Is a Sub-6% Mortgage Rate Enough to Make Buying in Retirement Worth It?

Thirty-year mortgage rates recently dropped below 6%, which raises the question of whether a sub-6% rate is low enough to make buying a home a smart move in retirement. The reality is that there are too many moving parts to come up with a one-size-fits-all answer.

If you're nearing retirement (or already retired) and thinking about relocating, it's all about determining if it's the right move for you. Here, you find both the pros and cons.

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The case for buying in retirement

Reasons to consider borrowing money to purchase a home include:

• Your mortgage may be small: If you're selling one home to buy another, you may have enough to put down on the new house to keep your mortgage small. In fact, you may find that the new mortgage is lower than rents in your new area. The lower your mortgage, the easier it will be to manage on a fixed income.
• Interest may be tax deductible: If you itemize your taxes, you can deduct the interest paid on your mortgage up to $750,000.
• You can build equity: Let's say you're in your 60s or 70s and take out a new mortgage. As years pass, your mortgage balance falls and (hopefully) your equity increases. Later in life, if you need to borrow from that equity to pay for healthcare, home repairs, or another financial issue, it's there waiting for you -- all without having to sell your property.

The case against buying in retirement

Here are some of the reasons you may want to think twice before purchasing a new home in retirement:

• Homeownership can be expensive: Typically, homeownership means being responsible for the maintenance and repair costs on your home. In addition to everyday upkeep, you also have homeowner's insurance to pay for and property taxes. If you decide to purchase a home in retirement, make sure to factor in the extra expenses. A common rule of thumb is to budget 1% to 2% of the purchase price for annual upkeep.
• Market fluctuations: While buying a home in the current climate seems like a "sure thing," there's always the chance that your property won't appreciate at the rate you hope.
• Estate planning: Debt can complicate estate planning. If you're concerned about this, a strong estate planner can help you work through the details.
• You may be better off investing: While property is certainly considered an investment, consider this: Over the past 50 years, the S&P 500 (SNPINDEX: ^GSPC) has enjoyed an average annual return of 11.71%. With reinvested dividends and adjusted for inflation, the actual return was closer to 7.84%. While there's no guarantee, there's a chance your money can do more for you invested in the market than it can invested in a home.

Ultimately, the decision boils down to what works best for you. If you're happier renting and letting someone else take care of maintenance, there's nothing wrong with taking that path. But if you want a place that's your own and can afford the upkeep, taking out a new mortgage may be just the ticket.

Dana George has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.