There are many considerations regarding having a home mortgage in retirement. This article is intended to provide an outline of potential pros and cons to be considered. As always, we recommend seeking advice from a Certified Financial Planner and/or your CPA Tax Advisor as these decisions are contemplated.
The pros of carrying a house mortgage in retirement can be:
- A short-term bridge mortgage could allow you to use an existing house to purchase a new house prior to selling your existing house. Many retirees like to alter the location or type of housing they have for retirement. If you have a paid-off home, it is a great source of collateral to do a bridge loan to purchase a new home and then pay it off when you sell your existing home. It is important to ensure your current home is marketable by getting a certified appraisal or realtor’s analysis.
- If you have a low-rate mortgage, you may be able to invest the money that would be used to eliminate a home mortgage and gain an investment return that exceeds the mortgage interest rate. It is important to ensure you don’t have much other debt in retirement if you opt to use this strategy.
- There is the potential for tax-deductible interest on a home mortgage if you are itemizing deductions (seek advice from a CPA or tax advisor).
- Making a mortgage payment instead of rent could lower expenses and allow you to build equity in your home.
- If you have a home mortgage at the time of retirement, you may be able to preserve more retirement funds while you finish paying off your home on a monthly basis.
The cons of carrying a house mortgage in retirement can be:
- The monthly payments lower free cash flow and could limit your ability to fund your monthly objectives.
- Free cash flow allows you more opportunity to maintain a good emergency savings fund or to cash flow unexpected expenses that allow you to avoid the need for future debt.
- If your income is reduced when you retire, you will want to avoid payments that may be too large for your monthly budget.
- There is a sense of pride, ownership, and freedom that comes with having your home paid off.
- If your home is paid off, you have flexibility with this asset.
- Interest is an expense that increases your monthly expenses.
- You would want to alter insurance coverages to ensure they conform to lender’s standards.
The conclusion is that there are many pros and cons that should be considered. This is an important topic to discuss with the Financial Planner who is assisting you with your retirement planning to ensure your strategy aligns with your overall financial plan.