What to do about mortgages as retirement draws near

Many people approaching retirement face choices on what to do about their home mortgages, especially if they are nearing a payoff or need to tap the equity for living expenses.

This story can be found in our Extra special edition about retirement in the April 18 edition of the StarNews.

Should I pay off the loan, or refinance at a lower rate, for instance? Is a reverse mortgage for me?

"One of the keys to a successful retirement is reducing your expense," said Ed Taylor of Taylor Financial in Wilmington. "If possible I like to see clients be near the end of their mortgage right around retirement."

If your mortgage balance is relatively low, paying it off may be the best choice.

"With a low mortgage balance the tax benefit is minimal, if any," he said. Toward the end of a mortgage's term most of the payment is toward principal, so there's little interest to claim as a deduction on tax returns.

But, Taylor points out, it depends on what assets you have and what sources of income you have available in retirement.

It might be tempting to tap into your home equity to help fund retirement, and one way to do that is a reverse mortgage.

A reverse mortgage is a loan that is available to people at least 62 years old who live in their home, and is used to release the equity in the property to the homeowner, in the form of monthly payments, a lump sum or a line of credit, according to National Association of Personal Financial Advisors. Repayment is deferred until the owner dies or leaves, or the home is sold.

In a reverse mortgage, the homeowner makes no payments and the debt on the property increases up to a pre-determined maximum amount.

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