Can You Get a Mortgage During Retirement?

Living in a mortgage-free home is a goal for many people in their later years, but you might consider getting a mortgage when you’re retired. Here’s what’s different about mortgages when you’re no longer working.

These decisions aren’t always easy. If you want to work with a professional who can help review the pros and cons of your home mortgage and other retirement expenses, reach out to Farm Bureau.

Qualifying for a Mortgage During Retirement

Lenders can’t discriminate based on your age. But they evaluate your creditworthiness no matter how old you are. In your working years, you most likely qualified for a mortgage based on your income. When you’re retired, lenders still want to make sure you can afford a loan. So, they’ll look at your Social Security payments, retirement investment accounts and any other sources of income or assets you have.

Even though age discrimination is illegal, the odds that a mortgage application gets rejected become higher with age. And mortgage interest rates are often slightly higher for older people.

It may be harder to qualify because:

• Lenders will consider how long you’ll have your income. If you haven’t saved much for retirement, that could be a sign that you won’t be able to afford mortgage payments in the future. And if you’re working part-time during retirement, they may assume that your income will end at some point. 
• They also review how risky your income is, and investment income may be considered riskier than income earned from a job. 

But in retirement, you may have a good credit score and a long credit history, which can improve your odds of getting approved for a mortgage.

Pros of Having a Mortgage During Retirement

There are a couple of reasons you may want to get a mortgage as a retiree:

• A mortgage provides tax benefits, since you can deduct the interest from your taxes. 
• If you have enough equity in your home, you can take out a home equity loan and invest the money. That strategy may be attractive if you expect the investments will outperform the cost of the mortgage. 

Cons of Having a Mortgage During Retirement

If you’re thinking about getting a mortgage when you’re retired, you’ll also want to consider some downsides:

• It can increase your debt.
• If you invest the equity, you might face losses.
• You can only deduct the interest on home equity loans or lines of credit if you are using the money to buy, build or improve the home. 

Other Factors to Consider

Your financial picture is more complex than what shows up on your mortgage application. Maybe you expect a large inheritance, and you plan to pay off the mortgage at that time. Perhaps you want to delay Social Security, and you need to make sure you can afford the mortgage payments until then. You might have a health condition and expect high medical bills in the future. Or maybe you simply feel more comfortable being debt-free in retirement.

You’ll want to consider how getting a mortgage during retirement fits into your life planning, not just your financial picture.

Explore Your Options

If you’re thinking about getting a mortgage when you’re retired, you’ll have to consider factors that weren’t an issue when you were younger. Reach out to a trusted professional to discuss your options and create a plan that fits your retirement goals.