Simple Guide to Retirement Planning When You Have a Mortgage

By Tom Burchnell
retirement planning with mortgage

You’ve worked hard all your life. Now that retirement is on the horizon, it’s time to enjoy the fruits of your labor. But what if you’re carrying the stress of mortgage debt into your golden years?

A recent survey showed that 44% of Americans aged 60 to 70 have a mortgage in retirement, and 32% expect that they’ll take at least eight more years to pay off their loans. That’s more mortgage debt than previous generations of retired people have carried.

If you’re planning retirement with a mortgage, you’re not alone — but you do need to consider what it means for your retirement planning when you have a mortgage. Here’s what you need to know about preparing for retirement as a mortgage holder, including how it can work to your advantage.

Carrying a Mortgage Into Retirement

You might think otherwise, but there are benefits and disadvantages to retiring with mortgage debt. Let’s look at what you can do with your mortgage after retirement.

The Pros

Did you know that some financial advisors suggest carrying a mortgage into retirement? Here are two reasons why it could be a good idea to do so.

You Can Borrow From Your Equity and Invest It

You may consider investing in the stock market. Experts have pointed out that residential real estate only earns in the single digits, while more varied investment portfolios do much better. 

Although your house may appreciate in value, you’ll probably earn more by putting your money somewhere else.

You’re Less Likely to Be House Poor Leading Up to Retirement

According to the money management website Mint, 17 million Americans are house poor — meaning that their housing costs total more than 30% of their monthly income. It’s easy to fall into this trap if you decide to make extra mortgage payments to be free of that debt by retirement. 

Your pre-retirement and early retirement years are two of the worst times to be short on cash. Weigh things carefully before you decide to rush paying off your mortgage.

The Cons

Apart from the stress that having debt causes, here are two other detriments to not paying off your mortgage before you retire.

Mortgage Borrowing Has Fewer Tax Advantages Now

The Tax Cuts and Jobs Act (TCJA) has made it less attractive for homeowners to carry a mortgage. Under the TCJA, the standard deduction has nearly doubled to $12,000 for individual filers and $24,000 for joint filers. 

The TCJA has also eliminated the tax deduction for home equity loans and decreased the limit for mortgage interest deductions. The result is fewer tax breaks overall for mortgage holders.

Having a Mortgage Might Increase Your Risk

If you use your mortgage as an investment vehicle and borrow against your equity so you can invest, you increase your risk profile. Do you have an adjustable-rate mortgage, too? Your monthly payment might change if interest rates go up.

Retirement Planning with a Mortgage

If you do decide to carry your mortgage into retirement, know how you can use it as an asset.  

Using Your Equity Wisely

As you’ve learned, a mortgage in retirement is more than a liability. It’s also a resource because it gives you access to options like home equity loans and home equity lines of credit (HELOCs)

Both will allow you to borrow money by signing over part of your equity — the portion of your home’s value that the bank has no interest in. You get the equivalent portion in cash and restore your equity when you pay off your loan.

A home equity loan is a fixed sum, meaning that you borrow a certain amount and pay it back in installments. A HELOC is revolving credit, so you can borrow as needed up to a maximum and only repay what you’ve borrowed.  Both options are there for you to cover emergency expenses or fund big purchases — including items on your retirement bucket list.

Downsizing With Flexibility

One argument you might hear when retirement planning with a mortgage is that you can sell the property, then collect the proceeds and move into a smaller place. Moving into someplace smaller usually means that you can pocket the difference.

If you have a mortgage, you have the same freedom and even more flexibility. Mortgage holders can borrow against their equity to get the money they need for a down payment, without having to sell the home first.

Using Sale-Leasebacks for Emergencies

Financial emergencies happen in retirement, too. You’ve planned carefully for the expenses you think you might have after you retire, but what if something comes up? If you have a mortgage, you can use the sale-leaseback strategy to convert your equity quickly.

With a sale-leaseback, you can convert equity and use it for emergencies or in any way you see fit. Afterward, you can become a homeowner again by repurchasing or moving to a new home.

Key Takeaways

Retirement is supposed to be all about freedom. It’s easy to see a retirement with a mortgage as a limitation, but it can give you options you didn’t have before. You can borrow against your equity, potentially invest that money and earn more, or even sell your home and lease it back for extra flexibility.

If you consider these things when you do your retirement planning with a mortgage, you can broaden your options in ways you didn’t know were possible. Talk to a financial advisor to learn more about which option is best for your needs.


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