When most people in America apply for a home loan, they typically choose a 30-year mortgage. It’s the default and most familiar option. But in many cases, it’s selected without evaluating whether a different loan term might be a better fit. While there are many things to consider when selecting a mortgage, this article will focus primarily on selecting the length of the mortgage.
In our new book, Enjoy the Journey: Building Wealth, Chapter 5 encourages the reader to review the terms of their mortgage from a different point of view. Ideally, they choose a mortgage that aligns with the goals in their financial plan. We’ll discuss this approach for selecting a mortgage in more detail in this month’s blog.
In this blog, we will discuss the following:
- Why You Should Start with the End in Mind
- Choosing the Right Mortgage Term
- A Closer Look at Interest-Only Mortgages
- How Extra Payments Can Accelerate Your Payoff
- Conclusion
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When Selecting a Mortgage Term, Start with the End in Mind
Over the years, we’ve helped many clients build personalized financial plans. An important element in the plan is how to prepare for retirement. We often recommend our clients consider choosing a mortgage term (number of years of the mortgage) that aligns with their retirement timeline.
Based upon our experience, we know it’s much less stressful to enter retirement without a mortgage. Consider this, if you need to pay a monthly mortgage, you will need to accumulate a significantly larger amount of assets needed to generate the retirement income necessary to cover that mortgage. That’s why, for our more conservative clients, we recommend paying off their home by the time they retire.
Let’s look at how this might work.
Examples of Selecting a Mortgage Term
Take, for instance, a young couple buying their first home with 30 years until retirement. A 30-year mortgage makes sense—they can time it to be paid off as they retire. This being the case, it's essential to remember that a longer loan term means paying significantly more in total interest over the life of the loan.
Now imagine this couple is 10 years older, with 20 years to retirement. If they decide to refinance their loan, we recommend considering a 20-year mortgage, allowing them to still have their loan paid off by the time they retire. Now assume the couple is only ten years from retirement. If they want to have their mortgage paid off when they retire, then consider a 10-year mortgage. All of this assumes that the monthly payment amount is affordable in each example.
If you are wondering about your own situation, a financial plan and some tax analysis could help you make a more informed decision.
We have observed cases where people choose the following sequence of events:
- They spend more than they earn, causing them to carry high consumer debt
- They see their home appreciate in value
- They refinance into a new 30-year mortgage, one that is larger than the previous one
- They use the cash-out portion of the new loan to pay down their other debt
Repeated over time, this strategy can lead to going into retirement while still owing a substantial mortgage. It can also force an untimely sale of the primary home in order to afford retirement. It can often lead to downsizing and possibly relocating to a less expensive area just to stay financially afloat. Taking this path could result in fewer and less desirable options during retirement.
Interest-Only Mortgages: Proceed with Caution
We are sometimes asked about interest-only loans, where the borrower's payment only pays the interest each month, not the loan principal. While the low monthly payments may seem attractive, we typically advise against this option.
Interest-only mortgages don’t help you build equity. It’s like renting—but if the property increases in value, the homeowner may still benefit at the time of sale. That said, you’re not actually progressing toward full homeownership during the loan period.
Making Additional Mortgage Payments
A common practice is to make additional payments, beyond the monthly amount on a loan. Paying more than the required mortgage payment each month reduces the loan balance faster, saves money on interest, and can knock years off the loan's term.
This approach also builds financial discipline. Many homeowners treat it like a forced savings plan. However, there’s a flip side: life happens. If you lose your job or become ill, you have put the extra money into the loan and cannot access it when you need it.
A safer alternative may be to direct those extra funds into a savings or investment account. This way, if your income temporarily stops, you can still pay your mortgage. Over time, your savings could grow large enough to pay off the remaining balance in full—especially if your investment returns exceed your mortgage interest rate.
Conclusion: Mortgage Planning with Purpose
When shopping for a home loan, don’t automatically default to a 30-year loan—take time to choose a mortgage term that supports your bigger life goals. If you can afford it, opt for a term that allows you to fully own your home before retirement.
We believe you'll thank yourself when the time comes. Living mortgage-free during retirement means less financial pressure, more peace of mind, and the freedom to Enjoy the Journey—whether that’s traveling, pursuing hobbies, or simply enjoying the life you’ve worked hard to build.
If you want to talk more about your specific situation, contact our Wealth Managers.
Elaine Manley, Scott Manley or Linda Tjiputra.
We are here to help you make smart decisions to align your money with your goals so you can Enjoy the Journey.
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Financial Journey Partners - Partners in Your Financial Journey®
Our Financial Journey Partners office is based in San Jose, California. We have clients that live in many states across the country. If you have questions about your investments or financial situation, call us to schedule time to talk about your specific situation.
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