For most people, housing is their single largest expense every month. Imagine if you could eliminate that expense heading into retirement while still guaranteeing a roof over your head. That might be possible, if you own instead of rent a home.
For example, if you are between the ages of 30-35, assuming you get a 30-year mortgage and are planning to stay in that home, your home will be completely paid off by the time you reach retirement age. While you’ll need to pay property taxes, insurance and maintenance, the money you save on monthly mortgage payments can help your retirement savings go further and may even help you retire sooner.
And even if you haven’t bought a home by 35 or don’t want to stay in the same home for 30 years, you can still pay off your home in time to retire by paying more toward your mortgage each month. Jonathan Pond, a financial planning expert and PBS Newshour contributor, offers the following example:
“Consider someone who has a $200,000 mortgage with 25 years to go. Adding an extra $200 a month on top of the regular mortgage payment will shorten the mortgage payoff by a decade. In other words, it will be paid off in 15 years rather than 25.”
Owning a home can also provide you with some additional options to boost your savings as you head into retirement.
- Consider a reverse mortgage. Otherwise known as a Home Equity Conversion Mortgage (HECM), a reverse mortgage allows you to borrow against the value of your property without having to make regular loan payments. The loan is repaid through the sale of the home when you move or if you pass away. There are some disadvantages, however, so do your research and meet with a HUD-approved housing counselor before you make your decision. Click here for a list of pros and cons of reverse mortgages.
- Downsize. Contemplate downsizing by selling your home and using the proceeds to buy or rent a smaller home. In addition to saving money on taxes, insurance and repairs, moving to a smaller home will reduce the time and effort you spend cleaning and maintaining your home. Click here to read more about the benefits of downsizing.
- Use your home to generate extra income. If you live in a popular area and have some additional space, Trulia.com recommends putting that space to work by renting out a room or even your entire home for a short period of time. Check out the following websites that offer short term rental opportunities: Airbnb.com, VRBO.com, and HomeAway.com.
Ultimately the decision to own or rent a home depends on a lot of factors, including your budget, location and lifestyle. We recommend that you contact a homeownership counselor listed on the Texas Financial Toolbox, who can help you analyze your specific situation and determine if homeownership is right for you.
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.