It's an increasingly common dilemma. You want to retire — but you haven't yet retired your mortgage.
According to the Federal Reserve, among households headed by someone age 65 to 74, over 32% had a mortgage on their primary residence in 2004, up from less than 19% in 1992.
Are you heading into retirement and still carrying a mortgage? Here are some tips on how to do it:
- If you have a heap of savings and a modest mortgage, go for the loan payoff. You might consider trading down to a smaller home or, work part-time until you're rid of the mortgage.
- If you have cash sitting in, for example, a money-market fund held in a regular taxable account, also consider using these savings to reduce your loan balance. Sure, your mortgage may be costing you just 6% and the interest might be tax-deductible. But your money-market fund is likely yielding only 5% — and you have to pay tax on that income.
If your mortgage is so large that paying it off will seriously impact your retirement, you might as well get the mortgage payment down as low as possible.
Better still, trade down. After paying a 5% or 6% real-estate commission and paying off your current mortgage, in most cases, you could put down cash on your new home, leaving you with a smaller mortgage. If you financed that over 30 years at 6.5%, your monthly payment would be lower.
You might even consider refinancing later in retirement, further shrinking your monthly payment by again extending the loan over 30 years. Even in today's tight credit environment, you shouldn't have a problem qualifying for a new loan, as long as you have a reasonable amount of retirement income.
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