How Do You Retire When You Still Have a Mortgage?

Many people dream of retiring mortgage-free to a life of relaxation and financial freedom. But the reality is that a significant number of retirees are still paying off their mortgages when they leave the workforce. In 2019, nearly half of homeowners aged 65-79 had mortgages. So how do you manage retirement when you still have mortgage payments to make each month? Here are some tips.

Consider Downsizing to a Smaller Home

If you’re still carrying a large mortgage on a big house, downsizing to a smaller home can be a smart move for retirement. This frees up equity that you can use to pay off your mortgage faster or invest for added retirement income. And it reduces your housing costs. With a smaller home you’ll have lower property taxes, utilities insurance, and maintenance expenses. Just make sure you can still live comfortably in the downsized home.

Pay Off Your Mortgage Faster

Putting extra money toward your mortgage while you’re still working helps you pay off your loan faster. A 30-year mortgage can be cut by years with just an extra $100 or $200 a month. If you get a bonus, a tax refund, or an inheritance, try to put the money straight toward your mortgage principal. The faster you pay it off, the less you’ll owe when you retire.

Refinance at a Lower Interest Rate

Mortgage rates are almost at all-time lows, so refinancing could be a great idea. More than likely, you can get a much lower interest rate than the one you currently have, which lowers your monthly payments. Refinancing from a 4% rate to a 3% rate could save you tens of thousands of dollars over the life of the loan. Just make sure you do the math to make sure that refinancing makes sense for you.

Explore Reverse Mortgages

A reverse mortgage lets people aged 62 and up borrow against their home’s value without having to make monthly payments. When you sell the house or die, the loan is paid back. Reverse mortgages can give you tax-free cash to help pay for retirement, but they have fees and interest that builds over time. So carefully weigh the pros and cons before getting one.

Delay Social Security Benefits

One strategy is to keep working a few extra years before claiming Social Security benefits. This allows your future monthly payments to grow bigger. Then when you do retire, the boost in Social Security income can help cover mortgage payments that used to come out of your work earnings. Just make sure to coordinate properly with your spouse if you both receive benefits.

Use Retirement Funds Strategically

With proper planning, you may be able to use Roth IRA contributions or Roth 401(k) conversions to fund mortgage payments in early retirement. Since Roth accounts provide tax-free withdrawals, you can avoid bumping up your income taxes. Also consider if a 401(k) loan makes sense to pay down your mortgage sooner while still working.

Relocate to a Cheaper Area

Sometimes the most affordable way to retire with a mortgage is to move to a part of the country with lower housing costs. While you’ll still have monthly payments, downsizing and relocating to a cheaper area stretches your retirement budget much further. Make sure to consider all the costs, like taxes, healthcare, and transportation when choosing a retirement destination.

Evaluate the Pros and Cons

Think carefully about the pros and cons before deciding if you want to keep your mortgage after you retire. A mortgage lets you keep using the equity in your home for investments and emergencies. But payments are a fixed monthly cost that makes it hard to get cash. Look at all of your finances to figure out the best way to move forward.

Have a Solid Retirement Plan

Any remaining mortgage payment when entering retirement should be accounted for in your overall retirement plan. Review your expected income streams like Social Security, pensions, and investments to ensure they can comfortably cover mortgage payments plus other necessities. Tracking your expenses and creating a retirement budget also helps guide smart decisions.

Retiring with mortgage debt isn’t ideal. But it’s possible with careful planning, strategic use of resources, and weighing your options. The keys are understanding all the costs, making fiscally sound choices for your situation, and having a solid financial roadmap to follow. Then you can make the most of your retirement years, even with monthly mortgage payments.