When Does Having a Mortgage Really Suck?

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Let me be the first person (today at least!) to tell you that owning your own home is a great idea. If you are looking to help build your financial wealth over time, then buying a home is a great way to build equity. It also has lots of money-saving benefits for you as well.

Mortgages are great in that they let many people afford homes, but at a certain point in life, they suck. Having a mortgage in retirement should be avoided.

The alternative to owning your own home is of course renting. Renting is very much like having a big hole that you keep pouring your money into and it never gets filled up. Even in 2020, and with my 70 years on planet earth, owning a home is still a pretty desirable goal to have and a good way to build wealth.

But the one thing that comes along with home ownership for almost everyone is a little something (actually a pretty big something) called a mortgage, because almost everyone needs to borrow some money when they buy a home. I did, my parents did, and, well, you probably did, too. Without a mortgage, home ownership would probably be impossible for almost everyone. But that leaves us with a big burning question that screams out loud to us all and that is this: “When does having a mortgage really suck?”

In the Beginning, God Created…the Mortgage

I am not going to write today about whether or not young people are still aspiring to own their own place. It’s a subject that you can debate and look up the statistics which might even support the fact that some no longer value it the way past generations did. If you’ve ever heard of, read about or watched “Little House on the Prairie”, then you can draw the conclusion that owning a home was a pretty big deal for many people and if you didn’t own one you were not among the chosen ones, at least here in America.

The good news is that today you don’t have to build your own home by chopping down some trees and spending months out in the hot sun working to get it done. That’s someone else’s job these days and all you have to do is foot the bill for it. That’s where a mortgage comes into play.

When you qualify for a mortgage from a lender, usually a bank, you can actually plan on a new home that you own (technically the bank actually owns it, but you can pretend you do and answer the questions about it that way).

A mortgage is a great tool, and in the beginning, a new home is a start and probably will not be the final stop on your adventure of ownership. Most folks will move around and change their location and homes more than once or twice in a lifetime. That is especially true in a modern world where relocation for a job is much more common. That reason and the fact that families grow out of one home and into another means that the mortgage you have now may not be the one you’ll have later.

Why Haven’t You Paid Off Your Mortgage?

What is the biggest roadblock to paying off your mortgage early, whether you’re a new homeowner or one with years of payments under your belt? After closing the deal, you start enjoying your new home. You get busy with all those little extras (which are pretty expensive) to make the house pretty. You’ll likely need to buy furniture, décor, finishes, appliances, and who knows what else. You also need to start doing regular maintenance, both inside and out.

Even if you’re a seasoned mortgage payer who can comfortably afford your monthly payment, you’ve likely been spending any increased income you’ve had on other things. But whichever category you fall into—new or seasoned—you’ve likely forgotten all about revisiting your mortgage. You bought the house, you automated the payment, life goes on, and you simply forgot about it.

Pay Off Your Debts

Personal finance experts always say that you should pay off your debts as soon as possible and try to keep from owing money to anyone. They usually are talking about credit card debt which is a real killer to many, but they are probably also talking about and including your mortgage (after you pay off your higher interest debts). That’s because everything you owe, including your home, costs you money. It affects your mental health, too, because as experts will tell you, your debt is bondage. You will never, ever, ever have financial freedom if you have debt.

If you’re going to buy a house, be responsible with it and buy only what you can truly afford now. When the time comes for you to be settled into a home, one that you are planning to stay living in for the rest of your life, pay off that mortgage as soon as you possibly can. If you don’t and you still have to pay a mortgage when you are older, after you retire, then you will understand and truly know the pain of having a mortgage in retirement that actually sucks!

Being Mortgage-free by the Time You Retire

I am going to have to admit it here that I haven’t even taken my own advice about mortgage and retirement. In my defense, it’s not because I am stupid or that I just figured it all out in my old age.

It has mostly come from the curve balls that life throws your way that you just weren’t prepared for. For me that was my divorce 25 years ago that threw my entire financial plan for a loop. I have written about that a few times, but the part that needs to be noted is that back in 1998, I was about halfway through my 30-year mortgage that would have been paid off when I was celebrating my 67th birthday and my retirement too in 2016. My house was appreciating rapidly in value and had I made it until the end, I would have had an asset worth about three quarters of a million dollars now and owed nada for it!

The divorce, my declining health, and my re-marriage years later (totally worth it) combined for what became a new home that had a new mortgage. And that one won’t be paid off until 2042 when I am 93. Oh the fickle finger of fate, right?

What Can You Do If You Haven’t Paid Off Your Mortgage by Retirement?

If you’re nearing retirement age and still owe a significant amount on your home mortgage, consider continuing to work until age 70. That will depend largely upon your health and if the first time you give this subject any thought is just before your 67th birthday, well, you are in some trouble.

As soon as you see that having a mortgage will be a problem for you is when “plan B” needs to take shape. That can give you more time to pay down your debts while still earning an income. You may need to cut back at saving in a work retirement account and plow the extra money into your paycheck to help in reducing your mortgage debt ASAP.

Working even a just a few more years helps substantially. The money you won’t be using to pay off your mortgage after you retire will be extra money you can use to support yourself in retirement and it will be money that has out performed what you may have earned by saving it. The peace of mind you will have from not staring at a mortgage for another 20+ years like I am is very calming.

Additionally, and a real bonus when you do it, every year you wait between your normal retirement age and 70, Social Security will add a guaranteed 8% to your eventual monthly payout. That will add hundreds to your monthly income after you do retire.

The Alternatives to Consider That Make Real Sense

Without knowing your very specific situation, I can tell you that opportunities are out there right now to help avoid having a mortgage that sucks.

First, refinancing is a great option, now better than ever. Rates are at historic lows and if you have an older mortgage at a rate of even a point above the lower rates being offered now, you should at the least price them out and consider the savings. That’s especially true if you can afford to shorten the term of your loan. 30-year original loans that have 20 years left can become 15- or even 10-year loans that ultimately will save multi-thousands in interest payments and end years earlier. Check out what’s available at LendingTree and see if that is right for you.

Another less costly and easy way to cut the life of your mortgage down is to make “extra payments” to principal every year, or even better every month. Doing that, even with small amounts, will cut years off a mortgage. It is what I am doing currently and by making those payments, I have projected several years of savings of monthly payments and mortgage interest totals. It’s more of a saving to actually lower the interest rate itself, but it is still a savings even if you simply add to principal an extra payment.

Just make sure that there are no “prepayment penalties” when doing that with the mortgage.

Downsizing…Again

A great way to cut your expenses in retirement and save on your “sucky” mortgage is to eliminate it completely by downsizing! If you have a high-cost mortgage in a home that is just too big or too expensive (or both), consider selling and buying a smaller home with the equity in it and have no mortgage at all.

The equity you have built up over time can now be a really good friend to help you in your retirement plan. With your mortgage paid off, you’ll be able to make your retirement savings stretch even further. And you’ll notice other positive changes as well, because with your money under better control you will feel much more powerful!

Final Thoughts

There is a mad rush in the marketplace to purchase and refinance mortgages right now and that’s all because of the incredibly low interest rates out there. If you “forgot” about your mortgage or you don’t think you can afford to make any changes, think again.

It costs nothing to explore the opportunity to make major changes even if you are many years away from retirement. It can be a great way to get back on track towards a retirement that will be one where you can enjoy rather than worry. Now is a great time to change a mortgage that sucks into a mortgage that rocks! What’s stopping you?

2 Comments

  1. We bought just the one house we live in 40 years ago, and it was a very modest place. We’ve added on mostly with cash to make room for three teenagers at the same time and its been fully paid off for a decade or more. With insurance and property taxes only costing us about $200 per month total and gas, electricity and water running about $350 per month our total housing costs are pretty low in retirement. Though it is paid for it doesn’t represent enough of our net worth to consider, its still not even worth $200K most likely. There is something to be said for not having a big part of your net worth in a house since it is not liquid and accessing it requires you to find other living arrangements or going into debt. I do agree that there is a peace of mind dividend in having a paid for house. Even though it still costs to live in it with property taxes, insurance and utilities and in some cases HOA added to it.

    1. Steveark, your financial prowess is once again on display as having made some excellent choices. Not everyone thinks in utilizing their home over the period of years you’ve used it and expanded it, but it’s easy to see how that has put you in a great place as part of your retirement. There are probably no perfect answers, but certainly not having a mortgage is one way to gain that peace of mind that we’d all like to have. Thanks for sharing your personal situation.

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