You might be getting close to retirement and thinking about moving into a new house and taking out a mortgage. Before you make a decision, think it over carefully.
Money That You Spend on a House Can’t Go Into Your Retirement Account
If you purchase a new home, you’ll have to cover a down payment, closing costs, moving expenses, a mortgage, homeowners insurance, property taxes and other costs. That’s money that you won’t be able to put into your retirement fund.
When you invest for retirement, your savings can grow significantly thanks to compound interest. If you put less money into your account, you’ll lose out on that growth. Beefing up your retirement fund might be a smarter move in the long run, especially if you’re not currently on track to reach your investment goal.
Purchasing a New House Might Leave You Buried in Debt
If you currently have credit card balances or other forms of debt, taking out a mortgage can make your financial situation even harder to handle. You might buy a house, then realize that you can’t afford to retire when you intended to. If you go ahead and retire as planned, you might struggle to cover your bills.
Buying a House Before You Retire Can Have Financial Benefits
If you’re in good shape financially and confident that you’ll be able to afford the lifestyle you want in retirement, you might be able to manage a mortgage and other housing costs. Purchasing a new home can also make sense if you’ll have lower housing payments and you’ll be moving to an area with a more affordable cost of living.
Taking out a mortgage might reduce your tax bills. If you itemize your deductions, you’ll be able to write off mortgage interest payments and save money on taxes when you’re retired.
You Can Pay Down Your Mortgage ahead of Schedule
If you decide to buy a house in the years leading up to your retirement, you might be able to make extra payments so you won’t be overwhelmed by debt when you stop working (provided your lender doesn’t charge a prepayment penalty). You’ll have to weigh the advantages of reducing your mortgage debt against the potential benefits of investing that money or keeping it in a savings account that’s easily accessible.
Consult Your Financial Advisor
Buying a house near retirement may or may not be a smart move, depending on your current circumstances, your goals and how much a mortgage and other housing expenses would cost. Your financial advisor can look at the big picture and help you figure out what makes sense for you.
