topic Re: Why Mortgage When Downsizing? in Community Chat

Why Mortgage When Downsizing?

KarenQVC — Tue, 09 May 2017 03:03:16 GMT

Why do people downsize at retirement and still take on a mortgage? I do know that a mortgage fits into the financial plans of some who have assets of several times the value of their house. I am talking about the average person who has most of their assets in their house.

Why take on debt after retirement? Why not enjoy more peace of mind?

Re: Why Mortgage When Downsizing?

itiswhatitis — Tue, 09 May 2017 03:09:39 GMT

Here are varying viewpoints to consider. Each case of course, is different. The variables include region, likelihood of work after retirement, taxes, lifestyle and more.

http://www.bankrate.com/retirement/downsizing-home-does-it-always-make-sense/

Re: Why Mortgage When Downsizing?

september — Tue, 09 May 2017 03:31:49 GMT

Mortgage interest is tax deductible, rates are still low (but starting to go up), and for many, the rate of return on investments is higher than what they pay on that interest.

Re: Why Mortgage When Downsizing?

GCR18 — Tue, 09 May 2017 03:32:44 GMT

My coworker is considering just that. She doesn't want the money tied up in the house. She'd rather have it to have a comfortable retirement.

Re: Why Mortgage When Downsizing?

KathyPet — Tue, 09 May 2017 04:01:57 GMT

THere are many valid reasons to,have a mortgage on a retirement home. PUtting your cash into a non liquid asset like a home is not always a good idea depending upon what the dollar value of other assets are. FOr example I live in a over 55 active adult community. NEighbors of mine paid all cash for their house 9 years ago. Approximately $400,000. Now the wife's health is declining and they want to move into a continuing care community with a large up front fee which they have to pay up front. THeir house has been on the market for over 6 months with no offers. THey need at least some of the money from,the house sale for the fee and they can't sell and thus can't move. they are stuck here because they tied up their cash in a asset that cannot easily be disposed of.

It amazes me that people just assume that once they retire and buy a retirement home that they will remain in that house until they die. We never know what the future holds health wise and sometimes what we planned and what actually turns out to be needed are two entirely different things. Man plans and God laughs!

Re: Why Mortgage When Downsizing?

KarenQVC — Tue, 09 May 2017 04:06:16 GMT

Thank you all for your responses. I guess I'm really asking when people have the opportunity to get a small house that will not strain them during retirement, why do they add to stress by buying too much house?

Re: Why Mortgage When Downsizing?

tansy — Tue, 09 May 2017 04:18:50 GMT

Maybe for a good location.

Re: Why Mortgage When Downsizing?

patbz — Tue, 09 May 2017 05:03:49 GMT

I got a mortgage when I retired. Among many reasons is that I couldn't sell my CA house (in the middle of Mojave) in 2008 (still have it as a rental) and we didn't want to deplete our nest egg to that extent. We did buy a smaller home but since we hadn't been married all our adult lives (we were in our early 40s) and things like a prior divorce, an unexpected child birth at 45, etc, etc. The point is not everyone's life goes according to your ideal template, so yes, some of us take out a mortgage when we retire.

Re: Why Mortgage When Downsizing?

KathyPet — Tue, 09 May 2017 05:27:47 GMT

MAybe because they want to. THis is a very vague question with lots of answers. people want different things out of life and one person's ideal retirement home may not be someone else's. JUst because you wouldn't do it does not mean other people shouldn't do it. is there some specific reason you are asking this?

Re: Why Mortgage When Downsizing?

Karie2022 — Tue, 09 May 2017 09:26:34 GMT

@KarenQVC wrote:
Thank you all for your responses. I guess I'm really asking when people have the opportunity to get a small house that will not strain them during retirement, why do they add to stress by buying too much house?

I often wonder this as well...we live in a suburban area with large homes, two of my neighbors, who never had children, and are in their 60's-70's have homes that are at least 4000sq ft...our school taxes are enormous....I often wonder why they would choose a high school tax district, a large home, in a child oriented neighborhood...any way, it's not my business, just curious...I know when our kids are grown and gone, we will be downsizing and moving to a less "high rent" area.

Re: Why Mortgage When Downsizing?

SahmIam — Tue, 09 May 2017 11:41:18 GMT

There are many reasons as why it's a good idea. In the end, their financial choices don't need to be explained to anyone; what your opinion is or what you think should be done financially does not mean it's the right choice for them. Research it and you may be very surprised as to the reasons it makes sense TO take out a mortgage.

One thing I've found in my life is that the average person (myself included) is ignorant when it comes to complex finances. When you discuss money, investing, long term yield, etc with someone who does it for a living and is GOOD at it, you discover how many ways there are to make your money work for you and it explains why the wealthy are able to grow their wealth so well.

Will we take out a mortgage when we downsize? Yes, because it makes financial sense in OUR long term plan.

Re: Why Mortgage When Downsizing?

Financialgrl — Tue, 09 May 2017 11:47:58 GMT

I'm 62 and just had a new home built in a subdivision. Last house was huge and on acreage - but it served its purpose when there were more ppl living there. Sold home and sold/donated lots of stuff and moved to an over 55 community. This home is much smaller, has NO steps and I like that there is little to no outside work. They maintain our yards, shovel snow from our driveways, care for all the common areas and there are pools and lots of activities happening in the clubhouse. It's in a gated community which I realize only provides mental security but my understanding is there has been little to no crime in this development - whether you want it or not, the homes are close together but ppl watch and generally know when something is suspicious.

Having the ability to write off the interest also allows me to write off personal property and real estate taxes and the interest rates were very low when I bought my home and while they are expected to rise, they still are historically much lower than in the past.

Re: Why Mortgage When Downsizing?

Ibby114 — Tue, 09 May 2017 12:05:39 GMT

My Dad took a mortgage when he downsized from our family home. His VA mortgage rate was so low, he preferred his money work for him with his other investments. And the mortgage inerest was tax deductible as well.

Re: Why Mortgage When Downsizing?

151949 — Tue, 09 May 2017 12:07:49 GMT

A few years ago we wanted to buy a camper with profits we had made on our investments. When DH called our finance guy to ask for the money he recommended we get a loan instead. He said he could make more than what we would be paying in interest if we kept the money invested.We got a line of credit on our house and he was right about making more than the interest. If you are doing well with your savings , you are very likely to be better off to leave it alone and get the mortgage.

Re: Why Mortgage When Downsizing?

Mominohio — Tue, 09 May 2017 12:22:02 GMT

Whether it is a sound financial idea or not, many people, even in retirement, need to finance a new place to live. They may never have been able to pay off the mortgage of their previous home, but it is either too big or not in the location they wish to spend their retirement. They may have little equity in the home they are selling, and choose to pay a low interest mortgage which honestly isn't any different in my opinion, than paying rent (except you get a tax benefit from it usually).

Many retired people don't care if they ever pay off a mortgage when retired. If single, they realize that they won't be leaving a spouse holding the bag, and the estate can pay it off, if the money is there, or the property can be sold to satisfy the debt after their passing.

I think some people choose to finance and other are more or less forced to because they don't have the money to pay cash. Simply not everyone enters retirement financially ready for it. For a large part of the population, it just isn't possible because of the jobs they held or the situations that arose (health issues, raising kids etc.) for them through the years.

Re: Why Mortgage When Downsizing?

Mom2Dogs — Tue, 09 May 2017 12:38:58 GMT

My neighbor is doing this....selling her home, moving across the country and purchasing a newer, smaller home. She is putting some money down, waiting for her home to sell, and will plunk down what is left of the sale of her home, then take a mortgage out for the remaining balance.

She has money to pay off the home but why would she....if she dies before the house is paid off then the money from her estate or the sale of the home will pay off the house. She would rather have the money in her pocket than pay toward a monthly mortgage.

Re: Why Mortgage When Downsizing?

151949 — Tue, 09 May 2017 12:40:22 GMT

Some of you are negatively judging others decision to get a mortgage as if they are making a poor financial choice. If they can comfortably make the payments it is not a bad financial decision at all.The only thing you can deduct from your taxes is mortgage interest. And they may have discussed this with their financial adviser and he advised that taking a mortgage is the better option over taking the money out of their savings investments. Being debt free may not be the best financial decision when all factors are taken into consideration. Since you can't know what another person's financial situation is - how do you think you can judge their decisions?

Re: Why Mortgage When Downsizing?

kaydee50 — Tue, 09 May 2017 12:48:29 GMT

I used to think the same thing about having a mortgage in retirement. There are homes in our Sun City development that are in foreclosure and we would think, "Don't people pay cash for their homes" like we did.

Now we are purchasing a condo and we are taking out a mortgage. DH is 71, I'm 67. Fortunately, our monthly income has increased dramatically and a mortgage, HOA fees, etc. are not a problem. Like others have said, we do not want to tie up a lot of money in a house if we have to sell quickly. Worse case scenario, we walk away from it. In the meantime we still have the bulk of our assets available.

Re: Why Mortgage When Downsizing?

MomCat — Tue, 09 May 2017 13:19:07 GMT

I've never understood the "tax benefits" of paying on loans vs the security of not owing anyone. Sure a different way of thinking from mine.

Re: Why Mortgage When Downsizing?

Mominohio — Tue, 09 May 2017 13:45:29 GMT

@MomCat wrote:
I've never understood the "tax benefits" of paying on loans vs the security of not owing anyone. Sure a different way of thinking from mine.

You never really get to the place of 'not owing anyone'. There will be upkeep and taxes on an 'owned' property that may actually exceed what the mortgage payments were anyway, and if you choose to rent, you will have that bill every month.

We may be able to reduce our output of cash monthly, but we never really 'own' anything outright. There is always upkeep, insurance, taxes, storage etc. on our things.