Should You Pay Off Your Home Before Retiring?
Posted July 9, 2021
Home-—it’s the place where your children have grown into adults, it’s where pictures hang on the walls reflecting your most cherished days, it’s where you’ve had hard conversations and watched life play out, it’s where you come to feel most yourself. To be embraced by the four walls that you find comfort in, to be overwhelmed by the laughter filling the hallways, to be taken back to a different time by the smells wafting through the kitchen; that’s home.
As homeowners aged 62 years and older approach retirement, they find themselves asking one overarching question: should I pay off my home before retirement?
It’s not unusual to be faced with this question and deliberate on what your next move will be. Thirty years ago, only twenty-five percent of homeowners in the late 60s to 70s were paying mortgages; now that percentage has nearly doubled, according to the Center for Retirement Research at Boston College.
The short answer to your question is that while it is great to have your home paid off before retiring, it is not critical to the process. However, it would help if you kept in mind that a steady income will be more critical than ever. So, the real question is, how can you maintain a steady income while repaying your mortgage as a retiree?
One solution to this question is to refinance your home. If you can secure a low mortgage rate by refinancing, you could save tens of thousands of dollars annually. Although you may be adding years to the payoff date, you’ll be relieving the financial burden of meeting your mortgage payment every month.
What Will I Need to Refinance My Home?
To refinance your home, you should be prepared to show proof of stable income streams, including Social Security, pensions, and annuities. You’ll also need to confirm that all combined income can cover the new term mortgage payments and unforeseen costs such as medical expenses or home repairs. (It is easier to qualify for the refinance if you are still working and show a W2 income, so keep that in mind before you officially retire.)
Is Refinancing A Home The Right Choice for Everyone?
While refinancing your home to secure lower interest rates and increase the cash flow is a suitable choice for many homeowners approaching retirement, it is not the best choice for everyone. When considering refinancing your home, be sure to ask yourself these four questions: how long the new mortgage term will be, what will you do with the money you are saving on the monthly payments, what will it cost you to refinance, and what else is going on in your financial life.
It’s important that you speak with a local financial planner to discuss these questions and explore how things such as closing costs on the new loan could negate the lower interest rate you would receive from refinancing. If you still aren’t sure whether or not you should pay off your home before retirement, Thayer Financial is ready to discuss your options and help you decide if refinancing your home is the right choice for you and your family. As financial advisors in Hickory, North Carolina, Thayer Financial is your dedicated resource for fee-only, fiduciary advice. Schedule an appointment or call us today.
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