Recently, I received a call from a close friend and client who wanted to know if the advice he received from a financial consultant was valid. The financial consultant advised him not to build a house at this point in his life (My friend is approaching 50 years of age). The advisor told my friend that it is not expedient to carry a mortgage well into retirement age; since my friend is fifty, a thirty-year mortgage of course, would carry over until he is eighty. Well, before I say what I offered as advice, here are a few facts about my friend. Both he and his wife are gainfully employed with excellent salaries and benefits. They have already purchased property for their "dream home", but have to sell their current home prior to building the new one. I admit that I am not a financial expert, but here are a few things that I asked them to consider prior to making that big decision:
1) Sell the existing home and invest the "cash out" into the new home. 2) Secure a fifteen-year mortgage, which will expire at age 65. Since most Americans are working to age 65, this will insure that the house is paid for right at retirement. 3) If the 15-year mortgage is not appealing, try a 20 year loan. Additionally, if a 30 year mortgage is chosen, both can be expired early by making extra payments toward the principle. The extra payments can effectively reduce the number of years that the mortgage is paid back and saving thousands. The reduction in years is dependent on the extra amount being paid. As many as eight years can be taken from the original mortgage by making an additional payment annually. Be sure that there is no penalty for early payoff. 4) Be sure to shop for the lowest interest rate available, regardless of an early pay-off or not. 5) Secure sufficient life insurance for both spouses. Sufficient life insurance would be an amount to cover the remaining mortgage in the event of an untimely death. 7) Should you choose to do a 30-year mortgage, be sure that retirement benefits can cover a monthly mortgage payment. 8) Pay out all other non-secured debts prior to the retirement years, so that the remaining income can cover house note and other financial obligations. 9) Invest in other income producing ventures, using returns to pay remaining mortgage ahead of retirement years.
Certainly, I advised them to go for it, because I know the professionalism that my friend posseses and his ability to manage finances. We only go around once, and everyone lives for that "dream home". But what about others facing this dilemma?
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