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You also need to look at your tax situation. If you have to use taxable funds to purchase the home, then the tax bite, could be substantial where a mortgage allows those funds to be disbursed over time and keep you in a lower tax bracket. I am facing the same decision and have decided that this is where a few dollars to an experienced tax accountant can be well spent money.
Exactly what I am looking at also. I am still about 6+ years from retirement, but it may be as few as 3 years until I buy. I will be able to use my funds at my discretion with no penalties at that time. I have saved more than enough to pay cash but if I pulled it out and did that the tax bite would be substantial as I will still be working and earning a good salary (I hope) so anything I withdraw would effectively be taxed at my highest bracket. If interest rates are still reasonable, it could make sense to stretch it out. I also have the possibility of current home equity coming into the picture as money for a payoff but that may not happen right away and we may have two small homes in retirement (the one I am discussing is likely to be a snowbird retreat).
A woman I know took early retirement from a teaching job and bought a very cheap house in her desired area/state while she was still working, for just this reason. I believe she has a very small mortgage, from necessity, but she was careful to apply while working. It worked out well for her.
My best friends purchased the home they're in for cash, a few years ago, and have been living on their combined SS income since.
Last year, the husband had to have back surgery, which required a large co-pay. Late in the year (last year), the wife also had to have some surgery, which resulted in a longer-than-expected stay, which required another large cash outlay.
When we last talked about it, they both (adamantly) recommended to purchase a home and have a mortgage, because the cash you get to keep may be needed for something urgent, in a few years.
I've already been planning - even though we're not-quite-retired yet - to qualify for a mortgage, when we do retire & relocate, just so we can have a "cash cushion", should we need it. We'll probably want to put a larger sum down as a down-payment, but will still keep some of the cash from the sale of our current home as that cushion.
Like I say: "That's the Plan" ... YMMV, of course ...
Bingo.... with rates as low as they are, go with a mortgage. Wouldn't it be nice to have that money sitting in the bank in case of emergencies?
My best friends purchased the home they're in for cash, a few years ago, and have been living on their combined SS income since.
Last year, the husband had to have back surgery, which required a large co-pay. Late in the year (last year), the wife also had to have some surgery, which resulted in a longer-than-expected stay, which required another large cash outlay.
When we last talked about it, they both (adamantly) recommended to purchase a home and have a mortgage, because the cash you get to keep may be needed for something urgent, in a few years.
I've already been planning - even though we're not-quite-retired yet - to qualify for a mortgage, when we do retire & relocate, just so we can have a "cash cushion", should we need it. We'll probably want to put a larger sum down as a down-payment, but will still keep some of the cash from the sale of our current home as that cushion.
Like I say: "That's the Plan" ... YMMV, of course ...
Getting a mortgage to get a "cash cushion" may not be a great idea. If you buy the house outright, you will have a cushion because you can easily borrow against the house. If you instead get a mortgage and keep the extra money available you can find yourself in a hole. Some people will spend the money for luxuries, or real or perceived emergencies. Once the money is gone, the mortgage remains. Making the payments might be difficult or impossible for someone on the edge.
I agree that having some cushion is important. This is another topic where our different situations come into play. I should have a retirement account with a balance of at least 3 times what I am planning to pay for a home; it's well over double now. But it's not apples to apples since the money is pretax. Hopefully equity in the current home will make this a non issue but we aren't in agreement about when we sell it yet.
I'm thinking of down sizing when I retire and will have to decide wether to buy the new place cash or get a mortgage. If mortgage loans stay low it may make more sense to put a down payment have a mortgage and invest the profits. But I have been hearing that it's difficult to get a mortgage in retirement since you don't have a job creating income.
Has anyone done this and what were your experiences? Thanks
What's the ratio of your liquid assets (including Roth, but not traditional, accounts) to the house price? You don't want to spend it all at once, but if you have a lot to spare and still have a decent equity position to protect you from inflation even after paying cash for the house, then I say pay cash.
Getting a mortgage to get a "cash cushion" may not be a great idea. If you buy the house outright, you will have a cushion because you can easily borrow against the house. If you instead get a mortgage and keep the extra money available you can find yourself in a hole. Some people will spend the money for luxuries, or real or perceived emergencies. Once the money is gone, the mortgage remains. Making the payments might be difficult or impossible for someone on the edge.
The cautionary tale told earlier can be interpreted to mean they needed better catastrophic care insurance rather than a cash cushion. I want a cushion so I can decide to stretch a budget a little for something nice or to cover a reasonable out of pocket max not as an alternative to good insurance.
Buy it cash - for planning purposes. You have no idea what your financial status will be 5 or 10 years from now - especially these days. Where I live, the retirees that were "rolling in dough" in 2007 are shopping dollar stores and counting pennies, still today, 8 years out. 2 that had mortgages had to (forcefully) move out - the funds just weren't there - and, neither one would have ever predicted that 10 yrs ago. It's extremely difficult to get a mortgage unless you have a big pension check coming in every month. Lending today is very tight.
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