How To Improve Your Retirement By Buying A Home

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Are you thinking about buying a home? Are you also setting aside funds for retirement? A smart strategy is to accomplish both goals at the same time! Here are several suggested strategies to consider.

Use More Cash and Less Financing

While you might not be able to buy a house without some financing, think about the ways you can pay less mortgage interest while also saving for retirement. Here are two examples:

  • In addition to your monthly mortgage payment, pay an additional amount that will immediately reduce the principal owed on your real estate loan. This amount can vary according to what you can afford each month, but try to make a habit of paying at least something extra.
  • Make a bigger down payment than the required minimum. This will give you more equity from the start of your home ownership, lower your monthly payments and will reduce the interest paid over the life of the mortgage.

You can also combine these two approaches. To do this, first calculate how much less your monthly payment will be with a larger down payment in the second example and then set a monthly goal of paying the difference as an additional principal payment suggested in the first bullet point.

For example, assume that your monthly mortgage will be $100 less if you make a bigger down payment than required by the bank. Use this $100 as a target amount to make as an extra payment toward your mortgage principal each month. You're not required to do so, but your retirement planning will be improved if you do!

Sell Your Home, Rent it or Live in It During Retirement

Once your home mortgage is paid off, you will have several choices that can each improve your retirement. Here are three possibilities:

  • You can sell your house and use the proceeds to move to a different location. This might be across the street or across the country. You can choose to downsize if you wish or perhaps move to an area with a lower cost of living and buy a bigger house for less money.
  • Once you decide to move, you can choose to rent your home instead of selling it. This will provide monthly income while maintaining your ownership interest. You can eventually sell or include the property in your estate and pass it on to your heirs.
  • You can keep on living in the same place. With no mortgage, your retirement will be improved by eliminating a sizable chunk of your housing expense for as long as you live there.

What to Do Next

Whatever you choose to do, you should include several experts in your decision-making process. When buying a home, a prudent starting point is to meet with a local real estate adviser like The Today Team who can answer your questions. It is equally smart to include your accountant and attorney in any discussion involving real estate and retirement planning.