Should you keep a mortgage in retirement? The traditional answer has always been “pay it off and retire debt-free!” In 2021, though, the real advice is “it depends, and you have to do the math!”
If your home equity is most of your retirement fund, and you can’t afford your current mortgage payments, you may have a few options:
• If your mortgage rate is above 3.5%, a refinance could result in lower payments that you can afford, and allow you to stay in the home.
• You could consider a reverse mortgage loan, which allows you to stay in the home and receive monthly cash payments or use it as a line of credit. Repayment is not due until the home is sold, the last borrower passes away or permanently leaves the home. The two most popular are the HECM loan (Home Equity Conversion Mortgage, insured by the FHA) and, for high-value homes, jumbo or proprietary reverse mortgages.
• Alternately, you could sell the property, downsizing to a home and mortgage you can afford, or simply sell and live off the remaining equity (as a renter). If your home equity is most of your retirement fund, and payments are relatively small (or none), you could do a cash-out financing and tap into the equity to supplement your budget (which would then include a larger mortgage payment, of course).
If you have retirement funds in addition to home equity, you may have more options:
• Refinance to today’s low rates (especially if your current rate is 3.5% to 4% or higher), giving you a lower payment each month.
• Downsize. Selling unlocks the equity, and you can use some to buy a new, smaller home.
Seniors With Mortgages Now Quite Common
While living debt-free is appealing, in our historically-low interest rate environment, it may make sense to keep the mortgage or take out a new loan to downsize rather than retire debt-free—especially if you can find yields on your investments which exceed your mortgage rate.
And yes, retirees can get home loans! Withdrawals from retirement accounts, pension payments and Social Security all are income that could help you qualify.
It is better to make plans before you retire, and there’s no time like the present.
Contact us for a no-obligation mortgage planning session to get information on options that best fit with your retirement goals.
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