How will a monthly mortgage payment affect your retirement budget?
Consider how taking on a new home will affect your retirement cash flow. Many homeowners rely on a 30-year mortgage, which often has low payments. But that means you could be on the hook for monthly payments for the majority of your retirement years.
Take a look at how your monthly expenses will change in the new house. If you’re moving from an expensive apartment in a city center to a small suburban home, your mortgage payments may decline after the move. Aim for a mortgage payment that won’t hinder your ability to pay for your other retirement wants and needs.
What about additional housing costs?
Homeownership often results in a lower monthly payment than renting, but this isn’t the case everywhere. Owning a home also comes with additional expenses, some of which crop up unexpectedly.
The costs for repairs and upgrades could cut into your retirement savings. If you can’t swing last-minute repairs in your tight retirement budget, then buying an older home may not be for you.
Can you qualify for a mortgage during retirement?
Federal law prohibits lenders from refusing to lend to you because of your age. However, lenders will pull your credit score and look at your sources of income to determine whether you will qualify for a loan.
Annual income typically drops dramatically for retirees when they stop working. So what could have been an affordable mortgage payment for you ten years ago may be out of reach in retirement.
Talk with a lender before you apply or run your numbers through a mortgage calculator to see if you may qualify for a mortgage.
Should you rent instead?
Homeownership is a common goal for most Americans. But buying a home won’t necessarily save you money compared to renting. Renting requires a steady monthly payment that won’t go away.
But it also means you’re not on the hook for one-off expenses such as repairs and basic maintenance. Plus, renters don’t have to pay property taxes or expensive homeowners insurance.
So if you know you will have to pay a monthly mortgage payment well into your retirement years, renting may turn out to be the better option.
However, renters could be subject to unpredictable increases in their monthly payments each time their lease ends. Retirees who rent could also be asked to move and forced to search for a new place to live.
What mortgage term can you afford?
If you decide to buy a home during retirement, consider what mortgage term you will be able to afford. If you can swing a 10- or 15-year term, that might save you money in the long run.
The costs will be heftier up front, but you may be able to work part time at the start of your retirement to help cover the costs. Then, once you pay off the loan, you won’t have to worry about having that mortgage payment coming out of your savings every month.