“The term of your mortgage should not be longer than the number of years you plan to work,” says Richard Thaler, behavioral economist at the University of Chicago and co-author of Nudge: Improving Decisions About Health, Wealth, and Happiness.
After you retire, your income will probably drop, but your cost of living won’t. Some expenses, like health care, are likely to climb — perhaps significantly. If you can eliminate the burden of a monthly mortgage payment, you’ll have more flexibility to handle any rising costs.
Thaler, along with several of our other experts, point out that record-low interest rates make this a good time to refinance your mortgage if you plan to stay in your current home for several more years. “If you are 50, get a fixed-rate, 15-year mortgage, and you will have one less thing to worry about when you retire,” he says. With 15-year mortgage rates around 3%, you’ll be able to build equity faster by having more of your monthly payment go toward the principal. If you’re underwater or don’t have equity in your home, you may still be able to refinance through the Home Affordable Refinance Program if your mortgage is backed by Fannie Mae or Freddie Mac.