How to avoid a retirement mortgage

1 Mar 2016
Retirement marks the end of one chapter and the beginning of another very exciting one. In fact, the Spanish word for retirement is ‘Jubilación’.

What better way to describe this incredible stage of life than with a word that sounds like another, the very word that encapsulates the feeling of pure, unrestrained joy? Retirement is the perfect time to travel, start new ventures, follow dreams, indulge in favorite pastimes long neglected, embark on new journeys and discover surprising interests and hidden talents. And why shouldn’t you enjoy this time? You have earned the right to make use of the money that you have worked diligently for and saved with discipline. So in the years before retirement, you really want to do what you can to make your retirement as stress-free as possible, so that you can enjoy the time guiltfree. One way to do this, is to ensure that you have paid off your mortgage before retirement, because that little bit of extra money every month is going to make a big difference. Here are some suggestions, both long term and short term, based on the points outlined in this article on how to avoid a retirement mortgage:

1. Find ways to cut costs

Little amounts of extra savings can go a long way. Look at your general household expenses and investigate which areas you might be able to save in. You will be surprised as to how quickly ‘little’ amounts of money can pile up to substantial amounts. It can be something quite simple, in fact the article suggests “swapping out traditional incandescent light bulbs for CFLs, for example, can save you $50 a year in energy costs. A programmable thermostat can save you up to $180 annually.”

2. Re-calculate your mortgage

When you first bought your house, your strategies for paying off the mortgage where long term and retirement was not yet a focus. Now however, the idea of refinancing may be very tempting. You can refinance your home loan and pay less over longer a certain period, or increase the payment amounts per month for a shorter period. The problem however, is the former option probably won’t ensure a paid mortgage by retirement, but the latter option is only viable if you can afford to do so now, which if you can, is recommended. The article does a simple, yet shocking calculation “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.”
How to avoid a retirement mortgage

3. Consider moving to a smaller place

Some might find it a little hard to leave the house that they have spent the last 30 odd years in, but the reality is that now your children are grown up and have families of their own, you no longer need all the extra rooms that largely go untouched and unused. If you agree, downsizing your home is a great way to avoid a retirement mortgage. The article outlines that the benefit of staying in the same area is that all the places and people that you know and love are still close by. Also the chances are, by downsizing, you will be able to pay off your new home from the get go, leaving you mortgage-free. There are many options when downsizing, but for those bitten by the travel bug, consider a place which is a great ‘lock up and go’.

4. Broaden your horizons

If downsizing in your own hometown doesn't seem like a feasible option, than it might be an idea to relocate to a different city altogether, where property prices, and perhaps even the cost of living, are lower. Again, this allows you to buy a property without a mortgage. Moving to a totally different city will allow you to explore new areas, make way for new opportunities and even give you a chance to form new friendships. And why limit yourself to local cities? Be open to considering international locations which could also allow for travel opportunities too. Keep in mind that, “Home prices aren’t the only factor. Consider property taxes and homeowners insurance premiums as well.”

5. Consider renting out spare rooms

If you do happen to have a spare bedroom or two, especially if they have their own bathrooms, and you don’t want to downsize or relocate, then a good way to get in some extra income which can be added to mortgage payments, is to rent them out. Sites such as Airbnb can help you facilitate long or short term rentals. This option requires that you to have a good few years before retiring if you don’t want a retirement mortgage. The article calculates that “An extra $250 a month toward a $150,000, 30-year mortgage at 6% will erase the debt more than 13 years early.” Not only can this help when it comes to mortgage payments, but household maintenance and utility bills too. Depending on the agreement between you and the tenant, they may even be able to take on some of the chores — that would be a discussion that needs to happen before they move in.
How to avoid a retirement mortgage

6. Make use of renting in more than one way

Another wonderful alternative, is to combine a couple of the above mentioned ideas: sell your house, buy a slightly smaller place in an incredible location outright, eliminating the ‘retirement mortgage factor’, and rent it out as an investment. Then use a small portion of that money to subsidize renting a simple but comfortable place for yourself, while the rest of the money generated can be used to save for future years or for your monthly expenses, which ever suits you best.The perks of then renting a much smaller place for yourself, is that you won’t have any extra costs associated with maintenance, levies etc, leaving this option as a pretty perfect one.  Or don’t rent at all and use the money generated to embark on that trip around the world you have always wanted to do. You can then decide whether you want to hire your house out as a holiday rental, per night (which is often more profitable albeit more risky than longer rentals) per month, or longer, more permanent rentals — do the math and see which of these options is the right one for you. You could even keep it simple and hire someone to manage your property for you.

If the idea of a house that you can rent out to generate some extra income during retirement sounds like a wonderful option for you, contact us for more information about buying the perfect investment property. Our incredible portfolio of Calpe property for sale is sure to have the perfect property for you in a phenomenal part of Spain and our in-house tenanting service will help you take care of all your rental needs . Calpe is a popular holiday destination all year round due to its wonderful climate, and you can rest assured that you won’t have any trouble finding tenants for your investment. Additionally, our in-house tenanting service can assist and guide you along the way.

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