Retiring with a mortgage is a big financial decision — you’ll want to make the right choice.
- If you purchased a home late in life or refinanced often, you may still have a mortgage when nearing retirement age.
- Your mortgage payments can reduce income you have available for other expenses.
- It’s important to consider whether your mortgage will be affordable after your paychecks stop.
Retiring changes many aspects of your financial life. You’ll no longer have a paycheck coming in, so you’ll need to rely on other income sources such as Social Security and savings. And chances are good you’ll end up on a fixed income with less money to spend than you had before leaving the workforce.
Since retiring may mean you need to make less money stretch further, you may not want to leave the workforce when you still have a lot of financial obligations. Specifically, if you have a mortgage loan, you should ask yourself these questions to decide if retiring before you pay it down would make financial sense.
1. How will your mortgage affect your monthly budget?
The first big question to ask yourself when deciding if you should retire with a mortgage is what impact your home loan will have on your ability to make ends meet.
Think about the money coming from Social Security and your savings at a safe withdrawal rate. If your mortgage eats up too much of it and leaves you without the money you need, then you’ll have to think about waiting to pay off your loan before retiring.
2. Can you afford to pay your mortgage even if things go wrong?
If you have a mortgage on your home, it’s absolutely critical you ensure you’re able to afford it even if everything doesn’t go as planned. The last thing you want is to face foreclosure once you’re retired and can’t easily go back to work to try to recover from the damage that losing your house causes.
To reduce the chances of losing your home due to a future inability to pay, consider whether you have an emergency fund that could cover housing costs if you face other unexpected expenses that eat up your retirement income. And think about whether you’ll still be able to pay the bills if your retirement investments don’t perform quite as well as expected.