bluecollardollar: on retirement mortgages

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on retirement mortgages

Time is on our side for a great deal of our lives. When you are in your twenties, every invested dollar has the opportunity to grow to incredible sums for retirement. Of course this depends on a steady contribution rate and a diversified portfolio.

In your thirties, the same opportunity presents itself just to a lesser degree. But you still have the benefit of thirty, perhaps forty years of work ahead of you to accumulate enviable returns for your investment efforts. You will have had to add budgeting to the list of things-to-do to get there. But time is still of great value to your plan.

By forty the impact of time is lowered significantly. At this stage you will need to do more than budget, more than contribute and more than diversify. You will have had to, even with the addition of family and college savings efforts, keep your budgets in line while increasing the amount of money you put away. Without time, more money is the only viable option. You will also need to pay closer attention to your portfolio adding asset allocation to overall effort.

By fifty and beyond, time will begin to work against you in ways you might not of envisioned. The strength of your retirement plan and I'm generalizing, hinges on your mortgage.

There is no law suggesting that you have the right to a mortgage. Lenders, also knowing that they cannot be forced to lend you money, have a retirement age policy in place that may derail your plans.

If you have a mortgage, keep it. Attempt to refinance it and then attempt to pre-pay any balance before you retire. While many of us have added the equity of our homes into our retirement planning calculations, that dollar amount is only applicable if you decide to sell. And then, the real fun begins.

Different lenders have different rules on retirement age lending policies. While we may fantasize downsizing at some point, we almost never intend on rolling every dollar of that equity into our new home. We assume that we will be able to divide that money for various retirement needs such as health care or income. This relies on the concept that we can get a mortgage.

Banks want to be repaid and they require you provide proof that you can do so without hardship. This means income and proof it will remain steady. Retirement income may not be enough.

According to the National Consumer Credit Protection Act, banks are free to interpret whether they have met the standards the NCCP suggests. Older borrowers face some rules they may not be aware of:

• If your owner occupied property (home) is the sole security for the mortgage, you must provide a written exit strategy. Downsizing to a smaller home is not an exit strategy that is accepted by most lenders.
• If no exit strategy is provided then the loan term must not exceed the expected age of retirement. E.g. a 45 year old would be given a loan term of 20 years so that the loan was repaid by the time they turned 65.
• The accepted retirement age varies between lenders, from 65 to 75 years of age.
• Many lenders will not approve a loan for someone over a particular age, e.g. 60 years old.

So what options are left time-wise? Attempt to prepay your mortgage when you are working. Make all of the needed upgrades during this period ensuring and protecting your home's equity and the potential of a less costly retirement upkeep bill.

Getting your mortgage paid off in the years before you retire adds the potential of saving that mortgage payment for retirement. This is a significant increase that most planners assume will take place in those pre-retirement years. But you won't have the same opportunities with a mortgage at retirement.

Younger people reading this should consider the affordability of a mortgage rather than the affordability of the house itself. It will tie into every financial decision from that point forward. Just ask a 55 year old friend with a mortgage what their plan is and see if they mention that time is on their side.

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