You’ve Retired. Can You Get a Mortgage — and Should You?

Moving to a new place in retirement is common, but deciding to take out a new mortgage is a big decision. As you transition from a steady paycheck to a mix of fixed and variable income, adding large debt requires careful consideration.

Getting a Mortgage in Retirement

Despite common concerns, age isn't a factor when applying for a mortgage; income is. Lenders focus on your ability to repay the mortgage with your retirement income sources, such as Social Security, pensions, annuities, and retirement account distributions. They also consider your debt-to-income ratio and credit score.

Income and Debt Considerations

Lenders use various methods to calculate income from your assets. For example, with the asset depletion method, the value of your eligible assets is divided by the loan term. Alternatively, you can use regular distributions from your retirement accounts if you are over 59-1/2. Your debt-to-income ratio, including the new mortgage payment and other debts, should ideally stay below 50%.

Expenses and Financial Planning

Before taking out a mortgage, evaluate your expected monthly income and expenses in retirement. Consider potential increases in medical costs, property taxes, insurance, and utilities. Plan for the impact on your household income if a spouse passes away.

Renting vs. Buying

Consider renting first to get a better sense of the cost of living in a new area. This can help you decide if it's a good fit without the long-term commitment of a mortgage.

Maintenance and Investment Returns

Think about the ongoing costs of home maintenance, which can be around 2% of your home's value annually. Compare the mortgage interest rate to potential returns on your investments to ensure it makes financial sense. Avoid taking on more debt than necessary, and consider putting down at least 20% to avoid private mortgage insurance.

Making the decision to get a mortgage in retirement involves balancing the fixed cost of a mortgage with the variable returns on investments and potential changes in health needs.

🌐 Sources

1. cnn.com - You've retired. Can you get a mortgage — and should you?

2. bankrate.com - Mortgages For Seniors: Getting A Loan In Retirement

3. nytimes.com - A Mortgage After 65: A 'No Brainer' or a Big Risk?

4. massmutual.com - Mortgages in retirement: What you need to know

5. bankrate.com - Mortgages For Seniors: Getting A Home Loan In Retirement?

6. massmutual.com - Pros and cons of paying off a mortgage after retirement