Many homeowners prefer not to have a mortgage going into retirement. At the point at which an individual is ready to retire there are very few tax incentives to retain the mortgage and it can be difficult to budget on-going payments into a retirement mortgage plan. Oftentimes, however, it is not entirely possible for a homeowner to pay off the entirety of their house before retiring. Thankfully, there are financial options to ensure that you still have money for retirement while retaining equity in your home. Combined with effective retirement income planning, homeowners have additional options available, even with carrying a mortgage debt into retirement.
Some mortgage interest payments are tax deductible if itemized, however, following recent tax reform increased the level of the standard deduction, reducing the need to itemize to receive those tax breaks. In addition, as a mortgage gets deeper into its amortization less and less of the payment is interest, so there is less benefit to retaining the mortgage over time. And in any case, it is not ideal to have to withdraw money from your retirement savings to continually pay a mortgage over time, but advance planning can lead to better options and outcomes?
Before entering retirement, it may be favorable to refinance your home which, providing you with lower payments over the lifetime of your retirement. Another option would be to pay down and reduce the mortgage balance (through a Recast) but not entirely pay the balance off, preserving cash and reducing payments. Another option to consider would be taking out a Retirement Line of Credit or HECM loan which actually lets you borrow against the value of your home and can fund additional retirement expenses, while reducing or eliminating the need to make payments. As we see increasing numbers of retirees, carrying a mortgage balance in retirement, the need to explore all avenues and assets to find an ideal mix of debt and equity for sustainable retirement mortgage plans and lifestyle.