The goal of entering retirement mortgage-free is a worthy one and those who achieve it while preserving and growing a nest egg deserve to be congratulated. Any responsible advisor will surely tell you that paying down your mortgage should not necessarily be your top priority when planning your retirement. There are other considerations to factor in, such as the aforementioned nest egg. As far as retirement mortgages go, you have some options to choose from when deciding what steps are best for your long-term financial needs and goals.
You could pay down your mortgage, refinance, or continue your current payments. What's the best course of action for you? It all depends on your own personal and financial profile. This profile includes your plans for you and your family as well as your finances. Want to buy another home? Travel the world? Go back to school? Start a business? These are the kinds of things you need to factor into your decisions regarding your mortgage.
How Do you Make the Best Plans for Your Mortgage in Retirement
Any decision on the future of your retirement mortgages has to be viewed regarding how it impacts your other debts, cash flow and investments.
Paying down your current mortgage is a good option if retirement is not too many years away and your mortgage is close to being paid off. If you can afford payments that might continue in the short term after your retirement, you are still ahead of the game.
This is because refinancing only makes sense if it will not cut into your savings or investment contributions, or ultimately cost you to reduce your payments. If the costs of refinancing exceed or cancel out any short-term benefit that you'd get a reduced amount, then it is not worth pursuing.
On the other hand, if you've got ways to go before retirement, then to refinance to take advantage of a lower rate might make sense for you. Again, it is important to consider your situation before determining how best to finance your retirement mortgages.
Do you want to keep your home, and possibly leave it to your estate? Refinancing does not make sense if you plan to sell your home. Otherwise, it is a good decision if you can get a better rate. Extending your mortgage term could free up funds that would be better invested in the market. It could also saddle you with additional interest payments unless you keep paying what you pay now.
Going for a shorter term to pay down your mortgage faster makes sense only if you can afford the payments without reducing your savings rate, especially if your retirement savings are not where you want them to be yet.
Moreover, of course, keep an eye on refinancing costs. If you'll need to recover those costs by reducing your savings for the long term, it is not your best option.
The Time To Take Action Is Now
With your particular circumstances and goals in mind, now is a good time for few simple steps that will arm you to make your decision. One is to review your debts, savings, investments and spending. What is the impact of your decision on your retirement mortgages going to be? You do not want to be mortgage-free and broke, or paying a mortgage when you could be using your money more productively.
Obtain current interest rates and look at a some refinancing offers from reputable lenders. How does it compare to your current rate? Is your rate scheduled to increase? Do you have strong equity and credit? Your credit score and investment in your home will impact your rate.
If you decide that refinancing is a good idea for dealing with a mortgage in retirement, call a few lenders and see what kind of prices you can negotiate. Do the offers meet your expectations? If not, circle back to your financial review and make sure you are still comfortable with that path.
Will you now have additional funds available? This would be a good time to review your portfolio and spending plans to see where that found money can do the best. Hopefully, you are not looking at a long-term increase in mortgage payments after this thought process. If you are, go back to step one, and see where you might have missed something.
If you have a short-term increase in payments, now is also a good time to plan for when those payments are finished, and you'll have the surplus. Spend it wisely.