The thought of living without having to pay rent or a mortgage payment every month is an alluring one. Without this mandatory monthly payment you can live a comfortable life in retirement. At best, you’ll be able to travel the world and really live in style. At worst, you will always have a roof over your head and enough money to put food on the table.
There are a few different ways in which you can retire without a mortgage, here are four of these methods:
Let’s say you finally got a fixed rate 30 year mortgage at the age of 50. Better late than never, right? But have you set yourself up for having a mortgage payment until you’re 80 years old? Well yes, unless you refinance. Usually people refinance and take a new 30 year mortgage in order to lower their monthly payment. But you can also refinance your 30 year mortgage into a shorter 15 year mortgage.
Let’s say you got a 30 year mortgage at the age of 50 at a 6% rate. Seven years down the line you get a promotion at work and your kids have all moved out. Now you’ve got extra income and decreased expenses. Then you look at the current interest rates for a 15 year mortgage and they’re at 4.5%. You would be the perfect candidate to refinance. If you do so, you’ll pay your mortgage off in a total of 7+15=22 years, meaning it will be gone when you’re 72 instead of 80. Not only that but you’ll save tens of thousands of dollars in the process.
Sure, rent is almost the same as a mortgage. It still is a monthly payment you need to make in order to stay in your home. But if you don’t want a mortgage, you can rent your entire life instead. While I still recommend having and paying off a mortgage, renting is actually not as bad as it sounds.
When you rent, you don’t have to pay property taxes or insurance. You also won’t have to deal with costly home maintenance costs. All of this extra money can be saved and placed into your 401k account to be used later.
When you own your own home outright, you have a lot of equity built up in it. It’s worth $250,000 and you owe $0 on it. That’s money sitting right there that you’re not spending. You don’t have that issue when you rent.
Renting also gives you the flexibility to move. You won’t have to go through the work of selling your home and then buying another one.
If you’re “stuck” with a 30 year mortgage and realize that you’ll need to continue to work well into your 60’s and even 70’s, you are not as stuck as you think you are. Rather than living in a $500k home with a 30 year mortgage, consider relocating to a $250k home with a 15 year mortgage.
If you can sell your current home for a profit then you’ll be able to knock down the amount you owe on your new home even more. Even if you can’t, interest rates on 15 year mortgages are always lower than on 30 year mortgages. If you got a bad rate before you can pounce on more favorable interest rates available now.
By far the most common way of living in retirement without a mortgage is by making extra payments. By making an extra payment to your mortgage you can substantially cut the length of your mortgage.
Let me give you an example. You get a $200k mortgage at 5% for 30 years. Your monthly payment is $1,073.64. You decide to pay $1,200 every month instead (an extra $126.36). By doing that you will have reduced the length of your mortgage by over 6 years. Not only that but you’ll also save $44,341.62.
Even if you’re not disciplined enough to make extra monthly payments to the principal, making an extra payment once a year or even making large one-time payments works too. While you won’t get an immediate benefit from making extra payments to your mortgage right now, you will reap the rewards when you don’t have a mortgage payment to make anymore.