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Mortgage in Retirement? Yes or No.

Whether you are planning for retirement or already retired, it is important to regularly evaluate your financial situation as well as market conditions. Traditionally, when it came to advice on having a mortgage in retirement or not, it was almost always recommended to enter retirement mortgage-free, if one was in a financial position to do so. However, based on current conditions and interest rates, the answer now may not be so straightforward.

For many, factoring in the increase in interest rates and the rate of return on bonds, the return could more than cover the cost of the monthly mortgage interest if one were to invest savings into bonds instead of paying down mortgage principal. An article in The Wall Street Journal discusses the topic of paying off a mortgage in retirement - or not, and the factors to consider. The article points out, "According to the Federal Reserve, nearly 38% of those ages 65 to 74 had mortgages or home-equity lines of credit on a primary residence in 2019, the latest year for which data is available. That is up from 22% in 1989." In addition, many people, including those close to or in retirement, refinanced their mortgages when interest rates were low. For some, that meant a significant extension of loan terms well into retirement. In addition, some retirees simply cannot afford to pay off their mortgage early, feel more comfortable using funds for a larger emergency fund, or prefer to allocate funds for other things.

For those retirees (or folks who are soon to be retired) who can afford to pay off their mortgage, the article suggests considering the following.

  1. Compare your mortgage rate with the yield on an ultra-low-risk investment. An example could be a Treasury note or bond. Then, see if you are able to earn enough interest (after taxes) from the investment to cover the cost of your mortgage interest.

  2. Another huge consideration in paying off your mortgage early is the impact it would have on your taxes. Figuring out what deductions you qualify for and how that impacts your mortgage interest rate is based on a variety of factors including your income level and tax bracket. This is best done by consulting an accountant or your financial advisor. Once the calculations are complete, your financial professional can help you determine what would make you the most money - paying off the mortgage or going with the low risk bond investment, for example.

  3. Consider the impact on your financial liquidity. If you need or want to access your home's equity, but already paid off a low-interest mortgage, you may need to sell assets to meet your cash needs. According to the article, it is not uncommon for retirees, even those with substantial assets, to qualify for a new mortgage. Still for some, the peace of mind and sense of accomplishment of paying off one's mortgage is the best choice for them.

Every financial situation, personal preference, and comfort level is different. Consider speaking with a financial professional if you are considering how paying off or keeping your mortgage in retirement will impact you.


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