Conventional wisdom says that you should pay off your mortgage before you retire so you can keep your monthly expenses down while living on a reduced income. With many people buying homes later in life and taking on 30- or 40-year mortgages, some are unable to pay off their home loans before retiring, and some can, but choose not to.
Paying Off Your Mortgage Before You Retire Can Give You Peace of Mind
People often worry that they might not have enough money to live comfortably during retirement. Eliminating your mortgage debt before you stop working can help you feel more confident about your financial prospects. You won’t have to worry about that large expense every month and will have more money to put toward essentials, as well as hobbies and traveling.
You May Have to Retire Sooner Than You Would Like
Often, people intend to keep working into their late 60s, or even later, but have to retire earlier due to an illness, injury, job loss or another reason. If you have to stop working sooner than anticipated and you still have several years left on your mortgage, you may find yourself in a tough spot.
Paying off a Mortgage in Retirement is Challenging, But Not Necessarily Impossible
After you stop working, your income will fall. If you have significant retirement savings, you expect to collect substantial Social Security payments or your spouse will continue working after you retire, you may not have any trouble keeping up with your mortgage payments. If, however, you don’t have a lot saved and can’t rely on Social Security and/or a spouse’s income, you may fall behind on your mortgage payments and possibly wind up in foreclosure.
Sometimes Carrying a Mortgage Into Retirement Makes Sense
If you’re trying to decide between investing more for retirement and taking out a mortgage that you can pay off before you retire, focusing on investing might be the better move. If you choose a longer mortgage with smaller monthly payments, you will have more money available to invest. Your investments will provide you with additional income that you can tap into after you retire.
You may have high-interest credit card debt that you want to pay off as soon as possible. Taking out a mortgage with a long term and low monthly payments can give you more money to use to eliminate your other debts. That approach may pay off in the long run, even if it means you will have to continue making mortgage payments after you retire.
Talk to a Financial Professional
Everyone’s situation is different. Discuss your retirement plans, current income and savings, goals and concerns with your financial planner to get advice that suits your specific circumstances.
