The vast majority of us would like to stay in our homes during retirement. It may be because we know the place, have repaired most of what needs to be fixed, like the neighborhood, and the proximity to friends, families and activities suits us. unfortunately, the vast majority of us are looking at retirement with a mortgage. Is that necessarily a bad thing?
Mortgage rates are still at historic lows in many parts of the country. For those of us who have been fortunate enough to have made sensible financial decisions in the past, bought a house we could afford with a manageable mortgage, the temptation to refinance to a lower rate with a shorter pay-off period might be something to consider. With fifteen-year mortgages in some parts of the country falling below 4.5%, you might be asking yourself is it worth it?
Yes and no. If you qualify for this type of loan – and this isn’t easy these days – you are the type of person/couple than has shown great financial discipline. A little bit of luck is also there but in large part, because you exercised financial restraint when your peer group did not, you might be tempted to shorten the duration of the mortgage to fifteen years. This would, by your calculations, get you into retirement with a home that is fully paid-for and one huge concern off your list of things to worry about.
But this would also increase your monthly obligation by as much as third and commit you to it for fifteen years. Two things might present this a problematic solution to your peace of mind plan. One, it removes the financial flexibility you may have had if you had simply made an additional thirteenth, fourteenth and fifteenth month payment on your own and did so directly to your equity and secondly, it might find you making less of an investment in your retirement plan at a time when you might be playing catch-up.
But you should consider the inflation advantage that your home presents. You have to live somewhere. There will always be inflation and it will almost certainly always be increasing. Based on those two knowns, a house with a 30-year fixed rate mortgage gets cheaper every year. If you manage to invest enough while you are working to cover the mortgage, the taxes, insurances and the upkeep on the property, you might find the equity you continue to build to be worthwhile later in life rather than earlier. (Reverse mortgages usually require you own 60% of your home in order to qualify.)
Not many of us consider inflation as a positive factor in our retirement planning, but when it comes to our home mortgage, it just might be the best hedge against the falling worth of our dollar.
Related posts:
