Paying off a mortgage before a last day at work used to be the golden rule for people approaching retirement. However some people actually prefer to keep their mortgages past that point. While it all comes down to personal preferences, for these people there are a few strategical advantages to having a mortgage when they have no job.
According to a report published by the Employee Benefit Research Institute in 2009, the percentage of people in their mid-50s and older with housing and consumer debt increased from 53.8 percent to 63 percent from 1992 to 2007. The trend shows many retirees resist the idea of giving up their current lifestyles and are willing to fund it with additional debt. This limits how much they can invest toward paying off their mortgages. Also, while some homeowners use retirement as a time to downsize to modest homes, others prefer to keep their homes to the end.
Debt and Unemployment
Sometimes retirees are hurt by lingering debt and the weight of higher living expenses. They may have also lost their jobs, and are struggling to make ends meet with a lower income. In such scenarios, having a mortgage gives them a financial option. Some will consolidate their debts and reduce their monthly mortgage payments by refinancing their mortgage for one with a longer term.
Low Interest Rates
Some people will jump at the chance to refinance if interest rates slip lower than they were when they signed on for the mortgage. That move extends the mortgage a few years, even into retirement, but in return they'll have lower monthly payments and lower overall interest payments. This option is particularly attractive if a mortgage provider charges hefty penalties for early payment.
Other Investment Opportunities
Paying mortgages before retirement doesn't make financial sense for some people when they assess its opportunity cost. The opportunity cost of an investment describes the return the same assets could generate somewhere else. Simply put, if they can get more money through investments now, they're better off putting cash toward that venture than paying off the mortgage. That can always be done later.
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