The benefits of paying off your home loan before you retire

Living in a home without the worry of monthly bond repayments provides peace of mind and a greater sense of financial security - and that's a great foundation for a happy retirement after many years of working and saving.

In addition, paying off your home loan before you retire will preserve the value of the property as an asset, which can then be sold at a later stage if you wish, or left to your heirs as a valuable legacy.

Owning your home outright will also protect you from fluctuations in the housing market, meaning you can plan better and won't be forced to sell at an inopportune time because you can't afford the bond repayments.

Importantly, being bond-free will also give you more freedom and flexibility to choose when and how you retire. You could opt for early retirement, part-time work, or simply enjoy having more disposable income available to cover your daily living expenses and healthcare as well as travel, hobbies and other leisure activities.

In short, paying off your home loan as soon as possible is one of the best gifts you can give yourself - and the surest - and easiest - way to do this is to pay more than the minimum monthly repayment, right from the start. 

Even if you can only afford R100 or even R50 more than the minimum when you first buy the home, you will be surprised at how much difference this habit will make. It will result in a 20-year bond being paid off far earlier, and save you a substantial amount of interest. It may even enable you to boost your retirement savings by diverting the amount that you would have been paying off a home loan every month for several years before you retire.

Alternatively, if retirement is going to mean a move anyway, you may be able to eliminate any remaining home loan obligations by downscaling to a smaller home. Most retirees don't need - or want - a large home that requires a lot of maintenance and upkeep. And if you sell your family home, the proceeds may well be enough to buy a smaller home for cash, or at least with a sizeable deposit. And then again, the lower running costs of a smaller home might enable you to pay it off completely in just a few years.

However, you may not wish to sell your current home and move, and in that case, it may be worth using some of your tax-free lump sum payout on retirement to settle any amount still outstanding on your home loan.

Overall, the practical benefits of bond-free or rent-free living in retirement should compensate for any financial sacrifice you have to make to achieve that goal while you are still working and earning. It is nevertheless important to consider the whole picture when planning for retirement, including other debts, your anticipated healthcare costs and savings, and you should consult with a professional financial advisor to help you create a plan tailored to your individual circumstances.