Ask Money

A mortgage in retirement?

Chris Farrell Oct 8, 2010

Question: When we decided to downsize, we put our 9 rooms 4 bedrooms home up for sale in June. It sold in just a couple of days. This was unexpected and I had no time to look for a home of my own. I heard it took so long to sell a house I figured I would have plenty of time and plenty of choices. However I have not been able yet to find the home I like. We have decided to rent for a while. But what to do with the money we have received from the sale of our home. We will want to have it available for the buying of the next home but we don’t know when that will happen. Also we wonder if we should put it all in the new house or should we take out another mortgage since the interest rates are so low? My husband plans on retiring in 3 years (reason why we sold) and we did not want to have a mortgage payment at the time. Yet maybe it might be better to place the money and pay a mortgage. What do you think? Jane, Cincinnati, OH

Answer: Wow, a house that sold quicker than expected. We don’t hear that very often Congratulations. The answer to where you should you put the money while you figure out what to do is simple: A very safe parking place for cash. That could be a federally insured bank or credit union, or U.S. Treasury bills.

I’m not a fan of people carrying mortgages into retirement. At the same time, it’s could be prudent not to put all the money into a home. If you do end up purchasing another home you’ll want to minimize the impact on your finances of a mortgage payment.

The real issue is figuring out where you want to live in retirement.

There are a lot of options, but decades of experience shows that the primary considerations in deciding where to live in retirement are family and friends, neighborhood and community. Some things don’t change with age.

While the money is out in a safe place I would start really thinking about what you want to do in retirement. And then decide what kind of living arrangement supports that lifestyle–and your budget.

For example, if you love gardening and doing various projects around the house you might want to buy a small place. Smaller homes or condos cost significantly less to maintain than large homes, and property taxes are lower, too. The savings from running a small home compound over time. Plus, as we age, most of us are less inclined to do maintenance. Smaller yards and one-floor homes become much more attractive, as do condominiums and townhomes where maintenance is contracted out.

Then again, you might want to travel a lot and spend very little time at home. In that case, renting could be the financially smarter move.

Yes, mortgage rates are low. But before committing any money into a new home I’d address some long-term retirement planning issues.

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