6 Moves to Make if You Can't Pay Your Mortgage Off Before You Retire

For years, the common belief was that a person's mortgage should be paid off in full before retirement. However, life doesn't always work out that way, and today, more people enter retirement with a remaining balance on their mortgage.

Retiring with a mortgage is not automatically a mistake. The key question is whether your retirement income can comfortably cover your mortgage payment and other financial obligations. If you're taking a mortgage into retirement, here's how to make it work for you.

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Test whether your mortgage is affordable in retirement

Before you decide your next step, run the numbers:

• Estimate retirement income: Add all sources of expected retirement income, including Social Security benefits, pensions, retirement annuities, and planned withdrawals from retirement savings.
• Add up fixed housing costs: Add up how much the mortgage, property taxes, insurance, and maintenance will cost you each month.
• Figure out where you stand: One rule of thumb is to ensure that your total mortgage-related payments consume no more than 30% of your retirement income. If it's more than that, it could be a red flag.

Adjust the mortgage

If your post-retirement budget looks tight, consider these options.

• Refinance to a lower payment: As of Aug. 13, the 30-year fixed-rate mortgage rate is roughly 6.7%. If your current rate is higher than that, shop around for the lowest rate you can find and refinance your loan. Otherwise, keep an eye on interest rates so you can jump at the opportunity to refinance when rates fall.
• Recast the mortgage: You make a single lump-sum payment to the lender. The lender then recalculates your loan using the lower balance, which reduces the monthly cost without changing the original loan term or interest rate.
• Loan modification: If your situation is tighter than you expected and unlikely to improve, ask your loan servicer about modifying the mortgage. That may mean a rate change, a new term, or a structure designed to make payments easier to keep on top of.

Rethink your housing strategy

If you're concerned about whether your retirement income will be enough to allow you to keep up with mortgage payments, you may want to pivot to a new strategy. For example:

• Downsize or relocate: Learn whether it's possible to sell your current home and pay cash for a smaller or less expensive home. You may even want to relocate to an area with lower property taxes and overall affordability.
• Look into a reverse mortgage: While a reverse mortgage can be both confusing and more expensive than expected, it doesn't typically require you to make monthly payments. Rather, the loan and the interest charged on it are paid from the sale proceeds after you die.

Before deciding for sure

• Push retirement back a bit: If your mortgage payment is only slightly too high, delaying retirement a few years can help cover the gap. For example, if your expected monthly Social Security benefit at 67 is $2,000, waiting to claim benefits until 70 would maximize your monthly benefit to $2,480.
• Finally, if you have other debt, prioritize paying it off before retirement. Begin by eliminating high-interest debts, such as credit cards or personal loans.

Ultimately, it's not about having a mortgage. It's about having enough post-retirement income to cover it.

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