Ask Chuck: Should I retire with a mortgage?

Dear Chuck,

Is it wrong to carry a mortgage in retirement? We are both preparing to retire but have 20 years left on our home mortgage.

Senior Mortgage Concerns

Dear Senior Mortgage Concerns,

My general response is to recommend that you (and everyone else) get completely out of 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 the slave to the lender” (Proverbs 22:7, ESV).

Why not do everything possible now to avoid the potential for financial slavery? But that may or may not be possible in your circumstance, so I need to give you the full picture — pros and cons.

From a biblical perspective, debt is not sin; however, it is strongly recommended that we avoid it or pay it off quickly. God does not want us in financial slavery. But Americans do not often follow God’s financial advice!

Retirees and mortgage debt

Many people choose to retire with a mortgage. A 2019 Harvard University study found that 46% of homeowners ages 65-79 carried mortgage debt with a median balance of $77,000. Twenty-six percent of homeowners age 80 and above carried mortgages with a median balance of $43,000. 30 years ago, only 24% of homeowners ages 65-79 and 3% of those over 80 had outstanding mortgages, home equity loans, or home equity lines of credit. The median balance for those 65-79 was only $16,800. Those 80 and above carried $7,500. Causes in the shift may include low mortgage rates, the refinancing trend, or the lack of resources to pay off the debt.

The pros of paying off the mortgage before you retire

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 went into foreclosure 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 leads, assuming you are not burdened with other debt. Inflation will increase the cost of insurance, property taxes, utilities, repairs and maintenance. Renters could be severely impacted by adjusted rental costs, whereas those who own their homes or are locked into a fixed mortgage are protected.

The cons of paying off the mortgage before you retire

There are few negatives to paying off the mortgage before retirement, but one con to a paid off mortgage in your case may be reduced liquidity if you have not saved properly for retirement and need a lot of your retirement savings to pay it off 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 have to borrow against the home, rent it, or sell it. However, if the home has appreciated greatly, this may not be as big a concern except for the interest rate charged for a loan.

Unfortunately, many retirees today are burdened with total housing costs and other debt.

Those on fixed incomes who retire with a mortgage should avoid credit card debt, signing on student loans, and other indebtedness that strains finances. Indebtedness causes stress that negatively affects health and marriage which then impacts finances. The Fed’s planned rate hikes will increase the U.S. prime rate and impact credit card interest rates. Rates on current mortgages are likely a fraction of rates charged for credit card debt.

My advice

Rather than worrying about paying off a mortgage if you are both getting ready to retire, I recommend that you first pay off all your consumer debt. Then avoid consumer debt in the future and make additional payments towards your mortgage reduction each month until retirement. Depending on how long before one or both of you retire, getting completely debt free may be realistic by rearranging your financial priorities.

To pay down consumer debt:

• Make a plan.
• Postpone retirement, or plan to work part-time indefinitely to get debt free.
• Pay bills on time to avoid fees and penalties.
• Avoid cashing out 401(k)s or other retirement accounts to cover debt. This may cost you a penalty and increase your taxes. Do careful research.
• Contact Christian Credit Counselors if you have lingering problems with credit card debt.

Another option to consider is downsizing your home to save money on utilities, repairs, maintenance and property taxes. Think about a granny pad on your children’s property or take in a renter. Is your home one in which you can age in place? If not, what kind of renovations are needed, and what would they cost?

Having a place to live that is paid for helps you avoid stress, financial bondage, and insecurity. I hope you will be motivated to get completely out of debt to be totally free in your senior years.

My latest book, Economic Evidence for God: Uncovering 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’ve read it, I’d love to hear your feedback. You are invited to send your comments to me at [email protected].