The days of couples retiring with a mortgage are a thing of the past. Nowadays more and more of our parents are retiring with a mortgage on their home. The days of getting a 30 year mortgage at the age of 25, and having it paid off by the time we retire at 55 is becoming less and less common. The reason why our parents are so often retiring with a mortgage is because times change along with personal financial personalities, and individual financial habits.
The divorce rate is currently a lot higher now than it was years ago. Divorce is a more popular trend in this day and age, than it was when our parents were our age. When people get divorced, one or both people in the couple need to move. Sometimes they choose to rent, but sometimes they choose to buy another home. This will create a new mortgage later on in their financial life.
My Dad and my (evil) step mother have a mortgage on their home; this is not because of my step mothers divorce, it is because of her bad financial habits. In the last 9 years my step mother has changed financial institutions twice and paid a pre payment penalty on her mortgage, as well as refinanced three times to consolidate her debt, and pay off the debts of her 40 year old children. This is an unfortunate financial habit because there is no equity left in their home. Building equity is often the reason why people buy a home. When we buy a home we want to build equity and increase our profit upon the sale of our home. No one wants to sell their home just to pay off their mortgage.
The only reason that I ever suggest for my clients to refinance their mortgage is to renovate or upgrade their home. Equity in our homes should only be used to finance improvements or repairs to our home. It is also a good idea to refinance only when our mortgage is up for renewal, this avoids any additional pre payment penalties. The reason why the equity in our home should be used only to improve our home is because we will get our money back with the increase in the value of our home.
The equity in our home should not be used for the sole purpose of consolidating our consumer debts; even though the interest rates are lower on a mortgage than they are on our credit cards. Paying off consumer debt does not increase the value of our home; it only creates a larger debt load. A consolidation loan or a personal line of credit is a better option to help us pay off consumer debt.
It is ok to have a mortgage during retirement if our parent’s retirement income can support the mortgage payment. Very often people plan for their retirement income to be 60% to 80% of their pre retirement income, depending on their retirement expenses. Usually our retirement expenses are lower than our pre retirement expenses, but this is not always the case.
Photo by RKramer62