Carrying a mortgage into a retirement can present a number of concerns for homeowners, so many experts recommend paying off this debt during the working years. This isn’t always possible though, and experts in a recent NerdWallet article that was republished by USA Today, offered ways to help mortgage-carrying retirees.
In the article “Why you should pay off your mortgage before you retire and what to do if you can’t,” writer Liz Weston explains recent tax changes that have doubled the standard deduction, making mortgage interest deductions less advantageous.
“Congress’ Joint Committee on Taxation estimates 13.8 million households will benefit from the mortgage interest deduction this year, compared to more than 32 million last year,” she writes. “Even before tax reform, people approaching retirement often got less benefit from their mortgages over time as payments switched from being mostly interest to being mostly principal.”
According to the article, the number of retirees carrying a mortgage balance has grown substantially over the years. Of households headed by someone 65 to 74, 35% are carrying a mortgage, and of households headed by someone 75 and older, 23% still have this housing debt, according to the Federal Reserve’s Survey of Consumer Finances.
“In 1989, the proportions were 21 percent and 6 percent, respectively,” the article states.
Carrying these balances can cause some retirees turn to their retirement funds for mortgage payments, which can result in tax burdens and reduced retirement funds. And experts in the article also warn retirees with enough in savings, investments, or retirement funds to think twice before using that money to completely pay off their mortgages, as it could leave them short on money that they may otherwise need for emergencies or other expenses.
“Such big withdrawals also can shove people into much higher tax brackets and trigger whopping tax bills,” the article states. “When a client is wealthy enough to pay off a mortgage and wants to do so, CFP Chris Chen of Waltham, Massachusetts, still recommends spreading the payments over time to keep the taxes down.”
Along with refinancing and downsizing, the writer mentions that a reverse mortgage may work for some borrowers faced with a forward mortgage in retirement.
“Those who have substantial equity built up in their homes could consider a reverse mortgage, planners say,” the article states. “These loans can be used to pay off the existing mortgage, but no payments are required and the reverse mortgage doesn’t have to be paid off until the owner sells, moves out, or dies.”
Written by Maggie Callahan
