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At what age should your mortgage be paid off?
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Anonymous
| I'm wondering if most people keep upgrading their house until the kids are gone and then have to downsize when they retire? Or do you stay in your current house for the next 30 years? |
Anonymous
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it probably depends on lots of factors, like whether you could age-in-place in your current home. When my folks were looking for their current house (in their late 50's), they confined their search to houses with first-floor master bedrooms and all essential appliances (including washer/dryer) on the first floor. At most, they have to climb two stairs down to the garage or the front walk. They also have enough guest bedrooms (on the second floor) for the kids/grandkids to come visit. I don't think they have a mortgage on this home. They plan to move to assisted living when one of them needs more care than the other can provide. They also have a small retirement home, and I believe they paid cash.
I think mortgages should be paid off in advance of retirement, when income will likely be smaller. Just makes sense to me. I'm in my late 30's, living in my starter home for the last ten years. I plan to move once more, into a better school district, but probably won't choose a bigger house. After that, it'll be the assisted living home! |
Anonymous
| We are staying put unless we physically can't handle stairs or move cities. But we will also be paid off before retirement. No way will I have a mortgage hanging over my head at 65. |
Anonymous
| We plan to have mortgage paid off by age 55. Then we'll probably downsize to a smaller home around 65. |
Anonymous
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My parents have a mortgage and they've been retired for 10 years now. They bought this house after they retired so they knew how much they could afford. It's a comfortable mortgage on their retirement income (Dad has a pension + investments and soon Social Security) and if necessary they could pay it off.
I don't think carrying a mortgage during retirement is necessarily a bad idea, but that it should be consistent with your income during retirement - so carrying a large mortgage, which was fine when you were working, into retirement, and your income drops, is not a good idea. |
Anonymous
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I don't get this fascination with paying off a mortgage. I didn't think mortgage debt was that bad a debt to have.
I guess if I am retired it would be nice not to have a mortgage, but I know I may still want a decent sized house for when the kids and grandkids come visit. That is what my parents did. They moved to a more modern home in a house that with no basement, a community that is maintained (lawn, etc.), and they live on the first floor, but enjoy having the space for when we come stay with them. So it wasn't exactly a downsize, and they are fine paying a mortgage. Actually, they also have a home in the country so they probably pay two mortgages. But my dad had a long career and made good money, got a great pension and invested well so they have that option, and my mom still works part time at a job she loves. We are likely not to be in that situation, it really depends I guess on how we make out. If we can afford a nice home I will want one even later in life I think, and if that means paying a mortgage in retirement I am willing to do that assuming we can afford it of course. It really depends on how long we plan to work (I heard that our generation will not be eligible for SS at age 65 so many people might go later). Honestly right now I am just thrilled we have good jobs we enjoy and have some balance, and are making enough to pay our bills, save a bit for college and retirement and still have a bit left over. That to me feels lucky! |
Anonymous
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http://www.investopedia.com/articles/retirement/07/mortgages_in_retirement.asp?partner=yahoore
The above is a pretty good article. Assume a retirement funded primarily by withdrawals from investments (e.g., not a pension) and a social security. Assume annual expenses of $80k, plus a mortgage with payments of $20k, and a balance of $200k on the mortgage @ 6%. Annually, the retiree is taking $20k out of the investment portfolio, paying $12k in interest, and reducing the mortgage balance by $8k. Assume the retiree has an investment portfolio of $2M. From a $2M portfolio, the retiree withdraws 4% a year (or $80k), of which $20k goes to the mortgage. The other option for this retiree is to pay off the mortgage, have a $1.8M portfoio, and withdraw $60k a year. In this particular case, 3.3% withdrawal rate. Which is better? It depends mainly on how the investment portfolio does. If the $2M is in equities, and equities drop in value by 50%, all of the sudden, the retiree has $1M in investments and a $200k mortgage. Investments net of mortage debt is $800k. If the $1.8 is in equities, which drop by 50%, the retiree has $900k in investments, and zero mortgage. $900k. This is the leverage effect of bringing a mortgage into retirement. Overall net worth is fine as long as the investments earn more than the mortgage's rate of return. But if years like 2008 and early 2009 repeat, then leverage of a mortgage has a very negative effect. This analysis applies mainly to folks who are living on a fixed investment, and not so much if the mortgage in the future will be paid by either (1) salary preretirement or (2) a perpetual pension post retirement (which fewer and fewer people have). Don't buy too much house and pay down your mortgage!!! |
Anonymous
| One major reason to have a mortgage is to write off the interest. As long as you have income against which you can deduct the interest, it makes sense to have a mortgage, as long as the interest rate is low. |
Anonymous
| It seems like the answer to the what-age question is really very dependent on individual issues, so it's hard to give a one-size-fits-most answer. It seems to me the answer about whether you should pay down your mortgage (or alternatively extend it) depends on the true cost of the mortgage interest you're paying (mortgage rate minus tax deduction). If you have other higher rate loans, pay those first. If no higher rate loans, but you can get a better rate of return elsewhere, then keep the mortgage running. If neither of those apply, then pay down the mortgage to save on interest costs. |
Anonymous
While it can be one component of the larger decision that 18:48 (not me) described, it's too simplistic to say that "it makes sense to have a mortgage" if you have income. For me, retirement should be as stress-free (financially speaking) as possible. One component of that is having a free-and-clear house, so as to (i) minimize monthly expenses, and hedge against the downturn that 18:48 described, and (ii) have as an emergency asset against which to draw, either in the form of an equity line, or a reverse mortgage. We plan (hopefully!) to retire at 60, even with changes to Social Security, so it's likely (again, hopefully!) that we'll be retired for 20+ years. In that time, there's probably going to be at least 1 significant downturn. Not worrying about housing pyments will make my life much more enjoyable. YMMV. |
Anonymous
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Plus, the amount that you pay in interest on a mortgage is more than the amount you save by deducting that interest!
Personally, I'm not concerned with how old I'll be when I pay off my mortgage but I am concerned with how much more I'll pay in interest if I take the full 30 years to pay it off, as compared to if I pay it off in 20 or 25 years. |
Anonymous
Or, pay off the mortgage - be debt-free. Take the money you would have paid for interest and donate to charity and deduct the charity payments on your tax return. |
Anonymous
| My goal is to have the mortgage paid off when we retire. Would like to pay it off before then, but I definitely don't want a mortgage when retired. |
Anonymous
Agreed. The difference in total amount of interest paid on a 20 versus 30 year mortgage is really shocking. Right now we have $400 a month available for extra payments - we put $200 into the mortage and $200 into a savings account. I have a feeling that in a few years interest rates will be higher than the 5% we currently pay on our mortgage and we will do better with the money in money market accounts then. |
Anonymous
| Our 15-year mortgage will be paid off when our second child graduates from high school. |