The FIRE movement: How to retire early with no mortgage debt

If you have a goal to retire early, you may be wondering how your mortgage might affect this. Learn more about reaching FIRE with no mortgage debt and how to make this a reality in this article. (iStock)

One in three Americans has made retiring early a financial goal, according to a report from the financial research firm Hearts & Wallets. Early retirement generally refers to becoming financially independent before becoming 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 you to retire. 

While investing in retirements can certainly help you with financial planning, getting rid of debts like your mortgage before you retire can also free up a ton of money. Plus, you won’t have to think about making a sizable mortgage payment each month during your retired years. Luckily, you don’t have to choose between retiring early and paying off your mortgage. 

Early retirement planning is made even easier if you can pay off your home loan at a lower interest rate. Use an online mortgage marketplace like Credible to compare mortgage rates and save for retirement.


See how a mortgage fits into your budget

It’s common for someone pursuing early retirement to put 50% or more of their income into saving accounts and retirement accounts. Early on, you’ll need to ask yourself if it’s possible to manage a mortgage while aggressively saving for your retirement fund. Trying to tackle both goals at once may require you to buy a smaller home or move to a more affordable area of the country with modest real estate costs. 

Either way, you’ll want to use an online mortgage calculator, like this one from Credible, to help you determine how much your monthly payments will cost. Once you calculate your potential mortgage payment, assess whether there’s room in your budget for additional savings and extra mortgage payments. You may need to adjust your budget and make some cuts to ensure you can live comfortably while paying off the mortgage and pursuing your goal of reaching FIRE.


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. This is why it will make more sense financially to tackle all your other consumer debt and save your mortgage for last. 

With credit card interest rates on new accounts hovering around 20%, set a plan to pay off all your credit card balances and keep them paid off. Then, you can move on to personal loans, your auto loan, and student loan debt. When your mortgage is your only remaining debt left, you’ll just have two main financial goals:

  • Save and invest for retirement
  • Make extra payments on your mortgage

Paying off all your other debt can free up hundreds to thousands of dollars that can go toward savings each month. Plus, you’ll lower your credit utilization ratio, which is your account balance vs. the total credit limit you’ve been given. This can increase your credit score exponentially.


Get the lowest mortgage rate possible

If you’re looking to buy a home now, what’s great is that mortgage rates are still low. Securing 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 top mortgage lenders to help you refinance your mortgage. Shopping around lets you know that you’re getting the lowest mortgage interest rate for your financial situation.


Pay off your mortgage fast

Of course, you’ll want to pay off your mortgage faster as 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 every two weeks, you’ll automatically make an extra mortgage payment each year by switching to bi-weekly payments. 

You can also refinance to a 15-year term mortgage so more of your payment will go toward paying down the mortgage principal. Accelerate your mortgage payments by putting in extra money from work bonuses, tax refunds, or other cash windfalls to pay off your home loan.


Retiring early with a mortgage is possible

It’s common for someone pursuing FIRE to save 50% of their income, pay off debts, and maximize investments to reach financial independence in their 30s, 40s, or 50s. That said, it is possible to retire early and pay off your mortgage. Doing so will free up more money in your budget and eliminate the stress of having to make a large monthly housing payment that eats into your retirement income. 

Informed financial planning is the key to retiring early. Save money where you can by securing a lower mortgage interest rate and paying off other high-interest debts. 

You’ll need a place to live whether you’re retired or not. So consider using Credible to shop around for the best mortgage rates and offers so you can find the best mortgage option for you.

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