Whether you’re retiring five years from now or 25 years from now, your financial situation will be one of the keys to a happy retirement. Your savings, investments and retirement income (if any) will be your main focus, but you’ll also need to look at one other important area: your mortgage.
Depending upon your financial situation and retirement goals, you’ll have a few options with your mortgage when it comes time for you to retire. Let’s take a closer look at those options: paying off your mortgage, keeping your mortgage (or getting a new one) and refinancing your mortgage.
Pay Off Your Mortgage. For many retirees or soon-to-be retirees, being debt-free during retirement is the most important goal. If you’re one of these people, then paying off your mortgage—either before you retire or within a short time after you retire—may be right for you. By eliminating your monthly mortgage payment, your cash flow will improve and you’ll have one less item of debt to worry about. Paying off your mortgage may take some long-range planning, so talk to your mortgage professional now about your current mortgage and payoff options, if applicable.
Keep Your Mortgage or Get a New Mortgage. Being debt-free may be a nice goal, but if you have to up your current monthly mortgage payment by quite a bit just to pay off your mortgage early, you may be better off keeping your mortgage and investing that “extra” money elsewhere. If you’re looking to relocate for your retirement or downsize into a smaller home, you can also “trade” one mortgage for another. Also, by keeping your mortgage or getting a new one, you’ll have the added benefit of continuing to take the yearly tax deduction on interest.
Refinance Your Mortgage. For many people, this is the best option. With today’s still-low interest rates, refinancing into a fixed-rate mortgage—either with the same term or a shorter term—will keep your payments low and give you much more flexibility in terms of your finances when you retire. If you’re relocating or downsizing for your retirement, however, refinancing may not be the best idea because you may not be able to recoup your costs. Also, if you’re considering refinancing into a short-term loan in order to pay off your mortgage sooner, keep in mind that the higher monthly payments may reduce your ability to build up a nest egg for your retirement.
To get a better understanding of your financial situation when you retire, talk to your financial planner and make sure your mortgage options are part of the conversation. ∆
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