If your retirement horizon is becoming shorter each year, you may be starting to put your financial ducks in a row to ensure your transition from the working world to a life of leisure is a smooth one. One of the biggest considerations for many soon-to-be retirees is their home. Whether you're planning to downsize or move across the country, refinance, or pay your mortgage off entirely, you'll want to ensure you're taking the most prudent path possible, as leaving paid employment tends to diminish your ability to weather unexpected financial events. Read on for some of the factors you'll want to consider when deciding whether to take out a mortgage just before you retire.
Are your liquid assets enough to repay the mortgage?
For those who take out a fixed-rate mortgage, the monthly repayment amount should remain static through the life of the mortgage. This means that if you have enough in liquid assets to pay off your mortgage, whether through a 401(k), IRA, Roth IRA, or a simple savings account, you shouldn't need to worry about unexpected expenses disrupting your financial life. If you do hit rough waters, you'll be able to withdraw from savings to pay your mortgage each month until you've fully repaid it.
What is the interest rate?
With mortgage rates still near their historic lows reached after the Great Recession, now can be a good time to borrow cheap money. By taking out a low-interest mortgage and keeping your other assets invested in the stock market or mutual funds, you may be able to continue to increase your net worth even after leaving the workforce (and its guaranteed weekly paycheck) behind. Once interest rates inevitably rise, you'll be ahead of the curve and may even be able to take advantage of rising savings and CD rates to earn risk-free interest while paying a historically low mortgage interest rate.
What are housing price trends in your area?
If you're a bit concerned that home prices in your city (or state) are nearing "bubble" proportions, taking out a mortgage on your home or refinancing may be a better idea than paying your home off. If you decide to move to a new city after retirement, having a mortgage will provide you with the flexibility you need to wait until prices recover before selling; on the other hand, having a paid-off home could mean selling your home at a loss if your moving timeline doesn't line up with the local economy.
Contact a company like Dave Schell at Guaranteed Rate Mortgage for more information and assistance.
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