How To Retire With a Mortgage

Managing Mortgages in Retirement

Two people stand in front of a house
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 Ariel Skelley / Getty Images

Paying off your mortgage before you retire is ideal, but it isn’t always possible. In fact, many seniors choose to retire with a mortgage. In 2016, 46% of homeowners aged 65-79 had mortgage debt, with a median balance of $77,000, according to a Harvard University study.

Retiring with a mortgage can make managing your finances more difficult, but it doesn’t have to be an outsize burden if you know what factors to consider. 

Key Takeaways

  • It's not necessarily a bad thing to retire with a mortgage as long as you can still pay all of your expenses—including your mortgage—with your retirement income.
  • Retiring with a mortgage is more common than in previous years.
  • Create a budget with your income and expenses for the next 1-2 years after retirement to see if you'll have enough income to pay for a mortgage.
  • Taking out a mortgage in retirement can allow you to move closer to family or purchase a more suitable retirement home. 

Should You Retire With a Mortgage?

This is a question that Tess Downing, a certified financial planner with Complete View Financial, gets a lot from her clients. 

"It definitely depends, but I like the flexibility a mortgage provides to retirees," she told The Balance by email. "A mortgage can always be paid back early or more aggressively. Oftentimes, it allows retirees to live in an area they might not otherwise afford if they had to buy the house outright." 

After all, she points out, the cost of buying a house today is a lot higher than it was in our parents’ generation. That means many people are paying off larger mortgages for longer periods of time, often into their retirement years.

Benefits of Retiring With a Mortgage

In addition to opening up your housing options, retiring with a mortgage rather than accelerating payoff before retirement has a couple of other benefits. 

For starters, it affords you the opportunity to divert any extra retirement income you do have coming in, like Social Security or pension money, to your investments, which are likely to earn a higher return than the interest you’re paying on your mortgage. For example, if you earn 7% on your investments but pay only 3% interest on your mortgage, then investing the money instead of using it to pay off your home would net you a 4% higher return. 

You may also be able to deduct your mortgage interest from your taxes, but keep in mind that this might not be as beneficial as you might think. You won't be paying as much interest as you get closer to the end of your mortgage. In addition, deducting your mortgage interest will only benefit you if you itemize your deductions. And since the Tax Cuts and Jobs Act of 2017, it’s typically more advantageous for most people to take the standard deduction.

Drawbacks of Retiring With a Mortgage

However, carrying a mortgage into retirement isn't right for everyone. For one, markets can be fickle and your investment returns aren't guaranteed, while paying off your mortgage is a generally sure thing, if you’re able to do so. 

Retiring with a mortgage also means you’ll have higher monthly expenses, which can be tough to manage, especially if you don't have much savings or guaranteed income sources to draw on. Last—but not least—paying off your mortgage before you retire can alleviate any anxiety about losing your home due to future financial problems, like a serious illness or a downturn in the markets, which has the potential to wipe out a sizable portion of your savings. 

Handling a Mortgage While You’re Retired

If you do decide to retire with a mortgage, there are ways to set yourself up for success. 

Keep Tabs on Your Budget

"Understanding your monthly expenses, inclusive of a mortgage, is vital in retirement," said Downing. "You need to ensure that you can safely spend from your savings and income in retirement at a safe rate."

She suggests using the following trick: Create a retirement budget for at least the next 1-2 years. List all of your expenses, including any hobbies you'll be picking up like traveling or gardening, as well as your mortgage payment. Tally up all of your income, including any fixed payments like Social Security or pensions. For your retirement savings, the general rule of thumb is to estimate withdrawing 4% per year sustainably, depending on the amount you have saved.

Compare your income with your expenses: Do you have anything left over? Or is your budget pretty tight? The more wiggle room you have, the less stressful it'll likely be to retire with a mortgage. 

Consider Downsizing

Downsizing your home may make it easier for you to make ends meet in retirement. Ideally, this means purchasing a smaller, cheaper home, but that depends on where you choose to live. The upside of purchasing a cheaper home is you can put more of your existing home equity towards a down payment, potentially eliminating the need for a mortgage on your next home. 

Another reason to choose a smaller home is it can help you save money on maintenance, repairs, and utilities. Your property taxes may also be a lot less with a smaller home. However, this depends on where you live and the resale value of similar homes in your area. 

Determine If Your Home Is Right for Aging in Place

Another factor to consider is whether your current home is right for you, or if it would make more sense to purchase one that better suits your long-term needs, especially as you get older. 

"Think about how your home will support aging in place—could the house be navigated with a walker? What types of renovations might be needed to support aging, and how much would they cost? Is the house still affordable?" Katy Cook, PhD, a principal financial planner with Abacus Financial Planning said in an email to The Balance. If you live in a two-story home, for example, it might be cheaper to get a mortgage to buy a one-story rambler or ranch-style home than to modify your existing one. 

Think About Refinancing

If you currently have an adjustable-rate mortgage, which means the interest rate can change based on market rates, it might be a good idea to refinance for a fixed-rate mortgage. Market fluctuations can wreak enough havoc with your retirement investments, without having to worry about the interest going up on your mortgage payment, too. 

The Bottom Line

It's becoming more common for older people to retire with a mortgage. While that isn’t always ideal, it’s also not necessarily a bad thing. As long as your retirement income is more than enough to cover your mortgage and your other expenses, it's possible to retire with a mortgage and successfully manage your finances without feeling squeezed.  

Frequently Asked Questions (FAQs)

How much money do you need to retire with a mortgage?

It’s different for everyone. You'll need to compare your income with your expenses to know for sure. Add up any fixed-income payments, like pension payments or Social Security, along with income from retirement savings (use the 4% withdrawal rule as a basic rule of thumb). Subtract your expenses (excluding your mortgage), including emergency savings and everyday living costs. Any money left over is the maximum mortgage payment you can afford. 

Can a retiree get a new mortgage?

Yes, you can get a mortgage as a retiree, as long as you can show a lender that you're still earning income or that you have enough money saved for retirement. It may be a bit harder to get a mortgage compared to when you were working, but for many people, it's possible. 

Why would someone want to retire with a mortgage?

There are many reasons people retire with a mortgage. Some people want to move closer to family or downsize to a smaller home. Depending on your circumstances, it may be easier or cheaper to carry your mortgage into retirement.