According to statisticbrain.com the average 50 year old has just under $44,000 saved for retirement. This causes a wide variety of financial issues to be dealt with by the average 50 year old. I wont address them all here today but let’s focus on this one:
How the hell will you pay for a mortgage once you are retired?!?
I recently spoke with a client that was looking to refinance out of what may be the single worst loan remaining in America. He has what was an adjustable rate loan at 8.25% originated on a balance of $184,000 in 2005 when you could still get those type of loans. His rate is contractually never going lower and could, in the future, go up to 13.25% if rates started to rise. Since he got this loan, his household income has increased by 50% but he cannot refinance since he is upside down and not HARP eligible. Add to this, the current home value is $130K or thereabouts having dropped from his purchase price of $205,000.
This borrower says to me on the phone, “I’d like to refinance and get my payment down so that I can retire by the end of the year.” After having to mute the call so he could not hear my laughing hysterically, I came back to have the very real conversation with this borrower how unfortunately he has NO OPTIONS relative to this mortgage loan. This is directly related to two choices he has made in the last ten years. It’s funny because the first one I was involved with almost nine years ago when I suggested he take a 20 year loan. He insisted that in spite of the the relatively cheap ($185 per month) additional payment that he couldn’t afford it. So today he has a loan balance of approximately $165,000 when he could have had a balance of $138,000 and could likely refinance to a monthly savings of $700 per month to accommodate his retirement gains.
The second choice relates to the lie that the financial planning industry is always selling. That is that you should have a mortgage so that you can maximize the cheap money available through borrowing and investing the difference in your savings (a great recap of this lousy theory is at this link). Your investment rate of return, the fact you have other debt and you could save in your 401K etc all make sense on paper but lose out in the real world when people actually have to have the personal finance discipline to, you know, actually save the money!
This borrower like most people has effectively done this:
Now the question for this guy is “can we get him into a reverse mortgage”? If so, he MAY be OK but I wouldn’t think he should count on sipping margaritas carefree on the beach at year end.
You don’t have to be this guy though. You can be these people: 
retire and go to the beach. You actually have this choice.
To do this, you have to refinance now, to a shorter term loan. Stop saving $100 per month and choose to save $10,000, $25,000, $50,000 or more in both interest savings as well as eliminated payments. Yes this means a higher monthly mortgage payment. But, if you are in your early forties, you could pay off your house by 65. Then how much less would you even need to save for retirement? Run the numbers or better yet, have a mortgage professional run them for you. Then sign up for a shorter term loan which will force the discipline of the monthly payment upon you and get you out of your own way. Do this NOW, thank me later.
