Planning 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 seems 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 30year mortgage at 6 percent with a balance of $175,000 and refinance to a 15 year mortgage, not only would you have 10 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. So the important thing to remember is to have the agreement in writing in advance. 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 their’s.

There are many ways to deal with debt before and during retirement both within and outside the family. This is where planning ahead can help.