Mortages and Retirement : Real Estate Strongsville

By:
CJ Harrington
Keller Williams Realty
www.cjharrington.com
cjharrington.crs@gmail.com
440.336.0612

10-29-08

Everyone imagines the day that they will once and for all be done with their dread some mortgage payment. Everyone also looks forward to the day that their most valuable asset will truly be theirs. Still, some others may disagree. These few would rather have their extra money invested rather than tied up in their house. So, the real question is: Who is right?
Well, the answer really depends on you. So let's review a few facts before you make a decision.
Firstly, let us compare interest rates. The typical 30-year, fixed-rate mortgage interest rate is roughly 6.5 percent. If you are getting a higher average rate of return on your investments elsewhere than it makes sense to invest. About half of affluent baby boomers born do not plan to pay off their mortgages until their 70s, if ever.
Another way to think about it in this case is mortgages free up funds that could be tied up in investment in equities. Also, when investing in the stock market, money that would otherwise be tied up in home equity also gives you the option of raising cash to deal with unexpected expenses like medical bills or even rising gas prices.
When considering the complete opposite. If you're not sure whether you can achieve a higher, then you should prepay your mortgage principal as you approach retirement. At this time, the guaranteed return on your money is the interest you were paying.
Also, refinancing from a variable-rate loan to a fixed-rate mortgage can give you a better idea of what your payments will be in retirement. It is recommended to pay down principal above your monthly payments when you can, because when you add money at your discretion you give yourself the ability to stop that when times are tighter. For example, on a $150,000, 30-year mortgage at 6 percent interest, paying just $100 extra per month will save you $45,000.
Also, remember do not take money from your retirement plan. Often, it can be tempting to dip into your 401K or IRA to pay off your mortgage, but it is recommended that mortgages shouldn't be paid off in the absence of other savings. You need to have a balanced approach. Remember, if you invest it, all you have to do is liquidate it.
And don't forget to consider tax breaks. Actually, the interest you pay on your home mortgage is tax deductible on up to $1 million in debt. Also, you can typically write off interest on up to $100,000 of home-equity debt. You benefit from this only if all your itemized tax deductions add up to more than the standard deduction. In 2008, the standard deduction amounts are $5,450 for singles, $10,900 for couples, and $8,000 for heads of households. For everyone, this could also be viewed as saving around one percent on their mortgage payment.
Finally, you need to look at the emotional aspect of the decision. Around 16 percent of workers and 10 percent of retirees think making mortgage payments or paying for a house is the most pressing financial issue. Honestly, knowing that you own your home can also give you a sense of stability in retirement. Also, paying off the mortgage is going to reduce their need for cash flow when they go into retirement. Truthfully, the more money you have on hand, the better you will be able to deal with whatever problems there may be. Best of luck with you decision!

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