Time to help out a reader, Marke, who is facing a tough decision. His home has lost value, like many people today, and he’s not sure how to handle it. However, it’s not just his house he’s worried about. He’s nearing retirement, and needs to start planning for that, too.
It seems that keeping his house and saving a large amount for retirement are in direct conflict with each other. Marke would like some help trying to figure out what to do.
- Age 59
- No retirement savings.
- Home has lost $250k in equity.
- Mortgage payment $1,700 per month.
- Owns a small vacation cabin with no mortgage.
Marke is trying to decide which option will work best. Of course there are many more details than those provided here. However, many of those are emotional aspects, like quality of living, that only Marke will be able to answer himself.
1. Stay in Home
If Marke stays in his house, he’ll pay it off in 10 years. He’ll spend $204,000 in payments ($1700 x 120 months) over those next 10 years. He’ll have to work diligently to save for retirement in other areas of his budget, which may or may not have a big impact on the amount he’ll be able to save.
2. Sell Home and Save for Retirement
Since Marke has lost considerable equity in his home, if he sells it, he will break even after paying off the mortgage. However, if he sells the home, he’ll plan on saving the $204,000 that he would have spent on mortgage payments for the house and save it for retirement. I’m guessing he’ll live in the cabin if he chooses this route. Otherwise, he’ll have to subtract the cost to rent another place out of the money now earmarked for retirement.
3. Rent the House
The last option he is considering is to rent out the home with a negative cash flow, live in the cabin and hope to sell it someday. Unfortunately, this option probably won’t help him generate any additional funds for retirement, but it might allow him to live in the house after it’s paid off.
What Do You Suggest?
Let’s help Mark out! I’ll highlight your suggestions and add mine in a future article.
Should Marke keep his house? What’s more important saving for retirement or owning a house?