That's the true value of owning a fully paid-off home in America — especially as you head into retirement

That's the true value of owning a fully paid-off home in America — especially as you head into retirement

There's great news for homeowners in America: a growing percentage now own their homes outright. No mortgage, no liens, nada.

In an analysis of US Census Bureau data in November, Bloomberg found that between 2012 and 2022 the number of Americans in this category jumped by 5 percentage points to just 40%.

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Furthermore, Bloomberg reports that more than half of these owners have reached retirement age. So, if you're lucky enough to be mortgage-free and heading toward retirement, you probably have a lot going for you financially.

For starters, the value of your home, if you choose to sell it, represents 100% equity. The bank doesn't own any of it, and if property values ​​in your area have jumped since you bought the place, it has essentially transformed from a roof over your head into a storehouse of wealth.

Here's a closer look at what fully owned housing can translate into in dollars and cents.

Hard-earned returns

It's important to note that homes do not provide a return in the same way as traditional investments. To get to mortgage-free land, you likely spent years making payments as the lender pocketed a chunk of the money.

Assuming the dream scenario—a $100,000 discount on a $500,000 home and a 15-year mortgage at 2.5% interest—you'd still give the bank nearly $80,000 in interest. By the way, this doesn't include property taxes, repairs, and home insurance. (You can play your own numbers on Mortgage website.

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However, the nationwide housing market has likely worked in your favor. Data from the Federal Housing Finance Agency show that seasonally adjusted home prices in the United States doubled in the 15 years between December 2008 and December 2013. Using the FHFA numbers as a guide, a home you bought might be worth $500,000 in 2008 $1.08 million today.

A ripple effect for your fully owned home

Another way to determine the value of your paid-off home focuses on the multiplier effect it will have on your retirement budget.

In simpler terms, take a $2,500 mortgage payment out of the picture and you have reduced your annual expenses by $30,000. Now, consider this versus the amount of money you'll need to manage your retirement: between 55% and 80% of your money Current annual income, according to Fidelity. When you own your home outright, you've pushed yourself to the lower end of that range, or maybe even lower.

Assuming you can achieve this milestone before retirement, you now have the option of investing that extra money into work. Let's say you pay off your house at age 60 and plan to retire at age 65. Using the example above of $2,500 per month, you've freed up $150,000 that you can now invest over that five-year period. Assuming a total return of 7%, that becomes $160,500. Not a bad cushion thanks to having a home with no monthly loan.

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Downsizing in more ways than that

There is another factor to take into consideration: the beauty of cashing out. Retirement fits hand and glove With downsizing and empty nests, smart people on the cusp of this life transition are evaluating how to get by with less—as in less space, less stuff—and still enjoy life to the fullest.

In short: You paid off this $500,000 house that's now worth about $1 million. You can trade in a nice townhouse for $400,000, selling excess furniture and the like as you go. This house is also paid for new (and still has room for your John Coltrane records, too).

The mathematics is filled with encouraging numbers. $600,000 profit on sale; $2,500 less monthly expenses; Proceeds from the sale of your excess property. You can even rent and say goodbye to high property taxes and the like. Then all that stock will be yours to work with.

It is possible to become a millionaire if you are not one to begin with. Pay off your credit cards and car loans while you're at it, too.

From a financial standpoint and from a peace of mind standpoint, this is the value of a beautiful home

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This article provides information only and should not be construed as advice. They are provided without warranty of any kind.

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