Dear Liz! My husband and I are retired, we have enough pension and social security income to cover our modest needs, plus extra money in retirement accounts. We have owned our home for 35 years, but refinanced it several times and we still have 15 years to get a 20 year mortgage.
With rates so low, we thought of refinancing on a 15-year mortgage just for the overall interest savings, but we started thinking about the fact that at 67 and 72, it’s unlikely that we would both live another 15 years to pay off this loan. As such, we are currently thinking about getting a 30-year mortgage with monthly payments of $ 700 or $ 800 less than we are currently paying.
Our house is worth about 10 times what we owe on it, and if we had to move on a subsidy, we could rent it out at a profit, even with a mortgage. We each also have enough life insurance to pay off the balance of our mortgage if one of us dies before the other.
I know the conventional wisdom is that we have to pay off the mortgage as quickly as possible. But an extra $ 700 or $ 800 a month will come in handy! Did I miss something? It is a bad idea?
Answer: Not required.
Most people would be wise to have their homes paid by the time they retire, especially if they don’t have enough guaranteed income in pensions and social security to cover their basic living expenses. Paying off debt on retirement may mean using up their retirement savings too quickly, putting them at greater risk of eventually running out of money.
However, when people retire, they don’t have to rush to pay off their mortgages. Otherwise, they may be left without money.
You are in a particularly fortunate position. Your guaranteed income covers your expenses, including your current mortgage, and you have a way to pay off your loan when that income drops on your first death. (The survivor will receive the larger of the two Social Security checks. What happens to the pension depends on which option you choose – it can fall, disappear, or persist as before.) Even with a mortgage, you have a lot of capital, which with if necessary, you can knock. So refinancing for a longer loan can make a lot of sense.
However, to be sure, you should bring this idea to the attention of a paid fiduciary financial planner who can analyze your situation and provide comprehensive advice.
Liz Weston, a certified financial planner, is a personal finance columnist at NerdWallet. Questions can be sent to her by calling 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or using the Contact form at asklizweston.com.