Retirement Mortgage
The New Retirement Mortgage Trend
The newest generations of retirees are living longer, having longer retirements and more and more of them have a retirement mortgage with their retirement income. A generation or two ago, having a retirement mortgage was almost unthinkable, but as of 2007, among homeowners ages 60 to 69, 41 percent still had a mortgage.
Many financial experts still advise against retirement mortgages, but having one is now a matter of debate, not cause for despair. What are the pros and cons of a retirement mortgage?
Retirement Mortgages: A Good or Bad Idea?
If you can afford to do it, deciding whether to pay off your house or to keep a retirement mortgage should be approached as a cost-benefit analysis.
One viewpoint is that the interest you pay on your home mortgage is tax deductible, and so paying a retirement mortgage can represent an ongoing retirement savings. But the standard deductible for couples, as of 2009, is $11,400, and $5,700 for singles – so to make the deduction on a retirement mortgage worthwhile, all your itemized deductions, including the mortgage interest, charitable contributions, state and local taxes, would have to add up to more than the standard deduction. If they don’t add up to more, you’re better off paying off your mortgage for retirement.
Another is that not paying off your mortgage leaves you with money to invest in the stock market. This strategy depends on your confidence in your retirement investments in stocks for retirement– can you generate a return higher than the interest on your house? These days, that’s looking riskier than ever.
Another frequent argument against paying off your home, and for having a retirement mortgage, is that it leaves you with more liquidity, i.e. ready cash for unplanned expenditures, whether those are emergencies or treats like retirement travel. Many financial experts counsel against this, saying it’s safer to have paid off your house and have as few ongoing retirement expenses as possible. If you do have an emergency need for income, you can look into a reverse mortgage – which brings us to our next topic.
An Alternative Retirement Mortgage Strategy
If you own your own home and are at least 62, a reverse mortgage is an opportunity to convert your home equity into cash. A reverse mortgage allows you to take out a loan against the equity in your home and – as long as you are keep living in that home and don’t sell it – you won’t have to repay the loan during your lifetime. The loan repayment will come from the sale of the house after you pass on.
The safest reverse mortgages are provided by the federal government, the HECM, or Home Equity Conversion Mortgage, which first became available in 1989. To learn about HECMs, and get help thinking through the pluses and minuses of a reverse mortgage, visit the HECM section of the US Housing and Urban Development website.
