YES or NO: Mortgage your Post–Career Home?
Posted March 7, 2021 in Real Estate Trends
There’s something happening that isn’t happening the way that many of our Moms and Dads did things. The new trend, post career, is to sell the house that the kids were raised in and buy a home specific to the way you seek to age in place. Many folks have asked my opinion about whether it’s smarter to have a mortgage or not. If you’ve lived in your home for most of your life and sell it, you certainly can use the proceeds toward the new home. However, with mortgage interest rates that went as low as 2.93% for 30-year fixed loans in December, it makes sense to calculate the rate of return on your house money with your financial advisor before simply putting that money into a lump sum payment for the new post-career home.
While I tell those who ask that it often comes down to whether you are risk-averse or not, it’s hard to ignore what that amount of money might do instead of sitting in a house. Over a period of 10 years, Morningstar Direct research showed an average return of 10 percent when annualized within portfolios that held a mix of stocks and bonds. No one likes to leave money on the table that could be useful in retirement. Having the money in a place other than directly in your home might help you if you face unexpected expenses or if you decide there’s something you’d like to do beyond being home. If all of the money is in the home, your options may be limited for accessing that cash.
Having a mortgage can also help at tax time. The tax-deductibility limit for a mortgage in retirement is $750,000. That means that there’s the added benefit of paying even less money for the borrowed money, if you itemize your deductions and include mortgage interest on your taxes.
Here are a few steps to help you try to decide whether or not to eliminate your mortgage during the post-career time in your life:
- Figure out what the real mortgage rate you are paying is in your current life. If you were taking business deductions and no longer itemize deductions since leaving the job, the real rate may be different now. Calculate this by visiting with your tax advisor or by taking a quick glance at https://www.aarp.org/money/credit-loans-debt/mortgage_tax_calculator
- Ask your bank advisor or financial advisor to calculate how the money in your house would have performed, if it had been in their recommended portfolios. Don’t forget to ask what fees would have been charged to hold the investments and deduct those costs.
- If you consider the investment side of your money and you are convinced that it’s better to hold a mortgage, then your next step is to begin working with your mortgage advisor.
- If the risk of the potential loss of returns gives you an upset stomach, then you know you simply want to pay for the new home with the proceeds from the previous home.
Checking what tax bracket you will be in this year can further tip the decision toward taking a mortgage. Some couples who choose to take mortgages are appreciating the option that they can have the best of both worlds. A mortgage that has the option to be paid off early gives the opportunity to decide how much and how soon to pay the mortgage from funds invested or to use the monies in other ways. In this scenario, there is the added comfort of having cash in case of unexpected medical bills or other expenses.
Either way you choose, it is the correct decision. Considering your options simply gives you a better way to access money that may be locked inside a home.
Call or email MPattullo@PeakMtg.com for help calculating your mortgage options.
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