5 Benefits of Carrying a Mortgage Into Retirement

By Dan Rafter on 25 October 2017 0 comments

The goal is a simple one: You want to enter your retirement years without monthly mortgage payments. Unfortunately, not everyone meets this goal. According to Voya Financial, 26 percent of current retirees still have an outstanding mortgage balance.

If you're one of these retirees, don't despair. It's not ideal, but leaving the working world with monthly mortgage payments doesn't have to be a financial disaster. There are some benefits of carrying a mortgage into your retirement years. (See also: Why Retiring With Debt Isn't the End of the World)

1. It's better than credit card debt

Mortgage debt comes with low interest rates. That makes it much less painful than credit card debt, for example. While your mortgage loan might come with an interest rate of 4 percent or even lower, you'd be lucky if the interest rate on your credit card was only 15 percent.

So if you are nearing retirement and you have both mortgage and credit card debt, it makes more sense to devote any extra dollars to paying off your credit cards first. You can start worrying about your mortgage after you've eliminated your debt with the highest interest.

Of course, it's best to enter retirement with neither mortgage nor credit card debt. If this isn't possible for you, do the smart thing and tackle those cards first. (See also: What to Do If You're Retiring With Debt)

2. Sometimes it's better to invest

You might be able to pay off that mortgage loan before retirement if you sink enough of your extra dollars into it. But it might make more sense to place those same dollars into the stock market or other investment vehicle.

The average annual return for the S&P 500 since it was first launched in 1928 has been about 10 percent. And that's factoring in both great years and terrible years. So instead of pouring more money into your mortgage, you might do better financially by investing your extra dollars and enjoying the higher returns. (See also: 7 Reasons to Invest in Stocks Past Age 50)

This only holds true, of course, if you can actually afford your mortgage payment once you move into retirement. If you're worried that you won't have enough monthly cash flow to make these payments on time, do everything you can to pay off that mortgage first. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

3. Paying rent can be risky

Your retirement plan might involve selling your home, paying off your mortgage, and downsizing to an apartment. But be careful: Renting comes with plenty of risk.

If you have a fixed-rate mortgage, your payment will remain mostly constant until you pay it off. If you're renting, though, your landlord can raise your monthly payment every time your current lease agreement comes to an end.

When living on a fixed income, certainty is good. The life of a renter doesn't have as much certainty. Again, if you can afford your monthly mortgage payment, you might want to keep it and avoid the uncertainty of rent that could fluctuate from year to year.

4. You won't lose the tax deduction

Homeowners with mortgage payments do receive a tax deduction every year. Each year, they can deduct the amount of interest they pay on their home loans. If you pay off your mortgage loan, you'll lose this deduction. (See also: Is it Safe to Re-Finance Your Home Close to Retirement?)

It's important to note, though, that this deduction might not be particularly large by the time you're nearing retirement. That's because you pay far more interest each year during the earliest days of your mortgage. By retirement age, you'll probably be paying far less in interest with each monthly payment.

Again, though, if having a mortgage payment fits comfortably in your budget, you might want to keep that deduction. (See also: 10 Surprising Ways Real Estate Cuts Your Taxes)

5. You keep your dream home

Most retirees who need to pay off a mortgage do so by selling their homes. But what if you love your home? What if it's located in the ideal location near family members and friends? You might not want to sell.

And what if selling your home won't generate enough income to allow you to move into an assisted-living facility, downtown condo, or smaller suburban home? There's no guarantee that you'll fetch the dollars you need in a home sale.

Keeping the mortgage — if you can afford the payments — could allow you to stay in a home that already fits your needs.

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