Should I pay off my mortgage before retirement?
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UPDATED: May 17, 2013
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Retirees should pay off their mortgage loan before retirement.
The years during retirement offer consumers fewer options for funding. Retirees no longer hold full-time positions and therefore any incoming salary is reduced or eliminated. More retirees rely on Social Security benefits, 401(k) payouts, pensions, or other savings funds.
Unforeseen expenses, such as an unexpected healthcare cost, can further add to the weight of a retiree’s debt, so paying off a major financial obligation such as a mortgage loan before this occurs is beneficial.
Certified military housing specialist Greg Cook said planning ahead is important.
“No one knows what the future holds, so having a contingency plan is a smart financial move,” Cook said to loans.org.
Liran Hirschkorn, an independent insurance agent, said that paying off one’s mortgage loan leads to a peace of mind and a more secure retirement.
“Our mortgage payment is one of our biggest expenses, and by paying it off we can have a more secure and better lifestyle in retirement,” he said.
Despite being recommended by most experts, Hirschkorn said that most Americans have mortgage debt into retirement. He attributes low interest rates and attractive refinance options to this increase. Many future or current retirees decided to refinance their home and begin a 15- or 30-year mortgage loan.
One small benefit to keeping a mortgage loan open through retirement is that it provides a significant tax deduction, according to writer Neven Gibbs. This strengthens when the tax deduction is greater than taxes on corporate income returns.
For some retirees, some form of debt must travel into retirement. Although mortgage debt is a financial strain on a consumer, it is a better form of debt than unsecured debt or high interest loans.
Each consumer must decide whether this debt is going to be a manageable strain on their finances. Frank Casanova, the owner of a video production studio in Sacramento, CA, said the decision depends on one’s personal relationship with money.
Casanova’s wife comes from a family of farmers where debt is viewed negatively. On the other hand, after working in the real estate and lending industry, he now believes that properly managed debt can be a positive aspect of life.
He said consumer should question, “Do you fear debt, or do you see debt as a tool?”
Some couples that fail to discuss their debts beforehand are placed under unexpected strain later in their retirement years.
Ken Rupert, an author and financial mentor based in Maryland, said he dealt with a retired client that had a mortgage loan with a $56,000 balance. The female client’s husband was diagnosed with Alzheimer’s and she needed to preserve any cash reserves for his upcoming care.
The female client wanted to use her retirement funds to pay off the mortgage, but Rupert advised against this. He stated that putting equity in her house at a time when she needed liquid assets would likely cause her to sell the home in the near future.
“In the current housing market, there is no guarantee that she would be able to sell her house in the time needed for the price desired,” Rupert said. “If this couple would have eliminated their mortgage prior to retirement, she would be in a more advantageous position.”
Bruce Specter, advisory mortgage planner for Movement Mortgage, agrees that each person’s situation varies. He said that due to the evaporation of everyone’s home equity and nest egg, the nation is “in the process of redefining what retirement is.”
Hirschkorn said that due to the past economic climate, “many Americans are still in debt past the time they thought they would be.”