Save Thousands on Retirement Expenses with This Strategy
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Eliminating your mortgage before retirement can lead to significant savings. The Elder Index examined the costs of different housing options for retirees: renting, owning a home with a mortgage, and owning a home without a mortgage. The results were clear.
Retirees who owned their home without a mortgage spent an average of $685 per month on housing, compared to $1,835 per month for those with a mortgage. Mortgage payments typically make up the largest portion of housing expenses for homeowners. While property taxes, insurance, and maintenance are still considerations, they are much less significant compared to a monthly mortgage payment that could amount to thousands of dollars.
Renting falls in between, with average monthly housing costs for retirees at $1,152. However, rental costs vary widely by location, with some cities having significantly higher rents. Purchasing a home at a time with low interest rates can make a mortgage payment more affordable.
Renting provides flexibility and eliminates the responsibility of property maintenance, but it does not allow for building equity, and landlords may increase rent without your input, making it challenging to budget for housing in retirement.
If paying off your mortgage before retirement is not feasible, there are still ways to reduce monthly housing expenses. Refinancing when interest rates are low is an option, with the ability to roll closing costs into the new mortgage if needed.
Refinancing can lower monthly payments, but it may extend the loan term and increase total interest paid. Downsizing or moving to a more affordable location are other options to consider. Compare your current housing costs to those in other areas to determine potential savings.
It’s important to evaluate the financial impact before deciding to downsize, as rising home values may result in a smaller home costing as much or more than your current mortgage. Carrying your existing mortgage into retirement is also a viable choice as long as you budget for it in your retirement expenses.
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