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Should You Pay Off Your Mortgage Before Retirement? - YouTube
Channel: True North Retirement
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Should you pay off your mortgage
before you retire? Well,
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the short answer to that is yes.
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And in today's video I'm going to talk
about why you should consider doing this
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before you retire and why even paying
off your mortgage and putting those,
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that extra money towards your mortgage
has better bang for your buck than many
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cases than saving more for retirement in
those last five to 10 years before you
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retire. So in today's video,
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I'm going to tackle how you
can do this specifically,
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why you should do it and why you should
ignore some of the conventional advice
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out there about why you may want
to keep a mortgage. Personally,
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I think it's hogwash. And in today's
video I'm going to talk about why that is.
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Hi there, my name's Ashley Micciche,
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CEO of True North Retirement Advisors
where we specialize in retirement and exit
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planning for business owners. And I'm
super excited to talk about today's topic,
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which is should you pay off
your mortgage before you retire?
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Let's start off by talking about why you
should pay off your mortgage before you
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retire in the first place. Well for
many Americans, your house payment,
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your mortgage is your
biggest monthly expense.
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If you look at a line item of all
of your expenses for the month,
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I wouldn't be surprised if mortgage
was right there at the top of the list.
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And for many Americans,
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that actually represents a third
of your total monthly expenditures.
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If you pay off your mortgage
prior to retirement,
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all you have left is just the property
taxes on your house so you can cut down
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your monthly expenses in retirement
significantly and make it a lot easier for
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you and your spouse if you're married,
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for you to keep up with
all the other expenses,
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all the other needs,
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all everything else that you're
going to face in retirement.
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A lot of times when you hear people
talk about paying off your mortgage,
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the first objection to that would
be, well, if I pay off my mortgage,
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then I won't get a tax
deduction anymore. Um, okay,
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well here's the, here's why
that's hogwash. Frankly,
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let's say you're paying $3,000 a
month in mortgage taxes and insurance,
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and you pay off your
mortgage. That's great.
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The $3,000 of expenses that you had
before that you don't have any longer,
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you're just paying the taxes. Now
people will say, hold on, hold on.
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I would like the tax deduction
for still maintaining a mortgage.
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Well the problem with us is that $3,000
is still going out the door and only a
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fraction of that is the tax benefit that
you receive by maintaining a mortgage.
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So you're still having
more going out the door,
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then you're benefiting from
having that tax deduction. Okay.
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So let's talk about actually how you
can go about paying off your mortgage.
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Because it's one thing to
say, yeah I'd love to do that,
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but it's quite another to
actually do that. First of all,
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I don't recommend withdrawing money from
your IRA or another retirement account
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and taking this big lump sum out to pay
off a mortgage because you are cutting
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into your retirement nest egg and you're
taking a big lump sum out and it's sort
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of like,
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it's no different than if your portfolio
dropped by 10 1520 30% whatever that is
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in a big market downturn.
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It can be devastating long-term for
your investment portfolio, retirement.
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Instead,
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a better option would be to pay off
your mortgage gradually over time.
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Now here's an example of
this. So first of all,
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you're going to need to gather just a few
basic pieces of information about your
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mortgage payment, interest
rate, time left, and balance.
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Those four key pieces of information.
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You can get them right off the statement
that you get every month in the mail.
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Or if you go online to whoever has
your mortgage, it's all right there,
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readily available.
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And then you take this information
and you put it into what's called an
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amortization calculator. So,
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below this video I'm going to link to
my personal favorite amortization table
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amortization schedule. The
key is whatever you use,
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there's a bunch of these available for
free online. But whatever one you use,
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it has,
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make sure it includes a spot where
you can enter extra payments.
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Because this is where the magic happens.
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So let's say that you have 16
more years left on your mortgage,
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but you want to retire in nine years.
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So what you can do is you can back into
the the extra payment amount that would
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be required in order for you to pay off
your mortgage by that nine year time
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frame when you retire.
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And then that way you can add those extra
payments to your mortgage every month.
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It becomes a lot easier to pay off your
mortgage when you do it gradually over
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time versus in one big lump sum.
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And even if you can't pay off, like
even if the numbers don't work out,
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it doesn't work with your budget
to be able to fully pay it off.
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It's still worth it to add those extra
payments because anything extra reduces
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the time period. And if
you stick with it, yeah,
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maybe if you can't pay
it off in nine years,
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but you can pay it off in 10 or 11 years,
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that's better than 16 years get. Another
common question that I get is that,
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well, hold on. If I only have five
or 10 years left for retirement,
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why, why would I spend money and time
and effort paying off my mortgage?
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Should I be focusing on saving more
for retirement in these last few years?
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And the answer is yes.
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Obviously you should be saving for
retirement and focusing on that,
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especially in the last few years.
But if you run the numbers,
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chances are you're going to be better
off the majority of the time if you put
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those,
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that extra money towards paying off your
mortgage and getting that debt out of
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your life forever versus
saving that same amount,
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most of the time, if you
actually run the numbers,
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you'll come out ahead by focusing that
money and putting that money towards your
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mortgage. Now again,
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you have to run the numbers for yourself
on this and I would encourage you to do
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that as a first step. Here's what I
would suggest. Like I said earlier,
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I'm going to link to my favorite
amortizations calculator.
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It's from bankrate.com. Seriously, it's
going to take you five minutes. Gather,
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get,
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grab your mortgage statement and
go sit down and click on that link,
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enter your data and figure out what it's
going to take in order for you to pay
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off your mortgage by the time you
retire. Thank you so much for listening.
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Again, my name is Ashley Micciche and
if you like this tip on retirement,
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consider subscribing to our channel.
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I also have a daily podcast, yes,
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daily podcast on short,
quick retirement tips,
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including how to unload your debt,
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which is where I got the idea
for this particular episode.
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If you haven't already subscribed to the
One Minute Retirement Tip with Ashley,
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you can do so anywhere
you listen to podcasts.
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And I'm also on Amazon Alexa,
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so if you go to your flash briefings
and skills on Amazon Alexa,
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you can search for One Minute Retirement
Tip right there and you can find me
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there. So thank you so much for watching.
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Be sure to subscribe and
I will see you next week!
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