Conventional wisdom has held that paying off your mortgage is highly desirable prior to retirement. But that was before historic low interest rates made paying off a mortgage less attractive.
People approaching retirement who are not sure how to handle their mortgages should consider a number of factors, including:
Future cash flow rate – a traditional fixed-rate mortgage is much cheaper than a reverse mortgage, so if you will need some of your home equity to live on in retirement, you are better off keeping the mortgage.
How long you will stay – if you plan to sell your home in the next five years, then paying off the mortgage can wait until then.
How much risk can you handle – if you worry about paying bills and have a big chunk of cash to draw on, you are probably better off paying the mortgage off with that cash. What you earn in a savings account or CD is not enough to offset what you are paying in interest on the mortgage.
Where the money will come from – if you have to use money from a retirement account to pay off the mortgage, don’t do it. You will have to pay income tax on the withdrawals and it may even land you in a higher tax bracket.
If you need protection – if you are facing a potential lawsuit or bankruptcy, there are rules that protect retirement accounts that are better than those protecting houses. So you would be better off keeping your money in a protected vehicle like an IRA or 401(k).
The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0041.