If you are retired with a mortgage, and have the cash to spare to clear it, what are your options? Should you pay off the mortgage or can you use your cash in a better way? Here are some of the options open to you. We are assuming here you are paying tax on your investment income.
There are three options available to you:
• Use your savings to clear your mortgage
• Use an HECM reverse mortgage to do so
• Do nothing
Each of these has pros and cons, and which you may choose will depend upon your personal circumstances as is so often the case with financial issues. Here is a discussion on each of these to help you decide what is best for you.
Use Your Savings
That depends on how much of your mortgage loan is still outstanding. If your savings just cover the outstanding amount, you should likely not spend it all on clearing your mortgage – particularly if you are managing your monthly repayments without undue difficulty. Consider one of the other two options.
If your assets are significantly more than the mortgage balance, then it makes sense to use some of that to clear the mortgage. You are earning less with investment interest than your mortgage interest rate. Even in inflationary times, the amount of interest you pay on a loan will usually be greater than that you will earn on an investment.
HECM Reverse Mortgage
The FHA has introduced a program for seniors known as the Home Equity Conversion Mortgage program (HECM.) This is to help seniors enjoy their retirement rather than using all the equity in their homes for such expenses as having to clear existing mortgage loans. The program also helps seniors to downsize without having to pay multiple costs.
You will probably get a low interest rate, which will make it worthwhile paying the upfront costs of several thousand dollars. This is added to your loan balance. It might seem high, but overall the package is worthwhile in relation to maintaining your existing mortgage or using up your savings. It’s never good to leave yourself without disposable cash.
Retired with a Mortgage: Do Nothing
Doing nothing maintains the status quo. If you are happy with that then that’s fine. If you can pay your existing mortgage repayments, and are happy living in your existing home, then why change! Sometimes doing nothing can save a lot of hassle and stress. However, when doing that keep in mind that there is likely a better solution for you financially.
If you are retired with a mortgage and have cash to spare to clear it, it is not always best to do so. Sometimes just maintaining the status quo can be best for you meantime, but keep your options open for later. Always be sure that you are able to repay all you owe. Don’t blow your savings and equity on a new Ferrari – pay off your mortgage first!