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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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

What does Suze Orman say about paying off your mortgage? ›

Orman explained that if you have a 30-year mortgage and you've already made payments for 14 years, you should make it a point to get a refinanced mortgage paid off in 16 years. Otherwise, if you refinance for another 30 years, you'll end up paying for your mortgage with interest for 44 years in total.

Does Dave Ramsey say you should pay off your mortgage? ›

Low-interest rates might make it tempting to stretch out your payments over the course of the entire loan. The Dave Ramsey mortgage plan encourages homeowners to aggressively pay off their mortgages early, however. One recommendation Ramsey makes is to convert your 30-year mortgage into a fixed-rate, 15-year home loan.

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

Even after paying off your mortgage early, real estate prices could plunge, leaving you with a potential loss. “The thing is, no one can give you a guarantee on an investment,” says Bowen. “You can put your money in the stock market and lose it.

At what age should your house be paid off? ›

O'Leary's Take on Paying Down Mortgages

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.

Should an elderly person pay off their mortgage? ›

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 better to pay off your house or keep cash? ›

For guaranteed savings and the security of owning your home debt free, paying off your mortgage earlier is a better option than investing your extra cash.

Do millionaires pay off their house? ›

Not only is there huge freedom in being completely debt-free and living in a paid-for house, but it's also a great way to build wealth—getting rid of your house payment leaves you with a ton of extra money each month to save for retirement. In fact, the average millionaire pays off their house in just 10.2 years.

Is it good to be mortgage free? ›

Being mortgage-free can make it easier to downsize in other ways – such as going part time – and usually makes it cheaper and easier to buy and sell your home. Generally, a smaller mortgage gives you greater freedom and security.

Is there a negative to paying off a 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.

Should you pay your mortgage off if you have the money? ›

Is it worth paying off my mortgage early? Yes It can be, especially if the amount of mortgage interest you're paying is more than your savings would earn. For example, if you are paying 2% on mortgage interest but your savings are earning less than 1%.

Is it better to pay lump sum off mortgage or extra monthly? ›

Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.

What age are most people mortgage free? ›

“Today's first-time buyers are due to pay off their mortgage at 65-years old on average, compared to 53 in 1990 as sky-high house prices force buyers to extend their mortgage term to make their payments more affordable. “Rising mortgage terms mean more of us will still have housing costs in retirement in the future.

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

Your fully owned home's ripple effect

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 three things should be paid off before retirement? ›

In an ideal world, none of us would have any debt—ever. And we'd certainly pay off our mortgages, credit cards, and car loans before we retire.

What is the tradition when you pay off your mortgage? ›

Paint your front door red

“I've read recently about a Scottish tradition of painting your front door red as a sign to the world that you've paid off your mortgage,” Flynn says.

Is it worth paying money off your mortgage? ›

The benefits of overpaying your 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 it better to pay off your mortgage when you retire? ›

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.

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

Deciding whether to pay off your mortgage early largely comes down to whether your opportunity cost is greater than or less than your mortgage cost. Two years ago, when interest rates on safe investments were near zero, that opportunity cost was lower than most mortgage rates.

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