Should I Pay Off My Mortgage Before I Retire?
As you approach retirement age you may find you have some savings aside. You may wonder whether or not you should pay off your mortgage or instead carry your mortgage into retirement and invest the money in more high-yielding stock options.
There are pros and cons of both options and it is important that you analyse fully the possible outcomes before making any decisions. It is indeed true that investing can bring much greater financial gains and mortgage interest rates are actually quite low. Therefore investments seem like a more beneficial option in the long-term.
Can you really rest easy?
However, it is impossible to put a price on peace of mind and this is one thing you will have if you own your home outright. Very little beats having a roof over your head come what may.
The key advantage about paying off your mortgage versus using the money to invest is the ‘what if’ scenario. When markets fell dramatically across the globe in 2008, billions of pounds were literally wiped off the board. While this is a worst case scenario it is still a possibility. If you have chosen to invest in shares, rather than pay off your mortgage, you have to realise that if this happens again you could be facing a devastating and financially challenging retirement. You simply will not be able to recoup the losses as you are no longer economically active as you were in younger years. Not only will you have lost money you have saved but you will still have a mortgage to repay.
With investments, it doesn’t take a huge worldwide crisis to cost you your retirement. Actually you could make the wrong decision. There are several things that have happened to retirees regarding investments:
• Ponzi schemes
• Greedy Financial Advisers taking off with retirement funds
• Incorrect investments that lose money when the stock or mutual fund loses money instead of gaining it
Investment is a risky business even for those who know what they are doing. Quite a few famous individuals have lost and made millions with investing. The downside with normal retirees is not having that much to lose in the beginning let alone time to reinvest.
Going to Work Again
An alternative to losing your income by investing is to return to work as a retiree. In this instance most individuals have part time jobs to supplement the loss. These are not great money making jobs, but at least it offers a little help.
Paying off the Mortgage
Rather than taking the money to invest where it could be a risk, you could invest in your property. In fact it is a far better option. By investing in your property you pay off your existing loan. It no longer hangs over your head and you have fewer obligations in a month. This opens up your income for retirement to be used on other things. It also leaves you with an alternative should you need more retirement funds later on.
Lifetime Mortgages and Home Reversion Options
If you love your home and cannot see selling during your lifetime, you have lifetime mortgages to help you out in later retirement. With a lifetime mortgage you do not pay any mortgage payment, so do not think this is a suggestion to get a new mortgage after it was suggested to pay the old one off. Instead, you pay the full balance when you move out or at death. The house is sold to make the repayment. You might have life insurance that could cover it too. All interest and capital sum is paid at the end, unless you choose an interest only mortgage, which does have a small interest payment for the life of the loan.
Home reversion is actually a sale of your home. It can be the entire house or just a part of it. In return for selling your property, you live rent free under a lifetime tenancy agreement. You also have no loan and no interest to repay at the end. This option only works if you do not mind giving up partial ownership in your home. It can at least offer peace of mind since you have income to live on, but you owe nothing in return. It is an investment return on your property too.
Before making any decisions, it is always wise to seek independent financial advice. Plenty of independent, regulated advisers are available for you to use. Make certain you look for FCA approved companies and experts. Retirement years should be enjoyed, not stressful.
