The Pros and Cons of Having a Mortgage in Retirement

Many people don't like the idea of carrying a mortgage into retirement, and yes, I'm one of them. It can be one of those debts that you just don't fully realize the ramifications of until it is too late and you suddenly discover that it is sapping much more of your finances than you were prepared to accept. However, as amazing as it might sound, there are several situations in which holding on to your mortgage might actually help your retirement situation.

Personally, I think that I'll do all I can to avoid carrying a mortgage as a retiree. That being said however, here are some of the pros and cons of having a mortgage in your golden years. How these various aspects could affect you may depend heavily upon your retirement situation, income, location, size of home, size of the mortgage, and similar factors.

PROS

Cash Reserve

While it might be nice to have a mortgage paid off and not have it hanging over your head during your retirement, this relief can come at a price. If there is plenty of money in your retirement coffers and you have cash on hand to ditch your mortgage altogether, then it could be a burden off your shoulders.

If, on the other hand, you are strapped for cash and end up paying off your mortgage only to realize you've dug yourself into a liquidity hole, then this might only add to your stress. And you could be facing further issues if you end up in a situation that calls for a large amount of cash, such as a health related problem, only to find you've sunk all your available cash into paying off your mortgage.

Mortgage Interest and Property Tax Deduction

While I once heard the mortgage interest and property tax deductions compared to paying a dollar to save 30 cents, these deductions, if you've decided to maintain your mortgage into retirement, can at least get you a little cash back. It might not feel as good as having no mortgage at all, but every little bit can help, especially in a financially tight retirement.

Protection Against Downturns

While I am definitely not one to condone walking away from a home, there are situations, especially in retirement that I could see someone might having to do so. If it means the difference between ruining a retirement and having to dump a home, it would be hard to blame someone for walking away. However, having sunk a huge sum of money into paying off the mortgage only to find that you have selected a retirement location that is becoming dangerous to live in or is turning into a ghost town could be disastrous to your retirement dreams.

CONS

An Extra Expense

Carrying a mortgage into retirement can be a burden that could saddle you with an expense you might not be able to handle without the regular income your job once provided. Things like property taxes, maintenance costs, homeowner's insurance, and all the rest can be costly enough, but factor in interest and principal payments and you could be staring retirement disaster in the face.

Lost Cash

While it might seem like you have plenty of money upon which to retire, this doesn't mean you are liquid, with cash readily available. You might be receiving fixed payments from things like social security, a pension, or a retirement account, but this doesn't mean you necessarily have a lot of extra cash just lying around, and having to pay the bank each month for the opportunity to have a mortgage can sap your liquid reserves.

Additional Stress

Retirement is viewed by many as a time to break away from much of the stress that followed them during their working lives. Sliding into retirement with a huge debt attached can add quite a bit of additional stress though. Depending upon how many years are left upon the mortgage though, there could be a monthly payment involved for the rest of your retirement. Good or bad, you may be on the hook for that debt, and that can be cause for worry in what should be your more carefree years.

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Disclaimer:

The author is not a licensed financial or retirement professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. For financial advice, readers should consult a licensed financial advisor. Any action taken by the reader due to the information provided in this article is at the reader's discretion.