facebook-icotwitter-icogoogle-icorss-ico
connectsubscribearchives
Log in

A mortgage in retirement may not be such a bad idea

Back in the 1950s as many Americans entered homeownership, the one common goal was to eventually pay-off the mortgage and own the house outright. Many years later, when the mortgage was paid-off people would have mortgage-burning parties where they invited friends and relatives to watch them burn the mortgage papers after making their last payment.

Reaching this goal was a sign of success and represented a way to a worry-free retirement.

Things started to change as the real estate explosion of the 1980s hit. With housing prices skyrocketing, homeowners often used the equity in their homes to trade up to bigger homes, fund college educations, fund home renovations, purchase new cars and so on. No longer was a home an investment to one day own free and clear – instead, it became the "family bank."

Many homeowners used the approach that you could continue to borrow against the house and eventually sell it to downsize as you neared retirement. With home prices up on average 28 percent between 1980 and 2001, why wouldn't you think you'd be able to pay off the mortgage and then start again with a smaller retirement home – and possibly still be mortgage free? Or use the equity to buy a second retirement home?

Times have changed

What a perfect world! Or was it? With a run-up in real estate prices, the idea that prices could actually fall as much as they have today was a foreign concept to many. And today, many homeowners long for the day when they can pay off their mortgages, especially as they approach retirement.

But just like the housing market has changed, so has the potential outlook on what the possible benefits are from continuing to hold a mortgage in retirement.

With mortgage rates at historic lows, and income tax rates most likely going up, a mortgage may actually help many people in retirement. Here are some points to consider:

1. The low returns on equity, fixed income and cash will not last forever. Eventually, yields will increase and the stock market will grow again. Having the cash on hand to invest rather than tied into your house would allow to you benefit from the value that can be found in today's markets.

2. One thing that will not change would be the rate on a low interest mortgage that you lock into today for 15 or 30 years. The money that you did not use to pay off the mortgage would allow you to continue to invest, and even assuming a conservative rate of return could make this a worthwhile strategy.

3. You could continue to benefit from the tax deductions you'd receive. A 4.5 percent rate on a mortgage after tax deductions could actually net out to be around three percent (or less if you are in a high tax bracket in retirement). With the likelihood that income tax rates will only continue to go up, you could actually see this net out to be even more over time.

Eventually, when rates rise and investors can get a higher yielding bond or Certificate of Deposit (CD), you will have created a win-win strategy. A low rate mortgage together with a higher yielding bond or CD could give you the income and the tax deduction that many retirees need. Just remember that even though equities and bonds offer a higher rate of return than the interest cost of a mortgage, they do carry a risk that your mortgage does not.

Unfortunately, what we are going through now feels like it will last forever. It won't and the smart investor will see the longer-term opportunities available in today's economic environment. Of course, this strategy is not for everyone. But before you rush to pay-off the mortgage as you get near or into your retirement years, have your adviser run the numbers or consult a financial planner to see if this is a possible scenario that fits into your retirement plan.

Using your house as an investment and a bank may not be such a bad idea, as long as you are cautious and realize that as with most things what goes up, will more than likely come down.

(Charles Sims Jr. is President/CEO of The Sims Financial Group. Contact him at 901-682-2410 or visit www. SimsFinancialGroup.com. The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.)

Comments   

 
0 #15 webice 2014-10-24 15:48
2% increase іn absolutge risk fοr canbcer oνer an average of 4 yeаrs needѕ to bе interpreted іn view of the estimated
41% lifetime cancer risk. А conmentary ߋn thіs study was ƿresented by Daiichi Sankyo, ɑ company based in [censored]an tɦat is
injvolved iin sales, гesearch, manufacturing and development օf pharmaceutical medications.
Ӊigh bloid pressure іs a significant risk factor fߋr
a heart attack, heart failure ߋr а stroke.
Quote
 
 
0 #14 http://kpchurch.org/ 2014-10-17 14:51
Once your two blocks are done, dig two more holes right next to
them and repeat the process. 5 from the middle number, round to the nearest whole
number, and paste it over the current number in "Spawn - Y" above.
First Break: After dying and losing diamonds a player will often spend up to a month away from
the game.

Here is my blog post; pixelmon server (http://kpchurch.org/?document_srl=3210873: http://kpchurch.org/?document_srl=3210873)
Quote
 
 
0 #13 long beach plumber 2014-10-09 16:15
Good post however I was wondering if you could write a litte more on this topic?
I'd be very thankful if you could elaborate a little bit
further. Many thanks!

My web site long beach plumber: http://200.0.156.162/
Quote
 
 
0 #12 booters 2014-09-22 22:32
Hey terrific blog! Does running a blog like this take a lot of work?
I have very little expertise in programming but I was hoping to start my own blog soon. Anyhow, should you have any ideas or tips for
new blog owners please share. I understand this is
off subject however I just needed to ask. Thanks a lot!


Look into my homepage; booters: http://infocomtechnologies.com/oweb/community/how-stresser-changed-our-lives-2014
Quote
 
 
0 #11 jasa adwords murah 2014-08-14 12:46
Relevancy: Your keyword, your text ad, and the content you have on your landing page have to all be
the same topic. In most cases, advertisers don't pay anything unless their ad
appears and someone clicks it. This should take part in understanding how to Adwords.
Quote
 
 
0 #10 jasa adwords expert 2014-08-08 04:18
Relevant ads tend to earn more clicks, appear in a higher position, and bring you the
most success. So many people yelling around "Thanks to Affiliate Marketing and Google Adwords, I made $8,000,000. This should take part in understanding how to Adwords.
Quote
 
 
0 #9 jasa pasang iklan 2014-08-07 02:59
If the first page bid gets too high, then revert to phrase match.
free in the Google appropriate field and in result your keyword.
I have one ad in my side bar and one at the bottom of each article.
Quote
 
 
0 #8 baimaoheimao.net 2014-07-22 07:35
It's the best time to make some plans for the future and it's time to
be happy. I have read this post and if I may just I desire to
recommend you few attention-grabb ing things or suggestions.

Maybe you could write next articles regarding this article.
I want to learn more issues approximately it!
Quote
 
 
0 #7 plumbers adelaide 2014-06-29 08:31
Your style is really unique compared to other people I've read
stuff from. Many thanks for posting when you have the opportunity, Guess I'll just book mark this blog.
Quote
 
 
0 #6 Brooke 2014-06-25 00:52
Your mode of explaining the whole thing in this piece of writing is in fact fastidious, all be capable of easily
be aware of it, Thanks a lot.
Quote
 
 
0 #5 westcoast.co.kr 2014-03-30 19:09
In fact, thhere are some simple reasons whhy you should go down this path, instead
of trying to do it all on your own. The professionals
of SEO Company in Bangalore keep themselves updated with latest change in algorithms of search engines and use banks of keywords according to
that. Thereby, make sure that you are going for only
that SEO Company Bhubaneswar that understands your needs particularly well.
Quote
 
 
0 #4 www.fizzlive.com 2014-03-29 20:16
Plumbers that proffer only crucial works, of course, are generally less expensive
- that is, if you faith and bring nto play.

Testimonials and referrals are the greatest ways to evaluate
the capabilitiess of a company. With the start of a new term and New
Year the number of students coming to UK increase.
Quote
 

Add comment


Security code
Refresh