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When Should I Use a 40 Year Mortgage?17 03 06 14  21
-------- 67 – Age = Maximum Mortgage Years
A house paid off essentially cuts your housing expenses in half or more. That means you will be able to live with less income. That miserable Social Security check will go a longer way in covering your basic needs, and the money you have saved and invested on Individual Retirement Accounts (IRA), 401k, pension plans, and annuities will be used to pay for a better life rather than to feed the fat cats at the bank (for the record I invest a considerable amount of my money in bank stocks). The problem is that a 40 Year Mortgage can delay retirement. Most people like to retire in their late 60’s. Probably they do so because that is when the Social Security and Medicare benefits kick in. Or maybe it is because at approximately that age people start to become tired of the daily grind. No matter the reason for such retirement age, lets assume we will retire at that age and we want a paid off house by then. That means that a 40 year person should not take a 40 year mortgage – working hard to pay it off way until 40 years old could be depressive. I believe that unless you are in your 20’s you should avoid them. What about extra interest payments?
What about investment properties? I haven’t seen 40 year mortgages for investment properties but they may be available already. Investment properties are different. You usually buy them expecting a rental income that surpasses all the costs of owning the property. It is a business like any other. As long as it produces money the loan used is not as important as the money the business produces. It is also a business that will not become a burden when you retire, as it may even complement your retirement income. But I will never pay off my first mortgage loan! I will refinance, or buy a different property! Yes, most of us do. But that is because we have enjoyed periods of economic and salary expansion. We can’t be sure that will be the case forever. Depressions happen. Inflation happens. Don’t take that much risk on what is believed to be a stable investment: real estate. If you like risk that much go and trade stocks (which I also do and advocate). 67 – Age = Maximum Mortgage Years Keep that formula in mind and enjoy the peace of mind that you will be able to live comfortably in your retirement. |
For a primary residence, in my opinion, you should only opt for a 40 year mortgage when you are in your 20’s. Any other age would be adding a lot of risk to your real estate investment. There will be a time when we will not want to, or would not be able to work anymore. A paid off primary residence is one of the easier ways of securing a prosperous retirement.