Making Informed Mortgage Decisions for Your Retirement Plan
Housing is one of the biggest line items on just about any retirement budget. Whether you're still paying a mortgage, looking to escalate your payment schedule so you can retire debt-free, or thinking about relocating or buying a vacation home, where you live plays a significant role in how you spend your time, who you spend it with, and what your financial plan looks like.
On today's show, we group together some common questions about managing mortgages that we've received from seniors in our Keen on Retirement audience.
1. “Should I pay off my mortgage before I retire?”
It's understandable that many seniors want to head into retirement without any unnecessary debt. Cleaning that half of your balance sheet can make the transition to living without a paycheck a little more comfortable.
On the other hand, a fixed, low-interest mortgage that you've been paying off comfortably can fit pretty comfortably into a retirement budget as well. We estimate that about half of the folks we work with at Keen Wealth are still carrying a mortgage.
So, paying off a mortgage before retirement isn't "right" or "wrong." It's a question of what's important to you, and what other parts of your plan you might have to adjust.
One recurring theme of our conversation today is: the money has to come from somewhere. If eliminating your mortgage and other debts before retirement is a top priority, then you'll probably be dipping into your cash reserves or retirement accounts. That’s going to have consequences for other parts of your plan (see below).
2. “Can I get a mortgage without a W-2 paycheck in my 60s or 70s?”
Yes. In fact, the median age for repeat home buyers is now 62.
Under the Equal Credit Opportunity Act, it's illegal for lenders to deny a mortgage to a qualified applicant on the basis of age. The possibility that you might not outlive a new mortgage is something you and your advisor should consider from a financial planning perspective. From the bank's perspective, they have the collateral: the house.
As for how you prove you're qualified, the rules around getting approved for a mortgage have tightened a bit since the housing crisis in 2008. But lenders treat verifiable retirement income (Social Security, pensions, scheduled withdrawals from retirement accounts, etc.) the same as W-2 income.
If you're thinking about applying for a new mortgage without W-2 income, check with potential lenders about their specific requirements. My team often writes letters on behalf of clients that verify their assets and recurring distributions. At a minimum, you'll probably need to gather a couple of years of your tax returns and bank statements as well.
3. "If I have enough money, should I bother with a mortgage and just pay cash instead?"
Again, the money has to come from somewhere, and making a move in one part of your comprehensive financial plan is going to affect other parts.
Let's say you want to buy a $500,000 house with cash. Unless you have that much money in a savings or brokerage account, you’d probably have to make a withdrawal from a retirement account. And if from a brokerage account, there likely would be capital gains tax. Unless it’s a Roth account, that withdrawal will count as taxable income. So, in order to clear $500,000, you might need to withdraw a couple of hundred thousand more just to pay the tax bill. That additional cost could be more than you’d pay in interest on a mortgage.
On top of that, taking such a large taxable withdrawal from a retirement account could trigger Income-Related Monthly Adjustment Amount (IRMAA) surcharges down the line when the IRS looks back at your earnings to determine your Medicare premiums.
If you do sell investments, you're limiting your long-term growth potential. And whether you use saved cash or withdraw from a retirement account, any lump purchase of that size is going to affect your overall liquidity. What happens if you or your spouse have an accident and need long-term care that Medicare doesn’t cover? What if you have a new grandbaby in a couple of years and want to pay for that child’s college tuition?
Other mortgage options generally provide more balance across your plan and peace of mind, including:
A large down payment: Putting down more than the typical 10-20% in cash can reduce the amount and length of the mortgage.
Accelerated payoff: Take a standard 30-year fixed mortgage for the lowest interest rate you can find and then make a payment schedule to pay off that mortgage in 5-10 years.
Bridge Loans and HELOCs: If you are buying a new home before selling your current home, a bridge loan or a Home Equity Line of Credit (HELOC) on your current home can give you a buffer until both transactions are complete.
4. “What's the best way to help my children or grandchildren buy their first home? Cash? Co-signing a mortgage? Something else?”
It's tough out there for young home buyers. The median age for a first-time home buyer has risen to 40. With elevated property values and interest rates around 6%, many parents and grandparents want to help the next generation achieve the dream of homeownership without digging themselves into a hole.
Options include:
The Annual Gift Tax Exclusion: In 2026, an individual can gift up to $19,000 per year per recipient with no tax consequences. That means a married couple could gift $38,000 to a child per year or even $76,000 to your child and their spouse per year. These kinds of gifts can go a long way towards a larger down payment and a more manageable mortgage.
Family loans: If you want your kids or grandkids to have a little skin in the game, set yourself up as the bank. The IRS requires that a formal interest rate be charged and the loan documented to avoid treating the transaction as a gift.
Co-signing a mortgage: Despite the potential to reduce your out-of-pocket costs, this is the one option we generally advise against due to:
Cost basis: When you pass, the co-owner won’t receive a step-up in basis.
Personal liability: If an accident or injury occurs on the property, co-owners can face direct legal liability that puts their assets at risk.
Credit exposure: If your co-owner misses mortgage payments, your credit could be affected.
Let my team at Keen Wealth help you evaluate your mortgage options as part of your broader financial plan. Together, we can develop a housing strategy that aligns with your goals, including any plans to support family members where appropriate.
And if you have a question you’d like us to tackle on a future episode, click here to get in touch.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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