Daily Local News (West Chester, PA)
Consider ways to retire without a mortgage
Other than health care, one of the most substantial drains on retirement funds can be an outstanding mortgage. Years ago when homes were less expensive and older adults rarely moved, mortgage issues were less common. Today, mortgage debt among retirees is more likely than in the past. Here are some plans, some of which take awhile to implement, to reduce reliance on a mortgage once you decide to relax and take your retirement.
• Make Extra Mortgage Payments. By starting early and adding an extra few hundred dollars to your mortgage payments every month you can decrease your overall obligation substantially and can pay off the loan years earlier. Some lenders even have an on-line amortization calculator allowing you to compute how much sooner the mortgage would be satisfied and how much would be saved.
• Refinance Your Mortgage But Reduce the Term. To pay off your mortgage early using refinancing, you will need a shorter term loan. You might reduce the term of a 30 year conventional mortgage to 15 years, for instance. This works best if you refinance earlier in the current loan since mortgages are front end loaded when it comes to interest. If, for instance, you have 25 years remaining on a 30 year mortgage at 6 percent with a balance of $175,000 and refinance to a 15 year mortgage, not only would you have ten years less to pay, you could refinance at a lower rate and save interest. Your monthly payments will be higher but you might be surprised. They might not be as high as expected.
On the other hand, if you have already paid 25 years on a 30 year mortgage, you have already paid most of the interest and principal on the current loan. In that case, the first strategy of paying more monthly on your current loan would make more sense.
• Downsizing Your Home. Obviously, selling a larger and more costly home and moving to a smaller one can give you
cash from the first sale and might even pay for the second purchase entirely. It is up to you whether to downsize recognizing, however, also that there are costs associated with a move.
• Relocate to a Less Expensive Area. When considering a move to another location, whether local or out-of-state or even out of country, all of the factors including taxes and property taxes must be considered.
As one example, Chester County, located in the Greater Philadelphia Metropolitan Area, and one of the most prosperous Pennsylvania counties, is a fairly expensive place to live but has some great services. Even within Chester County different School Districts have dramatically different relative property tax burdens. Those who intend to move need to research all the factors including the cost of the move.
• Share Housing or Rent. Shared housing works for some as does moving to an apartment. Apartment living
does have some downside since there is no equity and it is easier to be dispossessed from an apartment then from a house. One consideration in getting a roommate is to know the person well since there are security concerns and instances of abuse. Here are some other possibilities.
• Moving in With Children or Children Moving in With You. Business arrangements with children should definitely be in writing with professional advice and considering all the consequences as a Family Agreement but, with this said, parents often
make satisfactory arrangements with their children either paying to add an “inlaw suite” to a child’s home or buying properties together. The written Family Agreement can deal both with estate and family issues and potential Medicaid penalties since rental payment or payment for services without a written agreement can sometimes be considered “gifts” that disqualify parents for Medicaid. Sometimes parents pay rent or contribute to household expenses. Sometimes they “hire” their children to pay for services or care. Sometimes their children
pay rent to them. Parents might buy an interest in their child’s home or a child buy an interest in theirs.
There are many ways to deal with debt before and during retirement both within and outside the family. Get qualified professional legal and financial advice before making the change. It can more than pay for itself.
For more, listen on Wednesdays at 4 p.m. to radio WCHE 1520, “50+ Planning Ahead,” with Janet Colliton, Colliton Elder Law Associates, and
Phil McFadden, Home Instead Senior Care. www.wche1520.com. Colliton Elder Law Associates, PC is limited to elder law, life care, special needs, and estate planning and administration with offices at 790 E. Market St., Suite 250, West Chester, Pa., 19382, 610-436-6674, colliton@collitonlaw.com. Janet Colliton is Certified Elder Law Attorney and member of the National Academy of Elder Law Attorneys and, with Jeffrey Jones, CSA, co-founder of Life Transition Services, LLC, a service for families with long-term care needs.