Times have changed. Decades ago, it was a common assumption that every working American (with a few exceptions) would be retired by age 65. However, now about three quarters of working Americans say that they plan to work well into the age formerly associated with retirement. Many 50 year olds have many working years ahead of them, which means there’s plenty of time to put income towards a home. That’s right! Your fifties are not too late to consider buying a home, and we’ll weigh in on some of the more complex points of getting a mortgage in your 50s.
There’s still no reason to totally neglect your age as a consideration. Just because you’re far from retirement doesn’t mean you’re still a 20-something. At this age, financial decisions have some more fine points that need attention but other decisions are very streamlined compared to earlier in your life. If you think getting a mortgage in your 50s is smart for you, read on and make these considerations.
If you’re in your fifties and looking at home-buying options, make careful consideration of whether the trade is an improvement. While we all dream of our perfect house, even if you can afford it you need to consider the sensibility of this investment. A considerable aspect of this is the size of your home. At this age, your kids are likely gone (or leaving very soon) so getting a mortgage in your 50s for an enormous amount for an enormous house will most likely be a regrettable decision financially. Also think about the expenses associated with a larger house:
- Property tax
All of these will cost more with a larger house, and will make getting a mortgage in your 50s harder. This still varies—if you had kids late or expect grandkids to move in with you, a larger house might be the right move. Still, you won’t work forever, and you need to be positive that you retirement funds will be more than enough to fund the tail end of your mortgage.
For most new homeowners looking for a mortgage, their age makes a 30-year mortgage the most sensible option. For these demographics, the consideration of anything else is limited (if not eliminated) because of the payment amount as well as future financial resources. However, getting a mortgage in your 50s is much different. No one wants to be making house payments late into retirement (can you imagining receiving monthly bills into your 80s?) so a shorter, higher-payment option may be better for you. For this, 15-year mortgages are popular, to try to pay off the entirety of the mortgage before retirement, avoiding dipping into 401(k) s, IRAs, and other retirement funds. This is especially important if you plan to live in this home for a good deal of time after retirement.
Mortgage vs. Retirement Funds
This next consideration will require a fair amount of number-crunching and most likely aid from a financial adviser, accountant or other proficient help. Making the best possible contributions into your 401(k) or IRA have the potential to save you more money in the long run than paying off your mortgage as soon as you can. Investment markets are unpredictable so you should act conservative as possible, but never forget that you retirement contributions will be your chief living income after you end your employment. Social Security should not be relied on like one of these accounts! If getting a mortgage in your 50s, consider how it will weigh against the finances of your retirement accounts.
Location, Location, Location
It’s a core tenet of real estate that location is the biggest factor in land prices. However, most people underestimate the difference this will make. Consider Austin and San Francisco—both mid-size cities in warm areas, but San Francisco homes will run as much as 70% more expensive. Most choices won’t be as drastic, but large differences are seen even in single cities. Is that neighborhood really worth the increased payments? Convenience is also just as important as cost. Isolated areas are expectedly much less expensive, but the hassle of excessive travel for typical activities will become more and more considerable as you age.
When considering getting a mortgage in your 50s, you need to think about how it will integrate with your future retired life. Declining health can cause enormous expense, and a mortgage can compromise your care. An oft-visiting extended family will mandate more bedrooms in your house, and that will add a good deal to your payments. As an alternative, look at the payments for their hotel rooms and see which is more expensive. And of course, just because you can doesn’t mean now is the time. There are plenty of totally reasonable situations where buying a house is not the right move.
As always, run any decision by a trusted financial adviser, and do your research. A mortgage in your 50s is much more feasible now than ever before, so considering buying a home is no longer an impossible dream for older people.