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Retirement: Should I Pay Off My Mortgage or Sell My Home?

It’s one of those arguments that rarely seem to have a clear-cut winner: Should you pay off your mortgage or sell your home in retirement?
The answer, perhaps frustratingly, is that it depends. Homeownership has long been a part of the American dream. Paying off your mortgage means you’ll be free from monthly payments and the worry that unforeseen financial circumstances could lead to the loss your home. This provides an incomparable level of relief. However, lifestyle trends are changing, and some retirees are now considering selling their homes to travel, relocate closer to family, or transition to a senior community.

So, should you pay off your mortgage and spend the rest of your years in your current house, or would it better to sell while you can get a great price?

Factors to Consider When Paying Off Your Mortgage
Many Americans strive to pay off their mortgage before retirement, and it’s a valid objective, especially considering that 73 percent of seniors view their home as their most valuable asset. Of course, paying off a mortgage has immediate benefits, such as reducing your monthly obligations and getting more flexibility in your cash flow.
However, what other factors should you consider?

1. Emotional Attachments
Your family home is likely the place where you raised your kids and created a lot of cherished memories.
But what if you’re not quite ready to part ways with your “forever home?”

“Many seniors have a home that holds a sentimental value, either because it’s where they raised their own family or because it was passed down to them,” explains Darren Nomberg, Senior Vice President of Investments at David Lerner Associates. Some retirees may choose to keep their home for sentimental reasons or to host relatives during the holidays.

If you’re not ready to let go of those emotional attachments and move elsewhere, you might consider keeping your house when you retire.

2. Your Lifestyle
How well does your current home fit with your future plans? “Your home should be a space where you feel most comfortable. If you want to live in your fully paid-off home, it’s worth considering how well you will be able to navigate it as you age,” adds Darren Nomberg. Retirement brings about various changes in your lifestyle. You may want to ask yourself if your current home can accommodate these changes.

3. Costs That Persist
If you find yourself with a larger home than you actually need, it’s worth considering downsizing to a more manageable space or exploring housing options designed for seniors. The costs of maintaining a home that’s bigger than you need may outweigh the benefits. There’s the potential for increased homeowners’ association fees and property taxes. Moreover, you’ll likely need to invest both money and time in maintenance and renovations to keep the property in good shape. However, if you’ve evaluated your budget and found that you can afford to maintain a bigger home and want to stay in it, then go ahead and keep it!

What to Consider When Selling Your Home

Selling your home before you retire may not always the best financial move.

1. Timing
If you are considering selling your home, it’s important to assess the real estate market and determine whether it’s an excellent time to sell.
The real estate market is subject to fluctuations, and external factors, such as current housing trends, can affect the demand for homes and the prices they can fetch.
Working with a trusted real estate agent can provide valuable guidance tailored to your specific situation and the local market conditions you are dealing with.

2. Tax Implications
Don’t forget Uncle Sam as you ponder whether to sell your home in retirement.
If you have lived in a home for at least 2 out of the preceding 5 years, you may be required to pay capital gains taxes on substantial profits from the sale. The tax kicks in on amounts exceeding $250,000 for single individuals and $500,000 for married couples.
In the case of a spouse’s death, the surviving partner can still use the late partner’s capital gains exemption, but only for 2 years. This can create a dilemma for a recently widowed homeowner who is trying to decide whether to stay or sell.

3. Your Financial Goals
One alternative to selling your home is turning it into a rental property. If one of your retirement goals is to have an investment property or build a real estate portfolio, it might be advantageous to keep your home to generate rental income. Depending on your location and amenities your home offers, it can make a substantial income as a vacation rental.

By taking this route, you can continue to hold onto the property while it appreciates in value.
However, being a landlord is not a walk in the park. You may encounter difficult tenants, experience wear and tear on your property, and face unexpected expenses. But you can solve this problem by hiring a property manager who can collect rent, handle tenant situations, and take care of maintenance requests.

The decision to pay off your mortgage or sell your home should not be taken lightly. It all boils down to understanding your desires and goals for the future.
Consider whether you value the idea of joining a community, the flexibility to move to different locations, and freedom from repairs and renovations. On the other hand, assess if you have a strong emotional attachment to your family home and wish to consider staying in it during your golden years. Remember to take the time to evaluate your financial situation, lifestyle preferences, and long–term goals. Consulting with financial advisors, real estate professionals, and your loved ones can guide you a long way when making this important life decision. In the end, make a decision that best fits with your vision of a desired retirement lifestyle.


Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

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