One of my biggest financial goals is to become mortgage free as soon as my financial situation allows. This is the second post in a two part series. In the last post I discussed some of the pros associated with refinancing your mortgage just before retirement. In this post I would like to show some of the benefits of having a mortgage free retirement.
I firmly believe that having a mortgage free retirement is a major financial accomplishment. However, the trend in mortgages during the past few decades has shown that most people are not going to have a paid off mortgage.
My family fairly accurately represents this mortgage trend. My grandparents have lived in their house for just over 40 years. They purchased the house while my mother was in junior high and paid it off as quickly as possible, on one income.
My grandparents’ children did not follow the example of having a mortgage free retirement. Within five to ten years of their retirement, my parents and their siblings all purchased larger houses. Many of them traded up and moved into a larger house during the housing bubble. When they did this they not only received larger houses, but they now also have mortgage payments to match.
I still have hope that my generation kicks this trend and focuses on the benefits of a mortgage free retirement.
Sleep Well at Night
There is something comforting in knowing that you don’t owe anyone. There are many who would try to extend a low-interest mortgage as long as possible to leverage their money and take advantage of the tax breaks. They say that leveraging this money to make more money is basic financial math.
This line of thinking fails to take into account the feeling you get from owning your house outright. If you’ve ever been deep in debt how well did you sleep at night?
Now imagine that you’ve just retired and have just refinanced your mortgage. The stock market has just crashed and interest rates are super low like they are now. Where will the money to pay your mortgage come from? Bonds? CDs? Stocks? How well would you sleep then?
The general rule of thought is that your investments should become less risky as you age. This is especially true in retirement because a majority of your income will probably come from investments.
Foregoing a mortgage free retirement in favor of using the money as leverage can be very hazardous to your retirement. Using borrowed money to make more money work is very similar to using a lever. The multiplying force of a lever can allow you to move objects that would otherwise be impossible to move with very little effort. However, if you put too much force on a lever it is possible for it to break and cause devastating injuries or worse to the user.
Using the leveraging power of money can harm you financially in a similar manner. If you end up putting too much pressure on your lever, by borrowing too much money, it could snap and unleash financial havoc. Think of all of the people who have tried to make the most of leverage by making their fortunes in real estate. They may have been millionaires on paper, but often they cannot keep up with their creditors and have to file for bankruptcy. While you may be able to bounce back from a financial calamity like this in your twenties, thirties, or even forties, it may be impossible to recover in retirement.
Your income is often reduced when you retire. Therefore having lower expenses can help you live on a smaller budget. While couponing and bargain shopping can stretch your budget, there is a good chance that your mortgage is your biggest monthly expense. Not having a mortgage payment can help your budget more than most other cost cutting measures.
During retirement there are other expenses that you probably didn’t have to worry about when you were younger such as higher health care costs and long-term care insurance. These two costs can become a large portion of your budget. However, not having mortgage payments can offset these two expenses.
While I have a few decades before I plan on retiring, I do intend to live mortgage free long before I reach that milestone. The lessons I have learned from my grandparents and their children have helped me see the benefits of having a mortgage free retirement and I hope to follow in their path.
Would you prefer to have a mortgage free retirement? Or do you think that you’ll refinance before you retire?
Photo Provided By: Dannyelbrazil