1/10/2012 10:34 AM ET|
6 ways to retire without a mortgage
Paying off a home loan by the time you stop working can mean greater financial security. Whether you start early or later in life, there's more than one approach to consider.
Admit it: Whether you're 35 or 65, the prospect of retiring without a mortgage is an attractive one. No more monthly checks to your lender means extra money to spend on having fun once you exit the workforce. After years of punctual principal-and-interest payments, it's the least you deserve, right?
There are several smart ways to retire without a mortgage. We've come up with six that fit a variety of retirement scenarios. Some approaches benefit from an early start -- so if you are able, try to plan ahead. Other mortgage-free-retirement options can be put into effect even if you're close to collecting Social Security.
Some retirees don't mind a mortgage, be it for the tax write-off or to keep too much money from being tied up in home equity. But if your goal is the peace of mind that comes with paying off your loan before you reach retirement, check out these six ways to retire without a mortgage.
1. Make extra mortgage payments
Over time, a few bucks here and there tacked on to your mortgage payment can translate into thousands of dollars saved on interest and years shaved off the repayment period. The trick is to find small ways to cut corners on other household expenses so you can apply those modest savings toward your mortgage. Simply swapping out traditional incandescent light bulbs for compact fluorescent lights, for example, can save you $50 a year in energy costs. A programmable thermostat can save you up to $180 annually.
A little extra goes a long way. A $200,000 mortgage at 6% over 30 years works out to a monthly payment of about $1,200 (excluding taxes and insurance). You'll pay just over $231,000 in interest alone. But put an extra $100 a month toward the same mortgage and you'll save nearly $50,000 in interest and retire the loan five and a half years early.
2. Refinance your mortgage
A surefire way to trim the bill for your home loan is to refinance your mortgage to a lower rate for an equal or greater period of time. You'll enjoy reduced payments and less strain on your bank account. Not a bad idea if money is tight. What you won't enjoy is a mortgage-free retirement.
To pay off your mortgage early via refinancing, you'll need to switch to a shorter-term loan. In 2011, a popular refi option for homeowners who weren't underwater was going from a 30-year mortgage to a 15-year loan.
Let's say you have 25 years left on a 30-year mortgage at 6% and still owe $175,000. You'd pay about $163,000 in interest over the remaining quarter-century. For just $167 more per month, plus one-time closing costs, you could refinance to a 15-year mortgage at 4% and save $105,000 in interest. And, of course, you'd be mortgage-free a decade earlier. (Does refinancing make sense for you? Check with MSN Money's calculator.)
3. Downsize your home
Think about it: At a time when you're supposed to be enjoying the simple life, do you really need a formal living room, separate dining room and two spare bedrooms that you never set foot in? If your answer is no, think about downsizing your home.
The beauty of downsizing to a smaller home in the same area is that you don't need to say goodbye to your friends, family and community. Of course, beauty can also be found in the fact that you might be able to pay cash for your new abode. That means no mortgage.
And don't limit your notion of downsizing. Just because you spent the past 30 years in a traditional ranch doesn't mean you need to purchase another ranch with less square footage. Check out conventional alternatives (condos, townhouses) as well as unconventional options (houseboats, RVs and even tiny homes).
4. Relocate to a cheaper city
Can't find the right place at the right price to retire in your hometown? Move somewhere cheaper. Sure, there will be sacrifices, but what you'll give up in familiarity you'll make up for financially. The best places to retire combine ample activities with affordable real estate. And moving to an affordable locale will boost the odds that you won't have to take out a new mortgage.
Home prices aren't the only factor. Consider property taxes and homeowners insurance premiums as well. Both affect the overall affordability of a home. In New Jersey, for example, property taxes and insurance premiums combined average $7,270. You'd pay just $1,444 in, say, Kentucky, one of the 10 most tax-friendly states for retirees. Some state and local governments reduce or even waive property taxes for residents 65 and older.
Feeling adventurous? You might be able to pay even less for a home and enjoy lower living expenses if you retire overseas. Look into bargain-priced and retiree-welcoming countries such as Belize, Mexico, Panama and Vietnam.
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I'm 43 and just paid my house off 2 days ago! It took me 8 years total, though I had a 30 year mortgage. I paid extra on every payment, and was pretty darn frugal for the past 3 years.
The most important thing that worked to my advantage was to drive a cheap car. People spend way too much money on new cars. I decided to keep my old car and only replace it once the house was paid off. This one simple step can save you a few hundred every month, which you can put towards the mortgage.
A paid off mortgage is more impressive than a fancy car/kitchen/etc. Just keep that in mind, and balance every purchase against paying down your mortage. As yourself 'do I really need this shiny bauble? will I really use it regularly? would my money be better spent paying down the mortgage? (because the house gets used every day).
I had our house paid for in less than 20yrs. We bought, stayed put, didn't borrow against the equity of the home and paid extra on the monthly payment. It could have been so easy to borrow against the equity but I'm glad we didn't. At 50 now 54 we've had an extra 1200 a month do what ever with.
A 2 bedroom apt goes for about $750-1000 a month (utilities vary ) and this is an apartment , not a 2 bedroom home...My house is a 2200 sq foot 3 bedroom 2 1/2 bath
My taxes are about $325 a month and my insurance is about $100 a month. My water, sewage and trash (included in most apt here) is about 75 a month. Total is 500/month
So in today dollars, a paid off 3 bedroom detached w/pool cost me 250-500 dollars less than a small 2 bedroom apartment
Maint. cost can wipe out that savings so before you retire have your house inspected and take care of anything that may be due to be replaced or refurbished before you retire and still have cash flow coming in
Even if it cost more i would still rather live in my nice big house that i can have all my friends over to and (someday) let my grandkids swim when ever they want!!
Retire without a mortgage? I DID! In fact, I invested every extra penny I was able to get throughout my teaching years; not only in one household, but several (8). When I retired (37 years) after a most satisfying teaching career in 2006, I was debt free...properties, autos, credit cards, etc. Let me add that I did not sacrifice leisure or personal fun, nor comfort to accomplish this. I did it by reading, watching financial news segments, listening to financial advice on TV., and putting into practice what they recommended...Today, I am still debt free, retired, have a healthy balance, and excellent health to go with it.....Of course, I also prayed day & night as I still do and received blessings every day....In my opinion, everyone can do & retire mortgage free....it's the ultimate gift, we can give ourselves.
we sold last house we build and paid all bills and paid cash for our house we live in now,
You would really have to make some bad financial decisions in life to need to do some of the things suggested in this article (downsize, relocate, roommate, rent instead of own). The biggest issue is to only buy as much house as you can afford in the first place.
In addition, there are some things you need to do as early in the life of the mortgage as possible: read your contract carefully before signing, pay as much additional toward the principle as you can afford (owing money on a 6% loan will cost you more than putting that money into savings, CDs, most investments, etc. will save you), and keep options open for paying the bill in the event of a layoff or some other mishap.
In the end, it's all about making smart choices to begin with. If you are going to struggle to make payments when times are good, you will have a very tough time when things get bad (such as right now).
This is the way America use to be and what worked. If you look at the rest of the world parents go and live with their children. Now you have retired and created the foundation of a FAMILY. This in turn helps your children with the expenses which helps financialy and snowballs into a possitive affect. We have been tought here that our children should leave the nest and look for the American Dream, well lets wake up and ask where has it gone....Our children will need us and their children will need them. So if you have children (I hope those do) it's time to talk to the entire family to come up with a retierment plan. Bringing back everyone to the basic fundamentals of a UNITED FAMILY like most countries. God bless you.
As soon as you get a stable job, go for it head on. Try to build an equity as fast as you can by getting ahead on your payments. Buy just what you need, or less if possible, and if there is a chance buy from a homeowner demanding a small down payment. many times persons want to sell their homes fast so be on the look out.
if you can buy a piece of land first and then custom-build, even better. you can build in parts: plumbing, slab, walls-roof, etc. The advantage with this is that you dont even need a stable job, just the firm promise of owning your own home.
Hope my comments help anyone out there that needs some guidance.
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