We lost big on our first home, but this hasn’t deterred us from staying in the housing market. While I’ve written about the many financial disadvantages of homeownership, that’s not to say that I can’t see certain advantages as well.
A home is likely one of the largest financial obligations many of us will undertake besides having a child or going to college. And with that in mind, it can have huge ramifications upon our financial future when it comes to retirement. In fact, a home could make or break the success of a retirement, and I’d like to make sure that we’re on the benefit side of those two options.
Paying off a home for long-term savings
Paying off a home early can have the savings adding up. According to creditloan.com, “After 30 years of making payments, a homeowner with a $240,000 mortgage loan will have paid over $580,000 on his/her house.”
For my family, had we taken out a mortgage on our current home (assuming a 20 percent downpayment for a 30-year mortgage at 4.5 percent interest), we would have paid over 85,000 in interest over time. But by pulling equity from our previous home sale, and downsizing to a home that was half the price, we were able to avoid a mortgage completely, helping us pay less on debt so we could put a greater focus on retirement.
Moving into retirement mortgage-free
A Time.com business article notes that, “In 1989, just 26.4% of all households were retired with a mortgage, according to data from the Federal Reserve’s Survey of Consumer Finances. That jumped to 46.5% by 2007, before receding a bit during the recession.”
By moving toward retirement mortgage free though, not only can further money be put toward retirement, but we will hopefully enter our golden years mortgage debt free. In this way, pressure on retirement income can be diminished and we can focus on other expenses related toward health and medical costs and maybe even a little fun. That extra $85,000 in interest we avoided paying on our current home (if we could save it), could earn us over $4,200 in extra annual retirement income at a 5 percent return.
Carrying costs can hurt, even when a home’s paid off
But a home can help or hurt retirement even without an associated mortgage. Things like association or homeowner fees, maintenance and repair costs, utilities, insurance, and property taxes can have the costs of a home running into the thousands or even tens of thousands of dollars each year. According to Bundle.com, “The average monthly cost of living (excluding mortgage and rent) for people in U.S. is $3867. Households in U.S. spend an average of…$643 on House & Home…”
And handling the upkeep of a home could lead to injuries in retirement that could put further strain upon retirement resources. Therefore, doing a cost analysis of a home’s costs before entering retirement can help decide if staying put is financially feasible or downsizing – or even moving to a more convenient or easily maintainable living location – could be more cost effective.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.