By the time you turn 65, you’ve saved $400,000 in various retirement accounts. You’re wondering if it’s possible to pay off your 15-year mortgage within five years; currently, you owe $104,000 on it at 6.015% interest. This is the dilemma GOBankingRates reader Joyce brought to our Top 100 Money Experts series.
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To help her think more clearly about her situation, we turned to a familiar face — Andrew Lokenauth, founder of Be Fluent in Finance, a successful investor and financial expert. He gave Joyce some clear points to consider and offered helpful insights to help her accomplish her goal.
“As a 65-year-old with $400,000 saved, you’ve got a great opportunity to really optimize your finances,” he said. “But before you start tapping into that retirement stash to pay off the mortgage, there are a few key things you’ll want to look at in the bigger picture.”
Baseline Considerations
Before offering Joyce some ideas about how she might construct a five-year payoff plan, Lokenauth wants her to have a few financial essentials locked down. Though he’s not privy to specific details about her personal finances, he’s got tips for how she can build a solid foundation that will make paying off her mortgage easier.
Evaluate Your Income Sources
First, Lokenauth wants Joyce to evaluate the other sources of income she’ll have beyond that $400,000 — things like Social Security, pensions or part-time work.
“That’ll help determine how much you can realistically afford to put toward that mortgage without jeopardizing your day-to-day cash flow,” he said.
He also wants her to be mindful of any taxes she’d owe if she pulled from those retirement accounts, since they can really chip away at the net amount.
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Make Sure Your Emergency Fund Is Thriving
His next question for Joyce is simple: How is her emergency fund looking?
“You’ll want to make sure you’ve got 3-6 months’ worth of living expenses set aside before you start diverting a ton of cash toward the mortgage,” he said. “Emergencies happen, and you don’t want to get caught with your pants down.”
Creating a Payment Plan
Though Joyce will want to review any potential plans to pay off her mortgage with a financial advisor who’s intimately aware of her specific circumstances, Lokenauth does have some general insights about how she might create a plan.
“The value of your home is also key here. With $104,000 left on a mortgage at 6% interest, chances are your home is worth a decent amount more than that outstanding balance,” he said. “So, you’ve got some cushion there if needed. Just be mindful of any potential capital gains taxes if you decide to downsize down the road.”
With this advice in mind, he got into the nitty-gritty of what a five-year payoff plan might look like for Joyce.
“With $104,000 at 6.015%, the math works out to around $2,000 per month to get it done in five years,” he said. “Now, that’s a big bite, but here are a few strategies that could help make it happen.”
Tighten Your Budget
He suggests that Joyce take a magnifying glass to her budget — keeping an eye out for areas she can trim, like dining out or entertainment. Even saving an extra $500 a month can shave a solid two years off her five-year timeline, he added.
Consider a Lump-Sum Payment
Lokenauth also pointed out that Joyce could take a portion of her $400,000 and make a lump-sum payment to help drive down some of her principal.
“Maybe $50,000 or $75,000 upfront will dramatically reduce the monthly payments needed to hit that five-year goal,” he said.
Look Into Refinancing
His final piece of advice for Joyce is to look into whether it could make sense to refinance at a lower interest rate.
“Even dropping it to 5% could save you hundreds per month,” he said. “The key is crunching the numbers to find the sweet spot between upfront costs and long-term savings.”
The Bottom Line
Joyce may have some big choices to make about how she’ll pay off her mortgage in five years, but Lokenauth also wants her to know she has options. If she can evaluate her finances, set goals and enact a focused plan, she can set herself up to meet her target.
“With that $400,000 nest egg, you’re in a great position to tackle this mortgage and set yourself up for an even more comfortable retirement,” he said. “Just be strategic, stay flexible and don’t be afraid to get a little creative.”
This article is part of GOBankingRates’ Top 100 Money Experts series, where we spotlight expert answers to the biggest financial questions Americans are asking. Have a question of your own? Share it on our hub — and you’ll be entered for a chance to win $500.
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This article originally appeared on GOBankingRates.com: ‘I’m 65 With $400K Saved: Should I Pay Off My $104K Mortgage?’ — a Money Expert Answers
