Buying a Home in Your 50s? It Pays to Consider This Type of Mortgage

Don't just resign yourself to being stuck in a bad situation.

Once you retire and move over to a fixed income, you may find that money starts to get tight. This might hold true even if you're entering retirement with a solid level of savings in your IRA or 401(k).

That's why it's important to go into retirement with as little debt as possible. Ideally, you should aim to have any credit card debt paid off before your career comes to an end. It's also a good idea, if possible, to start retirement without a mortgage.

To be clear, not everyone who retires does so at a point when they're mortgage-free. The National Association of Realtors reports that as of late 2021, nearly 10 million homeowners aged 65 and older still have a mortgage.

But if you're able to pay off your home before you retire, you'll have one less expense to worry about at a time when you might have less financial wiggle room. And that's why it's important to borrow strategically for a home if you're first purchasing one in your 50s.

You may want to stick to a shorter-term loan

There's a reason 30-year mortgages tend to be so popular among home buyers. These loans allow for lower monthly payments than shorter-term loans, which can make homeownership more affordable for a lot of people.

But if you sign a 30-year mortgage in your 50s and you don't accelerate your payments, then you can pretty much bank on not paying off your home until you reach your 80s. And that may not be ideal. So if you're buying in your 50s, a good bet may be to sign a 15-year mortgage. If you stick to that schedule, it's more than conceivable that your home will be paid off in full before your career comes to an end.

But that's not the only reason to look at a 15-year mortgage. Another benefit of signing a shorter-term loan is that you're likely to snag a lower interest rate on a 15-year mortgage than a 30-year mortgage. That's because your lender is taking on less risk by loaning you money for a shorter period of time. And in exchange for that reduced risk, you should expect to be rewarded with a lower interest rate.

Can you afford to sign a 15-year mortgage?

If you can swing the higher monthly payments that come with a 15-year mortgage, then you may find this loan product is the best choice for you when you're buying a home a bit later in life. But before you commit to those larger payments, crunch the numbers.

As a general rule, your total housing costs should not exceed 30% of your take-home pay. And those costs should include more than just your mortgage -- they should account for things like property taxes and homeowners insurance premiums as well.

If you can swing the higher payments that come with a 15-year loan, then by all means, sign one. But if you're not sure, then you're probably better off sticking to a lengthier loan -- and trying your best to pay it off as quickly as you can.