Most people pondering retirement are looking for financial security. Some believe that paying off mortgages for their Denver CO homes to become debt free will offer that security. But if such a sizeable chunk of retirement money is tied up in home equity, then the money will not be available for other unexpected necessities during retirement.
There are ways that owners of Denver CO real estate can keep the cash flowing for retirement needs and keep their houses. One plausible solution is for people to take out new mortgages for existing or downsized real estate in Denver while they are still employed—before retirement.
The size of the fixed retirement income can be increased with careful mortgage planning. Then, the financial security can allow people to responsibly take care of home repairs, health issues, and the like. Many people only have a paid-off home at the time of retirement and cannot wrap their arms around medical needs, long-term care, emergencies, and the unexpected.
Some take out reverse mortgages to try to solve the shortfall. However, reverse mortgages are limited and very costly and should only be used as a last resort. Some people obtain home-equity loans, but during retirement that is more difficult because loan applicants must be employed.
One smart strategy is to take out a conventional mortgage while there is still a stream of income. For example, a person eyeing retirement gets a mortgage for $100,000 that comes with a payment of $700 per month. After making the first payment, $99,300 remains. That money can be saved and/or invested for an 8 percent return. Within 15 years, the money will be worth nearly a third of a million dollars.
But let’s say that the mortgage was at 6 percent and so are the returns on your investments. Does it all even out? No. Tax laws tip the scale. Mortgage interest is deductible at your top tax bracket but investments are taxed as low as 15 percent.
According to Ric Edelman in Strategic Homeowner Magazine, “If you’re in the 25% tax bracket, this means your mortgage costs 4.5% after taxes. In other words, tax law helps make it beneficial for you to have a mortgage.” This strategy only works for self-disciplined homeowners who will leave the money that is growing for necessities and not for extra trips to the Bahamas.
For more information about homes, farms, horse properties, and real estate in the Mile High City, call Michael Paul of Realty Oasis at (303) 268-6052.
