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What do I do with my mortgage for retirement?

May 23rd, 2011 at 04:07 pm

Because I divorced my husband, I had to give him all the equity from the house as part of the divorce settlement.

I'm 55 and I hope to retire at 68. I don't think I can pay off the house in 13 years (I have 91K left on the loan).

However, my total monthly mortgage is $760, which around here is less than rent. So any suggestions? I would like to live to 85 and have it paid off.

I have no children, but I'd love to give the house to my nephews or nieces who might need it. Any suggestions.

My estimated retirement income is $2,000 a month.

And does anyone have any thoughts on the ethics in selling me a mortgage I might not live to pay off?

16 Responses to “What do I do with my mortgage for retirement?”

  1. MonkeyMama Says:

    "And does anyone have any thoughts on the ethics in selling me a mortgage I might not live to pay off? " In this day and age, I don't think the majority of people plan to pay off their mortgage. Ever. If you can comfortably afford the payments, not sure what it matters. I know plenty of people who have $300/month mortgages in retirement - doesn't mean much to them - is very small percentage of retirement income. Just no big draw to pay it off...

    Is there any way you can sell and downsize the home? Get a second job to pay it off? Take in a roommate to pay it off faster?

    Do you have any equity? Another option is to do a reverse mortgage to live off of. That said, that rules out giving it away. I think you need to focus more on taking care of yourself rather than having a paid off house, anyway. To be clear, I don't think a reverse mortgage is a good idea. But it is a last resort. Is better than being homeless or completely broke.

  2. creditcardfree Says:

    I think if you can refinance to a new lower percentage rate mortgage that it is fine. I agree with MM, most people don't pay off their mortgage. If the new mortgage would lower your monthly obligation...I say go for it.

    Otherwise, you need to look at what small side jobs you might be able to do in retirement that could supplement the mortgage payment and move you closer to a paid for home.

  3. Petunia 100 Says:

    Do you have your budget posted someplace? To pay off 91k n 13 years means you need to average 7k per year of principal. You probably get 2 or 3k in principal reduction just from your regular payments, so if you can find an extra 3k per year, that might get you there. Is that doable? Do you have your mortgage amortization set up on a spredsheet so that you can play "what if" with it?

    I think reverse mortgages can make a great deal of sense for someone with home equity and a tight cash flow. It may be an option for you.

    I have an aunt who had decided to do a reverse mortgage, but her kids asked her not to. Instead, they each committed to pay her a certain amount monthly from that point on. They are all happy with that arrangement.

    Another thing you might consider is pay down your mortgage as much as you can, then pay it off with a HELOC shortly before retirement. The payments would be much lower and possibly flexible.

  4. Miz Pat Says:

    I have no equity because all the equity went to the spouse in the divorce. I just got a new mortgage a year ago, so i have a 5% rate.

  5. Petunia 100 Says:

    You don't have equity now, but 13 years from now may be a different story.

    Is your mortgage a 15 year or a 30 year?

    I'm guessing 30 (since otherwise having it paid off in 13 more years wouldn't be a very big concern) and also guessing that $760 includes taxes and insurance.

    I made a spreadsheet and played with it a little. Do you know that if you made principal and interest payments of $794.48, you will pay off a 91k mortgage in 13 years? You would have to pay your taxes and insurance on top of $794.48. Is that doable for you?

  6. Miz Pat Says:

    Wow I could do that. Would this be a new loan?

  7. Petunia 100 Says:

    No, not a new loan, just prepay your existing one.

    I used exactly 91k @ 5% and exactly 156 payments (13 years) for my calculations.

  8. Miz Pat Says:

    Ok - I'm a little brain dead here. So I need to pay an extra $800 a month on my loan to pay it off in 13 years?

  9. Petunia 100 Says:

    No, not an extra $800. Smile
    What is your principal and interest payment now? You said your payment is $760, but I think that must include taxes and insurance. Do you have a statement handy?

    So for example, if your principal and interest payment is $500 and your taxes and insurance are $260, you would need to write your check for $1060 ($800 principal and interest plus $260 for taxes and insurance). Be sure to indicate that the extra money is for principal reduction.

  10. Miz Pat Says:

    Let me go home and get one of my bills

    This is kewl!

  11. Miz Pat Says:

    ok - my principal and interest is $524.19 a mnth and escrow is $235.64 for a total payment of 4759.83

    And the rate is 5.375

  12. Petunia 100 Says:

    Ok, then you need to pay $811.93 plus $235.64 = $1047.57 per month, and in 13 years the loan will be paid in full.

    I've been reading your old posts today. I wish you would post more often. Smile

    I'm very sorry about the loss of your first roommate.

    I was born in Riverside County, which I gather must be near where you live. I never lived there though, I was adopted immediately after birth and my adoptive family lived elsewhere.

  13. Miz Pat Says:

    Thank you for your words about Barb. I still miss her. She did a flower arrangement of dried flowers that I still have in my living room.

    And, of course, I have Molly, her labby/red back mix. Molly has turned out to be a great watch dog. The neighbors are all afraid of her bark, but in actuality, she is a wimp. The chihuahua would chase her out of the house and eat all her dog food until I figured it out. Bella turned into a triple wide chihuahua.

    I live about 2 hours away from Riverside. I'm in the desert, and Riverside is at a higher and cooler elevation.

  14. retire@50 Says:

    Even if you don't pay your mortgage off before you die, the bank doesn't lose out. Whoever your heirs are will have to pay the balance when it's sold, or if you die without heirs then the bank takes the property back and sells it. They win either way. So no morality involved, just business.

    Having my house paid off before retiring was one of my main goals and it provides huge peace of mind, knowing I don't have that big bill every month. Of course now, my health insurance bill is taking the place of the mortgage payment.

  15. Miz Pat Says:

    I have to admit, that I would be a lot happier if I thought I had the house paid off when I retire.

    Since I save a minimum of $400 a month (this is besides what I save in my yearly expense fund) I think I could probably handle this. I'm going to make it a goal and see if it works.

  16. Jerry Says:

    That was fun to read through and see Petunia 100 help lead to the evolution of the solution... nice work! It's amazing what can be done just by upping the payment a bit, and handling the insurance and taxes on the side. NICE! Good luck, Miz Pat... I am confident that you have the persistence to do this.
    Jerry

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