Page 42 - FP-Sample-Flipbook
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Owning a Home Common Mortgage Terms Planning for Retirement Three Main Sources of
Are you ready to own a home? The biggest The term, or length, of most mortgages is When do you want to retire? What kind of lifestyle do Retirement Income:
challenge for many people is to save up 15 or 30 years. The longer the term the you want to have when you retire? How long do you Social Security- Government
enough money for the initial down payment, lower your monthly payment, but the expect to live after you retire? These are some of the sponsored retirement and
the money paid up front before you take out more interest you will pay in the long run. questions you have to ask yourself when planning for health care plan (Medicare)
a mortgage. Having 20% of the home price Fixed Rate mortgage - your mortgage retirement. Pensions and annuities-
is recommended, but there are programs payment stays the same every month. You As a guide you should plan on having 65-80% of your Company sponsored retirement
that allow you to purchase a home with pay the initial interest rate. current annual income to live on each year after you retire. plans / investments that earn
3-5% down. Adjustable Rate mortgage (ARM) - the So, if you currently make $25,000 per year, you need to money tax free and pay out
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If you put less than 20% down, many lender rate of interest changes based on current have invested your money wisely while working to draw when you reach retirement age.
will require you to have private mortgage interest rates. If interest rates goes up or between $16,250 and $20,000 per year when you retire. Your savings- 401(k), IRA’s,
In this example, suppose you want to have 75% of your
insurance (PMI). This protects the lender down, so does your mortgage payment. current income when you retire at 67 and you plan to live to and other investments
against a loss if a borrower can’t pay the Some ARMs may lock in the current rate 87, how much total income would you need to have?
loan. This is an extra cost that would be for 5 or 10 years and then switch to
For Evaluation Only
included in your mortgage payment. Once adjustable every year after that. 25,000 x .75 = 18,750/ year x 20 years = $375,000.
you have 20% equity in your home, you can Exercise - Planning for Retirement
generally drop PMI. Look at the budget you created in Pamphlet F1. Estimate what would change if you were
First-Time Home Buyers Incentives retired. Would some expenses go away or be less? Would you have other expenses you don’t have now? Here
If a 20% down payment isn’t possible there are additional things to consider:
are government-assisted programs such Your current age: Savings:
as FHA (Federal Housing Administration), Your desired retirement age: 401(k) contributions:
VA (Veterans Administration), and Rural Equity How long you expect to live: 401(k) matches from
Development Services which can help you One of the best things about owning a home is company:
find financing where the down payment the fact that you are building equity, or value, Current income: IRA’s:
requirements are lower. Visit www.hud.gov in the home. When you make a rent payment, Desired annual income during retirement: Other Investments:
for more information. you never see that money again, but as you
pay your mortgage, you are building ownership Expected retirement income:
in your home. Each payment means you own a - from current investments
little more of the house. As home prices rise, you - from Social Security
also have a greater return on your investment. - from employer pensions or retirement
If you purchase your home for $100,000 and in funds
five years it is worth $120,000, you have gained - from inheritances
$20,000 in equity just by owning your home! You can go online to http://finance.yahoo.com/calculator/career-work/ret02 and use the Retirement
Calculator to help you estimate the amount you need to save for your retirement.
