pay off my mortgage faster?
There are a few ways to pay off your mortgage faster. You can make extra mortgage payments, refinance to a lower interest rate, or sell your home and buy a less expensive one.
The average age most Americans become mortgage-free is 63. However, this number can vary depending on several factors. There are both pros and cons to paying off your mortgage early, and the best path for you will depend on your individual financial situation.
O’Leary’s Take on Paying Down Mortgages
Kevin O’Leary is famous for being direct with his advice about saving and investing. The same is true when it comes to paying down your mortgage.
According to O’Leary, debt—even the supposedly “good debt” of a mortgage—is the enemy of any financial strategy. Your best shot at long-term financial success, in his opinion, is to pay off your mortgage by the time you are 45 years old. This is because by O’Leary’s reckoning, most careers are halfway done by age 45.
“So, when you’re 45 years old, the game is more than half over, and you better be out of debt, because you’re going to use the rest of the innings in that game to accrue capital,” he said.
According to O’Leary’s plan, you can increase your investments with the money that was previously used for debt servicing, which includes paying off your house mortgage, once you are debt-free by the age of 45. According to O’Leary, you ought to be in a much better position to accumulate a retirement fund after 15 or 20 years of accelerated investing.
Mortgage-Paying Habits of Average Americans
Trying to describe how “average Americans” pay down their mortgage is something of a fool’s errand. Everybody has different payment habits in addition to having distinct incomes, mortgages, and living expenses. However, there are some data points from reliable sources like the U. S. Census Bureau that can shed some light on the mortgage-paying habits of average Americans.
For example, according to the Census Bureau, fewer than 28% homeowners below retirement age have paid off their homes completely, as opposed to almost 63% of those 65 or older. That makes sense, of course, as older Americans have had a longer time to make payments.
But with nearly two-thirds of retirement-age Americans having paid off their mortgages, it means that the average age they have gotten rid of that debt is likely in their early 60s. Stats from 538.com, for example, suggest the age is around 63.
As each homeowner is unique, though, this type of information should only be used anecdotally. You should always stick with the financial plan that is tailored to your own objectives and personal situation.