Mortgages & Retirement
A generation ago – most retirees did not have mortgages. Mortgage planning was not part of retirement planning. This was primarily because of two reasons: 1) We all had our mortgages paid off long before we would retire, and 2) We did not consider our homes an investment assets that we would live off of during retirement.
Our homes were for living in, and not neccesariy our greatest financial asset. The family home would realize its true financial benefit when it was left to our children as part of their inheritance.
The reality today is that home values and prices are such that, chances are, your home is probably your greatest financial asset and investment. It can provide a source of income in retirement. Or for others, you may face paying mortgage payments well into retirement…
So mortage and retirement planning now go hand in hand.
If you’re planning to retire, be that in a few years from now or in the more immediate future, it’s crucial to organize your mortgage strategy before retirement, as it allows you to leverage your current financial strength and secure favourable terms.
Whether we’re talking about a mortgage that will continue existing after you retire, or if you’re planning to retire mortgage-free but think you will need access to your home equity, here are a few tips and strategies that should help you with your mortgage planning.
- Plan Early. Start organizing your mortgage strategy while you’re still receiving higher income. This ensures you can qualify for the mortgage product of your choice and maximize access to your home equity. These options will become more difficult once you retire and your qualifying power goes down. Therefore, it’s important to start planning while you’re financially strong.
- Consider a HELOC. A Home Equity Line of Credit (HELOC) is often recommended as it provides flexibility and access to home equity. By combining a mortgage and a line of credit, you can access a higher percentage of your home’s value while still making regular mortgage payments. And while you will have access to your equity through the most sophisticated product in the mortgage industry – the HELOC – the most beautiful thing about it is that if you don’t use it, you don’t pay for it.! It doesn’t get any better.
- Manage Mortgage Payments. As retirement approaches, consider refinancing to lower your mortgage payments. This can improve cash flow during retirement and ease financial stress. You will still have the opportunity to make lump-sum payments any time you have extra cash on disposal but you will not be under pressure when other expenses, such as travel or renovations, come into effect.
- Paying Off Your Mortgage Before Retirement. If you still have a few years before the retirment and want to enter it mortgage-free, create a plan to increase payments and pay off the mortgage early. This will certainly be easier while you’re still making higher, regular income. However, it’s still advisable to arrange a HELOC for potential future needs, before you retire.
- Reverse Mortgages. For individuals 55 and older, reverse mortgages offer a way to borrow against the equity of your home without making regular payments. The amount of the reverse mortgage is limited to 55% of the property’s value, the proceeds can be advanced in one or several lump sums and the proceeds are tax-free. However, it’s essential to consider higher interest rates and the accumulation of interest over time. Compare this option with a HELOC to determine the best fit.
- International Retirement. Some retirees may choose to spend time abroad or invest in property overseas. In such cases, it’s important to align mortgage payments with potential rental income to ensure financial stability and positive cash flow, while enjoying your hard-earned retirement elsewhere.
Overall, the key is to plan ahead, consider various mortgage options and tailor your strategy to your retirement goals and financial situation. Consulting with a mortgage broker can also provide personalized guidance based on your specific needs and cirumstances.
Photo by Anukrati Omar on Unsplash