Retirement and Mortgages: Planning for Homeownership after Your Career

Retirement is supposed to be the golden stage of life. 

After decades of hard work, you can finally reap the rewards of a comfortable lifestyle supported by your nest egg.

What's in this article?

Pay off your mortgage before retirement for peace of mind
Be thoughtful when refinancing in retirement
Reverse mortgages allow access to home equity
Is downsizing right for you?
Compass Mortgage can help you find the best mortgage options for a secure retirement

For many retirees, their home remains their most significant asset. Making smart decisions about your mortgage and home equity in retirement is crucial for maintaining financial security. 

In this article, we’ll help you understand how to make the most of your mortgage in retirement and how a reverse mortgage can help you maintain homeownership into your retirement. 

Pay off your mortgage before retirement for peace of mind

Entering retirement with your mortgage fully paid off can provide tremendous peace of mind. 

Without the burden of monthly mortgage payments, you can live comfortably on your retirement income. While it may seem daunting, there are several strategies to pay off your mortgage faster while you’re still working.

Tips include: 

  • Make extra principal payments each month. Even an extra $100 per month can shave years off a 30-year mortgage.
  • Make an annual extra payment on the principal. This will reduce interest costs on the loan.
  • Use your annual bonuses or tax refunds for lump-sum payments. Apply these windfalls directly to your mortgage principal.
  • Refinance to a shorter loan term. For example, going from a 30-year to 15-year mortgage builds equity much faster.
  • Downsize to a less expensive home. If you have significant home equity, you can cash out profits from a smaller home to eliminate your mortgage

Paying off your home by retirement age takes discipline, but the financial freedom and stability in your later years make it all worthwhile.

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Be thoughtful when refinancing in retirement

While being mortgage-free is ideal, refinancing in retirement can still make good financial sense in certain situations. 

Conventional refinancing often has age limitations, but programs such as FHA Streamline Refinancing or VA IRRRLs allow you to refinance without an appraisal or credit check.

Reasons a retiree may want to refinance include:

  • Tap home equity to cover a major expense like home repairs or medical bills
  • Lower their interest rate to reduce monthly payments on a fixed income
  • Switch from an adjustable-rate to a fixed-rate mortgage to lock in low rates
  • Shorten the loan term to pay off the mortgage faster

If you do refinance in retirement, be cautious about taking cash out. Make sure any increased monthly mortgage payment is affordable on your retirement budget. 

Consult with a mortgage professional to weigh the pros and cons of your unique situation.

Reverse mortgages allow access to home equity

For retirees needing extra income to supplement Social Security or pension payments, a reverse mortgage can be a lifeline. 

This is also known as a home equity conversion mortgage (HECM). A reverse mortgage allows homeowners 62+ to tap into their home’s equity without the need to sell.

With a HECM reverse mortgage, borrowers can draw upon home equity as a line of credit, lump sum payout, monthly tenure payments or a combination. 

Unlike a traditional mortgage, there are no monthly principal and interest payments required. The loan simply accrues interest over time until it is ultimately repaid if and when the borrower moves, sells the home or passes away.

Reverse mortgages have relatively high upfront costs compared to other products, so it will only make sense if a retiree plans to stay in their current home long-term. 

Consult with a mortgage professional who specializes in reverse mortgages to see if a HECM aligns with your retirement goals. Use the funds from the reverse mortgage wisely to cover essential living expenses rather than for frivolous spending.

Is downsizing right for you?

Many retirees consider downsizing to reduce living expenses. With the mortgage paid off and the kids out of the house, the time may be right to move into a smaller, more manageable home. 

Here are some of the key benefits of downsizing in retirement:

  • Unlock home equity to boost your retirement savings. The profits from selling your current larger home can pad your investment accounts.
  • Enjoy lower housing costs. With less square footage, you will save on utilities, taxes, maintenance and other homeownership costs.
  • Avoid yard work and stairs. A smaller single-story home or condo may better suit your mobility.
  • Relocate to a preferred retirement destination such as Florida, Arizona or the Carolinas.

If you downsize, consider paying cash for your new smaller home to avoid carrying a mortgage in retirement. Or, take out a small mortgage that will be easy to manage on a fixed income. 

Invest surplus proceeds wisely to fund your lifestyle in your golden years. 

Compass Mortgage can help you find the best mortgage options for a secure retirement

Your home is likely your biggest asset, so make mortgage decisions carefully to support a comfortable retirement. 

Paying off your mortgage early, strategically refinancing, tapping home equity or downsizing can all be smart moves depending on your specific circumstances. 

To determine the best home financing strategies for your retirement needs, contact our team of loan professionals at Compass Mortgage

With us on your side, you can make the most of your home equity to help ensure your retirement is everything you dreamed it would be.

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