Many Americans dream of retiring with their home mortgage paid in full. After all, wouldn't it be liberating to enter your golden years free from that monthly payment? However, a recent New York Times article¹ explores a growing trend – seniors holding onto their mortgages even after they have the financial resources to pay them off. This article highlights the complexities of this decision and the factors to consider when navigating the "golden handcuff" dilemma – the idea that a low mortgage rate can keep you financially tethered to your home even if you'd like more flexibility.

The Allure of Low Rates

The current economic climate presents a unique situation. Many homeowners secured historically low mortgage rates in recent years. For these individuals, paying off the mortgage would eliminate the benefit of that low interest rate, potentially locking them into a lower return on investment compared to what they could earn by keeping their cash readily available. This is especially true when considering the recent rise in interest rates on safe investment options like certificates of deposit (CDs).

The Case for Keeping Your Mortgage

There are several reasons why a retiree might choose to keep their mortgage:

• Access to Cash: A paid-off house means your home equity is tied up in the property. While you own the house outright, accessing that cash for emergencies or unexpected expenses becomes more difficult. Keeping your mortgage allows you to maintain liquidity and tap into your home equity through a Home Equity Line of Credit (HELOC) if needed.
• Investing Opportunities: As the New York Times article points out¹, the low interest rate on your mortgage could be lower than the potential return you could achieve by investing your cash elsewhere. This allows you to potentially grow your wealth at a faster rate than the interest you're paying on the mortgage.
• Peace of Mind: Some retirees simply prefer the security of a fixed monthly mortgage payment. Knowing exactly what their housing costs will be each month can provide peace of mind and make budgeting easier.

The Drawbacks of Holding a Mortgage

There are also potential downsides to carrying a mortgage into retirement:

• Vulnerability to Income Changes: Retirees often have a fixed income. If unexpected expenses arise or their income decreases, managing a mortgage payment can become difficult.
• Risk of Foreclosure: If a retiree encounters financial hardship and can't make their mortgage payments, they risk losing their home. This can be especially devastating during retirement years.
• Limited Mobility: As people age, their physical capabilities may decline. Maintaining a large home can become challenging. If a mortgage payment restricts their ability to downsize to a more manageable property, it can negatively impact their quality of life.

Finding the Right Choice for You

The decision of whether to pay off your mortgage or not depends on your individual circumstances. Here are some key factors to consider:

• Your Current Mortgage Rate: If your mortgage rate is significantly lower than current interest rates on safe investments, keeping the mortgage might be a good option.
• Your Risk Tolerance: Are you comfortable with the potential risks associated with carrying a mortgage into retirement, such as unexpected medical expenses or income fluctuations?
• Your Retirement Savings: Do you have a sufficient emergency fund and a well-diversified retirement portfolio to provide financial security even with a mortgage payment?
• Your Future Plans: Do you plan to stay in your current home for the foreseeable future? If you might downsize later, keeping a mortgage could limit your options.

Texas Trust Credit Union Can Help

At Texas Trust Credit Union, we understand the complexities of financial planning for retirement. Our financial advisors can help you evaluate your individual situation and make informed decisions about your mortgage and other financial goals. We offer a variety of resources to help you navigate retirement planning, including:

• Mortgage Refinancing Options: If you're considering refinancing your mortgage to a lower rate, we can help you explore your options and find the best loan for your needs.
• Mortgage Purchase Options: If it’s time to move, give us a call and our expert advisors can walk you through finding the best mortgage option for you. Texas Trust even offers a Zero-Down Mortgage and a 40-year option to give you added flexibility.
• Retirement Planning Services: Our Texas Trust Investment Services advisors can help you develop a comprehensive retirement plan that considers factors such as your income, expenses, and risk tolerance.
• Investment Products: We offer a wide range of investment products to help you grow your wealth and achieve your financial goals.

Schedule a Consultation Today

Don't let the "golden handcuff" dilemma leave you feeling financially restricted. Contact Texas Trust Credit Union today to schedule a consultation with a mortgage advisor. Together, we can help you develop a personalized plan that allows you to enter retirement with confidence and financial security.

Source: 1: Keeping a Mortgage After 65: A ‘No Brainer’ or a Big Risk? The New York Times: https://www.nytimes.com/2024/02/17/business/retirement-mortgage-investing.html