In this day and age, if you are a homeowner, planning the direction your home mortgage will take when you retire, can only benefit you. A home mortgage is a very long-term commitment and one of the most significant financial obligations for a homeowner. Early planning on how to go about this commitment is a wise decision because it will give you an excellent foundation for the finances on your retirement. A knowledgeable mortgage specialist can help you with your home mortgage and in retirement, from paying off your home mortgage earlier to using the equity in your home after you retire.

Paying Off Your Mortgage Earlier

There are so many benefits to start paying off your mortgage earlier; however, the most significant is the ability to be financially prepared when retirement comes, the advantage of saving money on interest, the guaranteed return you have on investing in your home, and the peace of mind it can give you (Charles Schwab Website, 2017).

Any homeowner can make extra payments towards the principal balance of a home mortgage. However, Andrew Osterland explains, in his article to CNBC, that there are some essential facts you should consider before you decide to start paying off your mortgage. Some factors to consider before start making those extra payments are your plans to stay living in your house and the type of mortgage you have.

There are also other factors that can play a significant role in that decision. When planning the amount of extra money, you'll be putting towards your mortgage balance, you should consider other debts you have, how stable your income source is, the ability to continue adding to your emergency funds, and the certainty of staying in your house for years to come. Nevertheless, paying off your home mortgage earlier will give you the ability to use your home equity in your retirement (Charles Schwab Website, 2017).

Using Your Home Equity After Retirement

Retirement can be expensive, maybe even more than what you can prepare yourself. In her article on Investopedia, Donna Fuscaldo adds that there are many reasons why you may need to use the equity you have built on your home after your retirement. The most common is the need to cover medical expenses, the decision to sell your house and downsize, the need for money for an emergency, or lastly just as an extra source of income.

There are different ways for you to have access to the equity you have built on your house explains the Smart About Money website.

• Sell: You can sell it and use the money from the sales proceeding, which by the way, it is free and clear.
• Home Equity Refinancing: Taking a home equity loan on your home is just like refinancing your home, and you would receive the equity money in one lump sum, but you will be stuck with fixed monthly payments.
• Home Line of Credit: A line of credit is like a credit card but uses your home equity as security for the loan. You use as much as you need within the available amount, but you also have to make monthly payments.
• Reverse Home Mortgage: Taking a reverse mortgage may be the most appropriate choice for retirees. In summary, you can stay in your home, and the bank pays you either monthly or in one lump sum. The equity in your home will decrease over time and when you pass away payments from the home sale proceeds go back to the bank.

One of the best benefits of owning a new home is the advantage of this long-term investment and the security it can bring you for your retirement. However, it is vital to be prepared and make decisions sooner than later about your home mortgage and the financial stability it can give you after you retire.

If you need help understanding how to pay off your home mortgage earlier or are looking to use the equity of your home in your retirement, let us sit together and talk about your options. We can assist you in making this critical decision in your life.

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References

Finance Planning. (Dec. 4, 2017.). Should You Pay Off Your Mortgage Early, Before You Retire? - Charles Schwab.

Osterland, Andrew. (Feb. 6, 2018.). Should you pay off that mortgage before retirement? - CNBC.

Fuscaldo, Donna. (May 5, 2016.). Why Home Equity Can Be an Income Source in Retirement. - Investopedia.

My Retirement Plan. (n.d.). How to Use Your Home's Equity. - S.A.M.