How to Retire with a Mortgage
You want to retire but your high mortgage payment making it impossible? The Tampa Tribune offers up some great advice on how to retire with a mortgage.
Living Debt Free
So if your mortgage payment is too high, should the goal be to pay it off? Well if you have enough money sitting in a savings account it may be worth it. If your mortgage rate is 6% and you’re earning 5% on your savings account, it would definitely be worth it. Sure that 6% is tax deductible, but remember, you’re paying taxes on the 5% earnings making it still worth it to pay off the mortgage.
However, how many of us actually have enough in savings to pay off our mortgage at retirement age? Most money is in a retirement account such as a 401(k). According to an AARP study, many employees cash out their 401 (k) before leaving the company to pay off debts. This is definitely not way to go!
Instead, you should slowly withdraw from your 401 (k) to make your mortgage payments. The reason why is when you draw a large amount from your 401 (k), you’ll most likely trigger a huge income-tax bill at the end of the year. Slowly drawing from it just to pay your mortgage will keep you at a much lower tax rate and not hit you all at once.
Sound too tricky? Instead, you could roll over some of the money from your 401(k) into a fixed payment annuity that gives you monthly payments from the rest of the life of your loan. Take out as much money as you need to equal the amount of your mortgage payment and you’re effectively living mortgage debt free. Plus, if you never took the money out of the 401(k) and rolled it into the annuity you won’t get hit with the income tax bill and you’ll still have the tax benefits of carrying a mortgage.
Shrinking Payments
Don’t have enough in a 401(k) or savings account to pay off that mortgage? Instead, let’s consider how to decrease your mortgage payment. Let’s say you have a $400,000 30 year mortgage at 6.5% for some years now. Remember, even though you may have paid your mortgage balance down to $300,000 over the years, your payment is still the original $2,528 from when you took out the mortgage. If you consider refinancing your mortgage into a new 30 year fixed at around the same interest rate, you could reduce your payment to $1,896 and just take a little longer to pay off your mortgage but be able to retire now.
Alternatively, you could cash in on some of the equity you’ve built up by trading down houses. If your home was worth $600,000 and you traded down to a $400,000 home, you could put down close to $270,000 after closing costs and real estate commissions. Now you’d only have a $130,000 mortgage and at a 6.5%, that’s only a $822 payment.
A third solution offered by FloridaHomeLoan.com is to consider a reverse mortgage instead of refinancing. Reverse mortgages pay off your existing mortgages and will give you cash out of your home and never have you make a loan payment again. To qualify for a reverse mortgage, you must be at least 62 years old.
