Is It Bad to Have a Mortgage as a Retiree?

Many people aim to pay off their homes before retirement rolls around. But between 1989 and 2016, the share of homeowners aged 65 to 79 with mortgage debt more than doubled from 17% to 43%, according to a report by the Harvard Joint Center for Housing Studies cited by Kiplinger.

Now, the reality is the more debt you're able to shed ahead of retirement, the more financial security you might buy yourself for that stage of life. That's because many people find that their income drops in retirement, so having fewer expenses to contend with is generally more ideal.

But worry not -- you're not doomed to a miserable retirement just because you have a mortgage. All you need to do is make sure your mortgage is affordable given your new set of financial circumstances.

Can you afford to stay in your home in retirement?

There's a reason so many retirees opt to downsize. Not only do many find that they no longer need so much space, but they also tend to get overwhelmed by the many costs associated with owning a larger home. 

It could pay to move to a smaller or less expensive home if you're entering retirement with a mortgage. But you don't necessarily have to go that route if your mortgage is affordable.

As a general rule, it's important to keep your housing costs to 30% of your income or less. This is a good rule for workers and retirees alike to follow. So if your mortgage, plus your remaining housing costs, including property taxes and homeowners insurance, don't exceed that threshold, your lingering home loan doesn't have to be something you worry about. 

Now that said, you may want to aim for housing costs in retirement that are limited to more like 20% to 25% of your income. The reason? During retirement, you're likely to see your healthcare costs increase. And you'll want to leave yourself with enough wiggle room to cover those bills. But you can still get away with spending up to 30% of your senior income on housing if doing so means not having to deal with an unwanted move.

How to pay off your mortgage before retirement

There are steps you can take to accelerate your mortgage payments so your home is yours free and clear before your career wraps up. One option is to simply pump extra money into your mortgage as it comes your way, whether in the form of a bonus from your employer or a tax refund. 

Another option is to split your monthly mortgage payment in half and pay it every two weeks. Doing so will mean making an extra payment each year, which could help you get your home paid off sooner.

But all told, if you're not able to pay off your mortgage ahead of retirement, all isn't lost. And it's also not worth stressing yourself out to pay down your mortgage before retiring if you have a competitive interest rate on your home loan and you're earning more money on your savings account balance than you're paying your lender.