After the recent colossal economic crisis, when people are running out of cash and wondering how to afford to buy a house, a mortgage is an answer. But before obtaining a mortgage, people must keep certain factors in mind. They must determine what kind of mortgage would be suitable for them and the interest rate attached to it.
In recent times, taking the advantage of a mortgage, people are incessantly buying a new house. This has increased the rate of houses being sold. Mortgages can be obtained at any age and it necessarily takes the span of 7 to 10 years to be repaid. However, people are generally being suggested to repay the mortgage loan before they retire.
Now people may want to know the reason behind this suggestion, so here are the three main reasons.
- Retirement is the age when people lose their capability to work hard and earn money. This is the time when they need to have a comfortable and debt-free life. A mortgage payment typically involves 20 to 30 percent of the monthly budget. So, if the mortgage is paid, retirees can manage their finances more comfortably, especially if they live on a fixed budget. It saves them considerable money, which they can spend towards their medical expenses or holidays.
- Pay-off the mortgage prior to retirement also provides people a long term care. Having equity in a home is considered as an asset, which can be used for many other purposes in life or during the time of emergency. In the event retirees should need some cash, they can consider selling the residence or securing a reverse mortgage in order to meet the needs.
- It also gives peace of mind to the retirees. Paying off mortgage prior to retirement helps people achieve stress free and tension free life.
Paying off a mortgage before retirement requires some prior planning. If you find your existing mortgage extending beyond your expected retirement date, apply some strategies.
- People who are in mid 40s and on the front end of a 30 year mortgage repayment can refinance their mortgage to a fifteen year mortgage. This may increase the monthly payments, but will reduce the span of mortgage repayment from 30 to 15 years.
- Another viable way of repaying the mortgage as early as possible is making additional principal payment each month. Many mortgage lenders allow borrowers to pay more than minimum monthly payment so that mortgage is paid earlier. This reduces the overall interest charges as well as the span of mortgage repayment.
In conclusion, almost 70 percent Americans own a house, out of which 35 percent are mortgage-free during retirement, so if you also prefer a stress free life after your retirement, take the necessary steps to achieve the goal.
This is a guest post by K. Craig who is a financial writer associated with various finance related Communities. He has been providing advice on debt relief since 2007 and also written some great articles on bankruptcy, mortgage refinance, credit counseling, credit repair, debt management, personal injury and so on.