Financial Planning for Generation X & Y Women
 
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Expert Q&A Archive

03/17/2009
What if we cannot afford a house payment when we retire?
I am 53: my husband is 56. After a lifetime of work and making mortgage payments all we have is $115,000 in equity in our house. We financed the house we are currently in, in Aug 2004. (30 yr fixed). With only 10-15 years until retirement I am afraid we will not be able to afford any home once retired. (We won’t be able to make the payments on this one and won't have enough equity to downsize to a shack. The little money we have in equity came about by moving many times to take yet another job and most of appreciation from the short term of ownership going to realtor.) Any ideas?
Rosemary Ervin, CPA:
expert info »
You may want to look at refinancing while interest rates are low. Refinancing only pays if you will be in the residence for about five more years, because there are always closing costs; however, you may consider a 15-year payout instead of 30 years. Depending on the mortgage outstanding, it may be advisable. Also, consider paying twice a month. It is usually the same payout, but not every lender allows it. For example if you pay $1,000 monthly, you would pay $500 on 3/15 and $500 on 3/31. The effect is that over the term of the mortgage, half of
the payments are made two weeks early and a 15-year mortgage would be paid out over about 13 years. The climate is good right now, so shop around. Lenders are friendly to borrowers with equity, and you have $115,000. This assumes you have income to support the payments. Good
luck.
Bettye J. Banks:
expert info »
Any investment carries risk, and that includes your house. Unless you intend to remain in the property from now on and use it as a permanent residence, it is an investment as much as it is a dwelling.

If you have the money available, I suggest you begin by paying extra on the principal balance on your mortgage. This is over and above your normal mortgage payment. Make your separate check out to the mortgage company with the words "Principal payment" on the note line. Be sure to include your loan number. This builds equity more quickly, and could place you in a better negotiating position should you sell.
Michael A. Masiello:
expert info »
This is loaded question. Yes, 10-15 years means you'll need to significantly step up retirement and investment savings. Your house shouldn't be planned to be a retirement asset. You probably need to speak in depth with a financial planner to run pre-retirement and retirement planning
reports to help you answer this question. Good luck. Mike
Shauna L. Roberts:
expert info »
When you reach the age of 62 you would be eligible for a reverse mortgage. The reverse mortgage would pay off the existing lien on your property so that you will be able to stay in your home. You will not have any mortgage payments, but you would be responsible for making the property tax and insurance payments.
Gail V. Marquet:
expert info »
Interest rates continue to drop, so I would certainly consider refinancing the house to a 15-yr fixed [rate] mortgage. The payments shouldn't be that much more per month, and this will give you greater equity in a shorter time so that by retirement the house will be paid in full.
Frank Wells:
expert info »
Try to invest as much as possible into your retirement account in order to maximize your employer’s portion of the contribution. After that, make extra payments toward your mortgage each month to build added equity and reduce interest costs. Try to eat home-made meals as often as you can, even for lunch at work. Eliminate expensive purchases, like coffee from coffee shops, restaurants, etc. Start recording every penny you spend for the next 30 days, to find out, for sure, where you are spending the money. Go to www.Crown.org for other budgeting ideas.
Connie K. Marmet:
expert info »
With lower interest rates, refinancing may be a way to lower your payments and make the home more affordable in the long run. Making an additional payment to principal each month or making you usual payment in two even parts each month (for example, rather than paying $1000 per month, you pay $500 on the lst and 15th of each month) will reduce principal much more quickly than you realize. At some point you might be able to refinance to a lower principal amount over 30 years and lower your payment in time for retirement. It may be helpful to talk to your lender about such options.
Delores Lenzy - Jones, CPA, CIA:
expert info »
You might be able to find a good deal on a house. Continue to focus on smart budgeting.
Martha Fortune O'Brien:
expert info »
Regarding home ownership and equity for a married couple in their early 50's, we in the United States now have an opportunity to understand that home ownership is not the same as saving and investing. Because the market prices of homes have gone up so steadily over so many years, we have come to think we can rely on home ownership as a means of wealth creation. It is not working that way now and may not work that way again in our lifetimes. To be financially successful it is important to be able to deal effectively with changing circumstances. The more flexible we are in our thinking, the more quickly we can let go of ideas that are not working for us. It is important to grieve the loss of the beliefs that we must give up and then find new ways of thinking. If we shift our thinking of home ownership to shelter and safety, we can start to think about home ownership in a way that is realistic and will not set us up for further disappointment. Whether you are able to pay off your mortgage or not, think of it as shelter, not an investment. Do not justify remodeling and renovations as increasing the value of the home for future sale. These are assumptions that are not reliable. The idea that you have equity in your home is just an idea. Only when you have a buyer willing to pay a certain price on a specific closing date, less exact expenses, will you know the value of your equity. Anything less is a wild guess and not reliable. No mention was made of saving and investing. It is most important to create the habit of saving from every dollar earned. If you are not doing this, begin immediately. If you can't afford to, cut out expenses. Reduce your spending and make a game of it. Find a friend who needs to cut expenses and try to cut out more than they do. With regard to retirement, it would be wise to think of continuing to work into your 70's and beyond. If you don't like the work you are doing, find something you like. Retirement is not guaranteed for anyone. Even those with pensions and hundreds of thousands in retirement savings are finding out that they must cut their spending to very basic "no frills" levels to be sure they don't outlive their money. Many early retirees are returning to work after realizing they can't afford to retire. The most important thing anyone can do to make sure their older years are comfortable is to get vigorous exercise and eat a healthy diet. Health is your first wealth.