What to Do With a Mortgage in Retirement

These strategies will help you to eliminate mortgage debt faster.

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Most retirement advisers will tell you to pay off your mortgage before you retire. This is a good idea because a mortgage payment is usually your biggest monthly bill. If you can eliminate your mortgage debt, retirement will be much more affordable than if you continue to carry this monthly payment into retirement.

[See The 10 Most Difficult Retirement Decisions.]

While paying off a mortgage before retirement is advisable, over 40 percent of households ages 60 to 69 have mortgages, according to a study from Boston College's Center for Retirement Research. Many retirees are unable or unwilling to pay off the loan before retirement.

Those who wish to eliminate mortgage payments and can’t afford to pay off the balance of the loan could obviously sell the house and downsize to more affordable housing. But some people want to keep their lifetime home or may be unable to sell at this time. Here are some alternatives to selling your home outright.

Refinance. Check with your lender to see if refinancing is a good option. Interest rates are low right now and it may be possible to reduce your payment by refinancing. Make sure to check the 15 and 10-year options as well. If your loan is close to being paid off, a 10-year loan generally offers a lower interest rate and can be paid off much sooner than a 30-year loan. Of course, the 30-year loan will offer a much lower payment, so you'll have to weigh your options.

[See Dipping Into Your Retirement Account to Pay for College.]

Rent spare rooms. Once you lower the mortgage payment, then it's time to see if you can generate some income from your home. One option is to rent out the spare bedrooms in the house. This will help with the mortgage payment tremendously. In this economy, many renters are looking for more affordable alternatives and renting a room is much cheaper than renting an apartment. The assumption here is that you have one or two spare bedrooms as you approach retirement. This way, you can continue to live in your home and reduce your housing expense.

Rent the house. If you place a premium on your privacy and cannot bear to share living space with someone you might not know well, then perhaps renting out the whole house is a good option. You can downsize temporarily to a small condo or apartment. A two bedroom apartment on the West coast, for example, typically rents for less than half the price of a nice four bedroom home. This can be a bit risky if there are high vacancy rates in your location. But you should be able to gauge the rental market when you search for an apartment.

[See What My Sabbatical Taught Me About Retirement.]

Renting out your home is a great way to break into the rental property business. A renter could help you to pay off the rest of the mortgage in a few years. Once the mortgage is gone, you can keep the house for extra retirement income or move back in. Maybe you will even enjoy living in a smaller space with no yard work and will decide to stay downsized.

Joe Udo is planning an exit strategy from his corporate job by reducing expenses and increasing passive income. He blogs about his journey to early retirement at Retire by 40.