The FIRE movement: how to retire early without mortgage debt
One in three Americans has made early retirement a financial goal, says report by financial research firm Hearts & Wallets. Early retirement generally consists of becoming financially independent before being eligible for Social Security. The FIRE movement, which stands for “Financial Independence, Retire Early” is based on the goal that you can save and invest aggressively to speed up the time it takes to retire.
While investing in retirement can certainly help you with financial planning, getting rid of debt like your mortgage before you retire can also free up a ton of money. Plus, you won’t have to think about making a large mortgage payment every month during your retirement years. Fortunately, you don’t have to choose between retiring early and paying off your mortgage.
Planning for early retirement is even easier if you can pay off your mortgage at a lower interest rate. Use an online mortgage marketplace like Credible to compare mortgage rates and save for retirement.
HOW TO KNOW IF YOU ARE PREPARED FOR EARLY RETIREMENT
See how a mortgage fits into your budget
It is common for someone looking to retire early to put 50% or more of their income in savings and retirement accounts. Right from the start, you’ll need to consider whether it’s possible to manage a mortgage while saving aggressively for your retirement fund. Trying to achieve both goals at the same time may require you to buy a smaller house or move to a more affordable part of the country with modest real estate costs.
Either way, you’ll want to use an online mortgage calculator, like the one from Credible, to help you figure out how much your monthly payments will cost. Once you’ve calculated your potential mortgage payment, assess whether there’s room in your budget for additional savings and additional mortgage payments. You may need to adjust your budget and make cuts to make sure you can live comfortably while paying off the mortgage and pursuing your goal of achieving FIRE.
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Eliminate all other debt before you take out a mortgage
Mortgage debt tends to have a much lower interest rate than other types of debt. That’s why it will make more financial sense to tackle all of your other consumer debt and keep your mortgage until the end.
With credit card interest rates on new accounts hovering around 20%, make a plan to pay off all of your credit card balances and keep them paid. Then you can move on to personal loans, car loan, and student loan debt. When your mortgage is your only remaining debt, you will only have two main financial goals:
- Save and invest for retirement
- Make additional payments on your mortgage
Paying off all of your other debt can free up hundreds or even thousands of dollars that can be used to save each month. In addition, you will reduce your credit utilization rate, which is your account balance compared to the total credit limit granted to you. This can increase your credit score exponentially.
HOW TO MANAGE DEBT BEFORE RETIREMENT
Get the lowest possible mortgage rate
If you’re looking to buy a home now, the good thing is that mortgage rates are still low. Getting a lower mortgage rate can save you tens of thousands of dollars over the life of your loan. Using an online loan marketplace like Credible helps you compare mortgage rates and loan offers from lenders in the most efficient way possible.
If you already have a mortgage but are looking to lower your interest rate to save money, Credible can help you compare the best mortgage lenders to help you refinance your mortgage. Shopping lets you know that you are getting the lowest mortgage interest rate for your financial situation.
SHOULD YOU REFINANCE YOUR MORTGAGE IF YOU ARE CONSIDERING AN EARLY RETIREMENT?
Pay off your mortgage quickly
Of course, you’ll want to pay off your mortgage faster, because you’re saving and investing aggressively. If you have a 30-year mortgage, consider making additional principal payments each month or making bi-weekly payments. If you get paid bi-weekly, you’ll automatically make an additional mortgage payment each year by switching to bi-weekly payments.
You can also refinance a 15-year term mortgage, so that more of your payment goes to pay off the mortgage principal. Speed up your mortgage payments by putting extra money in the form of work bonuses, tax refunds, or other cash earnings to pay off your home loan.
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Early retirement with a mortgage is possible
It’s common for someone pursuing FIRE to save 50% of their income, pay off debt, and maximize their investments to achieve financial independence in their 30s, 40s, or 50s. That said, it is possible to retire early and pay off your mortgage. This will free up more money in your budget and take the stress out of having to make a large monthly housing payment that eats up your retirement income.
Sound financial planning is the key to early retirement. Save money where you can by getting a lower mortgage interest rate and paying off other high interest debt.
You will need a place to live whether you are retired or not. So consider using Credible to research the best mortgage rates and deals so that you can find the best mortgage option for you.
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