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Ask Chuck: Should I retire with a mortgage?

Dear Chuck,

Is it wrong to take out a mortgage in retirement? We are both getting ready to retire, but we have 20 years left on our mortgage.

Senior Mortgage Concerns

House, home, mortgage, saving money
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Dear Senior Mortgage Concerns,

My general response is to recommend that you (and everyone else) completely get rid of your debt before you retire. This verse makes it clear that any form of debt can be dangerous: “The rich rules over the poor, and the borrower is slave to the lender” (Proverbs 22:7, ESV).

Why not do everything possible now to avoid the potential for financial slavery? But it may or may not be possible in your situation, so I have to give you the full picture – pros and cons.

From a biblical perspective, debt is not a sin; however, it is strongly recommended to avoid it or to pay it back quickly. God does not want us to be in financial slavery. But Americans don’t often follow God’s financial advice!

Pensioners and Mortgage Debt

Many people choose to retire with a mortgage. A 2019 Harvard University study found that 46% of homeowners between the ages of 65 and 79 had mortgage debt with a median balance of $77,000. Twenty-six percent of homeowners age 80 and older have mortgages with a median balance of $43,000. Thirty years ago, only 24% of homeowners aged 65 to 79 and 3% of those over 80 had outstanding mortgages, home equity loans or home equity lines of credit. The median balance for ages 65 to 79 was just $16,800. Those 80 and older carried $7,500. The causes of this change may include low mortgage rates, refinancing trend or lack of resources to repay debt.

The advantages of paying off the mortgage before retiring

A paid-off home frees you from the stress of wondering what to do or where to go if you can’t pay the mortgage. Many homeowners suffered greatly during the Great Recession. 1.65 million homes were foreclosed in the first half of 2010. Those who owned their homes avoided that pain. Without a mortgage, you have the flexibility to give as the Lord directs, assuming you are not burdened with other debts. Inflation will increase the cost of insurance, property taxes, utilities, repairs and maintenance. Renters could be badly hit by adjusted rental costs, while those who own their homes or are locked into a fixed-rate mortgage are protected.

The disadvantages of paying off the mortgage before retiring

There are few downsides to paying off the mortgage before retirement, but one downside of a paid off mortgage in your case may be reduced liquidity if you haven’t saved properly for retirement and need a large part of your retirement savings to pay it back now. Also, if a large sum of money is needed in the future and is not available in a bank or investment account, you may need to borrow against the house, rent it out, or sell it. However, if the house has appreciated a lot, this may not be such a big issue, except for the interest rate charged for a loan.

Unfortunately, many retirees today are burdened with full housing costs and other debts.

People on fixed incomes retiring with a mortgage should avoid credit card debt, signing student loans, and other debts that strain their finances. Debt causes stress that negatively affects health and marriage, which then impacts finances. The Fed’s planned rate hikes will increase the US prime rate and impact credit card interest rates. Current mortgage rates are probably only a fraction of the rates charged for credit card debt.

My advice

Rather than worrying about paying off a mortgage if you’re both about to retire, I recommend you start by paying off all of your consumer debt. Then, avoid consumer debt in the future and make extra payments to reduce your mortgage each month until retirement. Depending on how long it takes before one or both of you retire, it may be realistic to become completely debt free by rearranging your financial priorities.

To repay consumer debt:

  • Make a plan.
  • Postpone retirement or consider working part-time indefinitely to free yourself from debt.
  • Pay your bills on time to avoid fees and penalties.
  • Avoid cashing in 401(k)s or other retirement accounts to cover your debts. This can cost you a penalty and increase your taxes. Do extensive research.
  • Contact Christian Credit Counselors if you have persistent problems with credit card debt.

Another option to consider is downsizing your home to save money on utilities, repairs, maintenance, and property taxes. Consider a granny pad on your kids’ property or hire a tenant. Is your home the one you can age in place? If not, what types of renovations are needed and how much would they cost?

Having paid accommodation helps you avoid stress, financial bondage and insecurity. I hope you will be motivated to get out of debt completely to be totally free in your old age.

my latest book, Economic proof of God: discovering the invisible hand that guides the economy, is now available. In it, you will experience the reality of the God who created economic laws and principles to show himself to us. Once you have read it, I would love to hear your comments. You are welcome to send your comments to me at [email protected]

Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry founded by the late Larry Burkett. He is the host of a daily radio show, My MoneyLife, featured on over 1,000 Christian music and talk stations in the United States, and the author of his most recent book, Economic Evidence for God?. Be sure to follow Crown on Facebook.