I’m a Loan Officer: Here Are 4 Mortgage Mistakes Retirees Make That Cost Them Thousands
Written by
G. Brian Davis
Edited by
Rebekah Evans
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Your home is likely your largest single asset and your mortgage your largest single debt.
Don’t make hasty or uninformed decisions about them. Watch out for these mortgage mistakes that cost retirees thousands, perhaps even cracking your nest egg.
Aging in (the Wrong) Place
There’s nothing wrong with aging in place — in the right home.
“Many retirees struggle with the emotional decision to downsize, even when a less expensive, lower-maintenance home would improve their long-term financial security,” said Vicki Ide, mortgage lending manager at Tompkins Community Bank. “We recently worked with an elderly couple who were determined to keep their large home they could no longer afford, simply so their children could visit during the holidays.”
Borrowing Without Budgeting for Growing Expenses
Sure, your principal and interest will stay the same. But other housing expenses rise over time, from property taxes to homeowners insurance to maintenance and repairs.
Just because you can afford those costs now doesn’t mean you’ll be able to in a decade. Bear in mind that Social Security, pension and annuity benefits don’t always keep up with inflation. Over time, your housing costs can eat up more and more of your fixed income. “Retirees on a fixed income need to budget for wiggle room in their housing costs,” explained Rose Krieger, loan specialist at Churchill Mortgage.
Borrowing Timeline-Blind
When you buy or refinance a home, you take an initial loss on closing costs. You pay tens of thousands more when you sell.
Over time you can make those thousands back, as your home appreciates in value and you pay down the mortgage. But you need to know how long you’ll stay in the home.
“If you borrow a new mortgage without knowing how long you’ll stay in the home, you may end up moving out before you’ve recouped both rounds of closing costs,” said Linda Jensen, financial advisor at Heart Financial.
How long you plan to stay isn’t the only question you must answer. Is your goal to minimize your monthly payment or to die with the lowest balance? Some older adults stick with a 15-year mortgage, when a 30-year mortgage would ease their monthly cash flow.
Paying Off Your Mortgage Early
There’s nothing inherently wrong with paying off your mortgage before you retire. But too many people make the decision emotionally rather than mathematically.
Matt Schwartz, mortgage broker at the VA Loan Network, warned older adults that this can leave them too little cash or too little invested. “That can cause retirees to later fall into debt or raid necessary investments, after they stripped themselves too thin to pay off their mortgage,” he added.
Instead, consider your mortgage through the lens of arbitrage. If you’ve borrowed money at 3% to 4% interest and you can earn 7% to 10% on your money long-term, it often makes more sense to keep both your loan and investments in place.
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