Is Having A Retirement Mortgage A Good or Bad Idea?

Is Having A Retirement Mortgage A Good or Bad Idea? (2024 Update)

Is having a retirement mortgage a good or bad idea? If you’re planning for retirement, you should consider the pros and cons of having a mortgage before stepping out of the workforce.

A higher percentage of homeowners are retiring with a mortgage than was the case 30 years ago. A recent Harvard University study found that 46% of homeowners between ages 65 and 79 carried a mortgage in 2016, almost twice as many as the 24% of homeowners in this age group who carried a mortgage in 1990. The same study also found that 26% of homeowners age 80 and older carried a mortgage in 2016, compared to only 3% in 1990.

Mortgage Debt’s Impact on Retirement

The financial wellness of retirees can depend greatly on the percentage of their income they need to spend on housing. Typically, a mortgage payment (or rent) is one of the largest budget items for retirees. So, carrying a mortgage into retirement can be a significant burden. But there can also be good reasons for keeping a mortgage. Here are some factors to weigh if you are trying to decide on your best course of action.

How many retirees still have mortgages?

According to a recent report from the Joint Center for Housing Studies of Harvard University, over 40% of homeowners over 64 had a mortgage in retirement.1 Fannie Mae also found that Baby Boomers have demonstrated a greater likelihood of carrying mortgage debt into retirement than previous generations.

Keeping your mortgage into retirement

Some situations favor carrying your mortgage into retirement. For example, it may make sense if you carry a lot of consumer debt. Why? The general rule for paying down debt is to tackle the debt with the highest interest rate first. Since mortgage rates are usually lower than rates on consumer debt, you may be better off putting your available cash towards paying down credit card balances than trying to pay off your mortgage. Likewise, with any other consumer loans, you may have.

Trust Point looking for more financial peace of mind? Let's chat! Call us at 800-658-9474

It can also make sense to carry a mortgage into retirement when:

  • You can potentially earn more by investing your money than by using it to pay off your mortgage interest payments.
  • Your cash reserves are limited and you do not have a way of replenishing them.
  • You want to use your money to diversify your investments rather than tying it all up in real estate.

Prepaying your mortgage

It may be financially wiser to prepay your mortgage before retirement if your retirement income will be limited and won’t accommodate a mortgage payment. It can make sense also if there is no prepayment penalty and you estimate that you can save a large amount of interest in the long run by paying off your mortgage early. And finally, you should consider prepaying your mortgage before retiring if you just don’t like debt and don’t want to have to worry about it. However, paying off a mortgage when it would leave little to no savings for an emergency can pose a risk.

Another option would be to downsize for retirement. If you strategize, you could potentially buy a smaller home and leave yourself mortgage free from the profit of selling your current home. But, you must consider tax implications, closing costs, an accurate value of your current home, and have a good understanding of the cost of a home you are thinking of downsizing to.

Contact The Professionals At Trust Point For Help!

Deciding whether or not to carry your mortgage into retirement can be a difficult decision. For more information or to discuss your specific situation, contact one of our financial professionals at Trust Point.


Related Posts

I’m Interested in Your Services Question about my 401(k)