The attitudes and realities of home ownership have changed a lot over the last few generations. People are switching jobs, towns, and homes more often, and, coupled with difficult financial events like the global crisis of 2008, more and more people are finding themselves at retirement age with many years left on their mortgage.
Preparing for retirement does mean reducing your debts, but often your mortgage is the last thing on the list. However, there are a number of advantages to entering retirement with your house fully paid off. Read on to find out what those benefits are and what to do if you can’t quite pay it off in time.
As a relatively low-interest loan with certain tax benefits, it’s tempting to just leave mortgage payments as they are, but, in the later stages of the loan, when it moves from interest only to paying off the principal, those tax benefits start to dry up and are often outweighed by the interest.
It Makes Your Nest Egg Go Further
The most obvious advantage to being mortgage-free is that you don’t have to pay the bank anymore. This means whatever’s in your pension, whether it’s 401(k), IRA, or otherwise, goes further and supports you longer. Expenses become easier to plan out, and you can get by on less if you haven’t saved up as much as you were hoping for before you retired.
It Gives You Freedom
Related to this is the psychological aspect of being debt-free. Your retirement should be about freedom—about doing all the things you’ve wanted to do—not about worrying if your funds are going to make it. Paying off your mortgage can simply make you happier and enable you to live a richer, more fulfilling life.
It Doesn’t Burden Your Children
We often don’t want to think about it, but you do also have to consider what will happen to your debts when you pass. Do you really want to hand off a mortgage debt to your children? Quite aside from the financial burden to them, sorting through—and dealing with—the debts of their parents can cause arguments and resentment among family members.
You’ve Got a Backup in an Emergency
With your home fully paid off, you do also have the option of taking out another loan against your house. This is a good way to pull together some extra cash if you’ve been put in a tricky financial situation—for example, your retirement fund runs out or there’s an emergency in the family.
Loan redraws are available even if you do still have a mortgage, of course, but the terms are likely to be more favorable and repayments easier if you’ve already paid off the house.
What to Do if You Can’t Pay It Off
There’s no reason to stress if you can’t quite manage to pay off your mortgage before you retire. Many Americans find themselves in this position every year, and it all turns out fine. There are two main things you can do to make the transition to living off savings easier:
- Downsize – Now that the kids have moved out, do you really need a two-story, four-bedroom house anymore? Consider getting something smaller that will fit your new budget a bit better and free up extra money.
- Refinance – If you’ve had the mortgage for a while, it’s highly likely you can organize a refinancing. Paying off what’s left of the loan in another 30 years instead of 10, for example, will significantly reduce your periodic repayments.
The Credit Union That’s Thinking About Your Future
Planning for your retirement is a daunting task. Unfortunately, it’s also a necessary one—at least, it is if you want to live out your golden years relaxed and happy. Working out what you’ll do with your mortgage is a big part of those plans, and it pays to have someone who’s on your team.
No matter what you want to do when you retire, TPFCU—The People’s Federal Credit Union—is on your side. Offering a complete package of highly competitive home loans and refinancing options, we make sure you’re always in control of your future. Unlike big, impersonal banks, we take the time to understand your life situation and tailor our products just for you.
Don’t wait until retirement’s knocking at your door. Get in touch with our friendly team today and discover how we can help you live the life you’ve always dreamed of.