Timing Mortgage Debt Payoff Date to Match Retirement Age in 2015

In an ideal world, a California home owner with a mortgage loan would pay off her mortgage debt when she hit retirement age.

In the real world, this seems to happen much less regularly than it should.

In the past decade, mortgage debts have not been paid down as much as they were in the past 50 years for older Californians for a variety of reasons.

The population of older homeowners has increased because people are living longer.

Incomes have gone up but not as fast as spending and borrowing.

Federally insured or guaranteed mortgage programs were made to enable the government mission of homeownership for more people in society who were previously underserved and locked out of it.

All homeowners with a mortgage need to seriously consider the payoff date (the date of final payment on the loan) in the context of their retirement date.

Approximately 44% of “baby boomers will fall short of adequate retirement income for basic expenses and uninsured health care costs.” (credit: Consumer Financial Protection Bureau, Office of Older Americans, Hector L. Ortiz and Assistant Director, Nora Dowd Eisenhower).

A common solution to reducing debt in retirement is to minimize expenses to match the retirement income in retirement years.

When a California resident is looking to purchase a home or refinance their existing mortgage, they should try to match the term of their mortgage with their retirement date.

As a licensed mortgage loan originator here in California, I see the 3, 5, 7, 10, 15, 20 and 25 year fixed rate mortgages as another solution to help match the payoff date of the mortgage with that of retirement.

Another option is to set up a biweekly payment plan to make the equivalent of one extra mortgage payment per year to be able to pay off a mortgage in less time than the full term.

For example, a $700,000 jumbo loan on home valued at $778,000 (90% Loan to Value) paid over 20 years (240 months) at 4% interest equals to $2,505 every two weeks, shaving 27 months off the 240 months and $40,298 in interest cost over the term of the loan.

Older borrowers can look to see on what date they want to retire and then use a mortgage calculator to figure out what happens if they made extra payments per year or went on a bi-weekly payment plan.

It is possible to match the retirement date with the mortgage payoff date, and California borrowers have this control with their existing mortgage as well.

All it takes is some time and effort to set a date for retirement and the amount of monthly payments that you need to make in order to have your mortgage debt paid off by that date.

If there isn’t enough income to support the higher payment, then a refinance may be necessary by adding income to the household by using income of a person who does not live in the property with the main owners.

This is referred to as non-occupying income and the non-occupant’s monthly net income, minus their credit report monthly liabilities, would be able for use to pay off the mortgage debt sooner.

Parents, grandparents, siblings, children, grandchildren, aunts, uncles, cousins and practically anyone else can contribute their net disposable income to pay down the mortgage loan for someone else in a shorter period of time.

If you are looking to purchase a home and are currently renting, please do look at the time you want to keep the home and the mortgage within the mindset of a retirement age and date.

If you plan on living in the home for 11 years or less, then you should consider getting a 3, 5, 7 or 10 year fixed mortgage and paying the same amount of monthly payments as what would be required on a 15, 20, 25 or 30 year fixed mortgage to build equity faster and pay lower interest costs.

If you have a mortgage and want to pay it off faster, consider refinancing to a 15, 20 or 25 year mortgage to take cash out for home improvement.

Alternatively, if the goal is just to pay it off faster, just change the monthly payment paid to equal the amount required to pay it off by the date you set as there is no pre-payment penalty for paying off a loan sooner, rather than later.

Many renters think that homeownership is out of reach because of a recent economic or credit event such as a job loss, a bankruptcy, a short sale, a foreclosure or charged off 2nd mortgage, but this is simply not the case.

You can get a loan to buy the home you want to buy even with credit challenges within the last two years and then you can refinance to a lower interest rate when your credit improves in 12 to 24 months.

Through proper planning, you can pay off the mortgage in time for retirement with just timing the payments correctly at an amount that is greater than the monthly minimum, or by getting help from non-occupying co-borrowers or in combination with “gift” funds that don’t need to be repaid.

Should you buy the home you are considering or continue to rent the one you are living in?

Should you refinance and rent out your current home and downsize or upsize?

Email or call me with your unique mortgage circumstances, and let’s get a fair and reasonable mortgage loan that makes sense for your budget and your goals.

Equal Housing Lender. Licensed by The Department of Corporations under the California Residential Mortgage Lending Act. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates, and programs are subject to change without prior notice. All products are subject to credit and property approval. Not all products are available in all states or for all dollar amounts. Other restrictions and limitations apply. Copyright© 2015 Michael Nazarinia, MBA, NMLS CA-DBO 1182434, Nationwide NMLS 15622. All Rights Reserved.