Is It Worth It for Retirees to Get a Mortgage?

by Maurie Backman | Published on Oct. 9, 2021

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Many seniors aim to be mortgage free. Are there benefits to having a home loan during your later years?

Many people have the goal of entering retirement without a mortgage hanging over their heads. In fact, some borrowers accelerate their repayment period for the express purpose of being able to start off their senior years mortgage free.

Retirees commonly live on a fixed income that consists largely of Social Security. And for this reason, many aim to avoid debt to the greatest extent possible. That way, they won't have nagging payments to worry about as they try to stretch their limited income as much as they can.

But in some cases, getting a mortgage during retirement could make sense. Here's what you need to know if you're thinking of applying for a home loan in your retirement years.

The upside of getting a mortgage in retirement

Maybe you spent the latter part of your career renting a home and are now looking to own one of your own during retirement. Or maybe you actually did pay off your home in time for retirement, but now you want to downsize and are thinking of taking out a mortgage even if you have the means to purchase a smaller home outright.

In these situations, it could be worthwhile to get a mortgage for a couple of reasons. First, right now, borrowing is extremely cheap. As of this writing, the average 30-year mortgage is hovering around 3.1%, while the average 15-year loan is under 2.4%.

Of course, the mortgage rate you qualify for will depend on various factors, including your credit score and the debt you have relative to your income. But if you're able to snag a competitive interest rate on a mortgage, you may decide that you'd rather borrow money for a home and make monthly payments during retirement, all the while leaving yourself with more cash in the bank for emergencies.

Plus, it could make sense for you to itemize on your tax return during retirement. And if you're going to itemize rather than claim the standard deduction, the ability to deduct the interest you pay on your mortgage could result in a higher tax break.

What's the right choice for you?

When you take out a mortgage, you're taking on debt. It may be a healthy type to have, but it's debt nonetheless. And if you fall behind on that debt, it could damage your credit score and cause you a world of financial stress. Plus, falling behind on your mortgage payments could put you at risk of losing your home.

Also, for some people, the idea of being in debt is unappealing. And this might especially hold true for you in retirement, particularly if you'll mostly be living off of a limited income source like Social Security.

But if you're comfortable with the idea of having a mortgage to cover and can afford to make those payments, then getting a home loan during retirement is an idea worth considering. Getting a mortgage could help you avoid having to empty out your bank account to purchase a home. And you may even snag a nice tax break as part of the deal.

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