There’s No Age Limit on Mortgages—But Retirement Changes Your Math

Key Takeaways

• Financial advisors say having a mortgage in retirement isn’t necessarily bad, particularly if it allows retirees to maintain liquidity instead of tying up all their funds in home equity.
• Whether taking out a mortgage makes sense depends on factors such as tax considerations, legacy goals, lifestyle plans, and how long you intend to stay in the home.
• Because retirees rely on fixed income, lenders evaluate retirement income sources instead of wages from a salaried job.

Are you ever too old to take out a mortgage?

Many people hope to enter retirement debt-free, but financial advisors suggest that having debt in retirement isn’t inherently bad. For some, it can be beneficial to maintain some liquidity instead of having all of your money tied up in home equity.

“Being cash-poor in your golden years can put you in a precarious position. Liquidity can be priceless, especially if you have health care costs that are not anticipated,” wrote Bobbi Kaufman, a certified financial planner (CFP) and founder of Financial Wellness Strategies, in an email. “As long as the home remains positive in terms of equity, does it really matter if there is a mortgage?”

Why This Matters to You

Deciding whether to take out a mortgage in your 60s or 70s will impact your financial security and spending power in retirement one way or another. Having a mortgage can free up liquidity, but it also locks you into making large monthly payments for years or even decades. Paying in cash is likely to be a big drawdown on existing assets.

Think About Your Lifestyle and Budget

Whether taking out a mortgage is the right decision for you will hinge on a variety of factors.

“It depends on the client’s financial plan, capacity to take the tax deduction for interest, the age of the retiree, and legacy goals,” said MaryAnne Gucciardi, a CFP and founder of Wealthmind Financial Planning.

For example, homebuyers may be eligible to deduct mortgage interest on up to $750,000 worth of mortgage debt. Qualifying for the mortgage interest deduction can make taking out a mortgage more attractive than paying for a home in cash. However, in order to do so, you must itemize your deductions instead of taking the standard deduction, something only a minority of taxpayers do now.

If you prefer to leave a home to your heirs, it may be a better idea to buy it in cash rather than pay for it with financing. While your heirs can inherit the mortgage, the loan will still need to be paid off unless they choose to sell.

Related Education

How to Navigate the Complexities of Inheriting a House With a Mortgage

4 Mistakes to Avoid When Downsizing in Retirement

You’ll want to think carefully about how mortgage payments will fit into your budget as well.

While young people typically have the benefit of receiving regular paychecks, retirees rely on fixed income, which can make it harder to manage large monthly payments, especially during market downturns.

“Fixed mortgage payments in retirement reduce flexibility, so the loan has to be clearly affordable and stress-tested. If it’s being used to stretch a budget, that’s usually a red flag,” wrote Joon Um, a CFP and managing owner at Secure Tax & Accounting, in an email.

Another consideration to weigh is how you’ll qualify for a loan without a job. While lenders are not legally allowed to discriminate against mortgage applicants because of age, they’ll evaluate your creditworthiness based on different factors than they would if you were still working.

For retirees, lenders may look at sources of retirement income such as 401(k) and individual retirement account (IRA) distributions, Social Security payments, pension income, and more.

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