While many people long for the day they pay off their mortgage in full and own their home outright, it may actually make more sense to keep that mortgage into retirement rather than need to go the reverse mortgage route, says a Forbes contributor.
“Given today’s low interest rate environment, it might make sense to hold onto a mortgage, since the cost of money is relatively inexpensive,” writes financial planner Nancy Anderson in her column, 7 Reasons Not to Pay Off Your Mortgage Before you Retire. “With the uncertainty around health care costs, maybe it’s not smart to tie up assets in an illiquid investment.”
Homeowners who want to get money out of their house, Anderson writes, need to either sell it or borrow against it. For some, it could be a better option to keep making the monthly mortgage payment in retirement rather than deplete other assets to pay it off.
That could be the case for people who unexpectedly need funds to tap into, she says, citing a Fidelity estimate that retirees will need $220,000 for medical expenses in retirement.
“Once funds are used to pay off the mortgage, it’s possible to tap into them but can be quite a challenge,” says the Forbes column. “You’d need to borrow against your home using a home equity line of credit, reverse mortgage or sale of the property.”
There are a few other reasons why it might be a better financial move for homeowners to keep their mortgages, including those who have high interest rate debt and would be better served paying that off first and people who are making extra mortgage payments rather than maxing out their retirement savings.
Read the full article at Forbes.
Written by Alyssa Gerace