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Many people have the goal of being mortgage-free by retirement. So if you still owe a lot of money on your home loan during your 60s, you may want to come up with a plan to whittle down that debt more quickly.
And to be clear, the average mortgage balance among people in their 60s is actually pretty substantial. According to Personal Capital, it’s $242,651.
That’s somewhat surprising, though, because many people buy homes earlier in life. And so you’d think that by that point, their mortgage balances would be much lower. But that’s not the case, at least as far as Personal Capital’s 2021 data is concerned (which is based on its users’ account balances).
The upside of entering retirement mortgage-free
Many people don’t manage to pay off their mortgages in time for retirement. And if it’s not doable for you, don’t sweat it. You won’t be alone in carrying a home loan into the post-work stage of your life.
But there are benefits to ditching your housing debt before retirement rolls around. Once you retire, you may find that you have less monthly income. This especially applies if you don’t have a lot of savings, but rather, expect to get the bulk of your income from Social Security.
Now, once your income drops, you may find that it’s harder to keep up with your expenses, and you may have to make some spending cuts, like dining out less frequently or taking fewer trips. But if you can pay off your home in time for retirement, you’ll have one less monthly bill to worry about. That could buy you a lot more wiggle room.
Selling your home is also an option
Maybe you owe somewhere in the ballpark of $243,000 on your mortgage like the average person in their 60s. If that’s the case, and you’re within a year or two of retirement, paying off that balance may not be feasible. But that doesn’t mean you’re stuck carrying that loan into retirement with you.
These days, home values are up on a national level. If you’re willing to downsize to a smaller home, you might manage to sell your current one at enough of a profit to buy a new place outright.
So, let’s say you owe $240,000 on a home that sells for $640,000. That’s a $400,000 profit. Even if you lose a chunk of that profit to real estate agent fees and transfer taxes (some states charge these when you sell a home), you might manage to take your remaining profit and buy a $250,000 home outright. That could be a good solution if you don’t want to worry about having a mortgage in retirement.
That said, even if you do manage to pay off your home before retirement, you’ll still have to budget for housing costs. Your property taxes, homeowners insurance, maintenance, and repair costs won’t go away. But not having a mortgage to pay monthly could make all of those other housing-related bills more manageable.
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