Retired and 'Stuck' With a Mortgage Below 4%? You Have Options
You may feel like a mortgage prisoner, but your options may be more doable than you think.


One of my clients is in his early 70s with about $1.5 million in equity in his home. He refinanced into a 3% mortgage in late 2020. Sounds like a pretty good situation, right?
Here are some of the issues. Things in his home are starting to break. His lawn isn’t getting any bigger, but it is getting harder to take care of as he gets older. He enjoys his home less than he did in 2020, but because real estate values have exploded, so, too, have his property taxes.
“Boo-hoo,” say the Millennials who want to buy his home but can’t afford it with the current mortgage rates. Everyone is at a stalemate. My client is a mortgage prisoner.
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Here are three options if you find yourself in a similar situation.
1. You could rent.
Being a homeowner for the last 30 years is not a good enough reason to rule out renting for the next chapter. In fact, many of the benefits of renting should be more appealing to Baby Boomers than they are to younger generations.
The maintenance is not on you as the tenant. If you end up needing to move into assisted living later in life, there is no house to unload. If your friends, kids or grandkids move out of the area, you can move, too.
In the case of my client, let’s say he nets $1 million after paying off the mortgage and capital gains tax. If he invests that money and pulls 5% per year, it’s likely that will cover his housing costs for the rest of his life. This alone is a good reason to make the decision to rent. You can use the free version of our planning software to plug in a new location and renting vs. buying. (For more info on making these decisions, see my articles Four Reasons to Rent When You Downsize for Retirement and Four Reasons to Buy When You Downsize for Retirement.)
2. You could renovate.
If, like my client, you’re enjoying your home less than you did, you could make changes. My in-laws are in the process of drawing up blueprints to renovate their home. They will move the primary suite downstairs, which will allow them to age in place. This is not a cheap endeavor, but it allows them to stay put. They live on 10 acres, and the idea of moving into an apartment building is unfathomable.
The current interest rates make this strategy significantly more challenging than it was just a few years ago. Between 2010 and 2020, you would more than likely have funded this project with a HELOC. But as of May 6, 2024, HELOC rates were floating around 8.5%. In this environment, I would probably recommend this option only if you can pay with cash or from a taxable investment account.
3. You could refinance (after you downsize).
In this scenario, my client finds another place he likes for $1.25 million. While it’s significantly less expensive than the $1.75 million property he is selling, the math is not apples-to-apples. Because mortgage rates have more than doubled since his refinance, his all-in housing cost is likely to be higher than it is today. Now he has to decide how much a mowing-free weekend is worth to him.
One option is to finance the modest mortgage of about $250,000 with an adjustable-rate mortgage (ARM). That should shave about 1 percentage point off the rate, depending on the specific product you go with. When interest rates fall, you will probably have the opportunity to refinance at a significantly lower rate. Once again, lean on your financial planner, your financial plan and a mortgage broker to decide if this option makes sense for you. (For another angle on this option, see my article Should You Pay Cash When You Downsize? Here Are Three Scenarios.)
It's easy to look at the current environment and conclude that it’s not a good time to downsize. I’ll counter by saying that there is never a good time to downsize. Go too early and you may miss some of the appreciation in your home. Not to mention, you may have to do it again later in life. Go too late, and it was probably a decision that you didn’t have complete control over. These moves are typically health-related.
I suggest you nail down your numbers. What could you rent if you sold your home? What can you afford to buy if you decide to move to a condo? Can you afford to move into a retirement community? This will make the decision easy when you find a place you actually like. The move itself? Probably not so easy …
Related Content
- Six Reasons to Use a Real Estate Agent When You Sell
- Three Reasons Not to Use a Real Estate Agent When You Sell
- Find the Best 30-Year Mortgage Rates
- Five Ways to Shop for a Low Mortgage Rate
- Selling Your Home? Set the Right Price
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After graduating from the University of Delaware and Georgetown University, I pursued a career in financial planning. At age 26, I earned my CERTIFIED FINANCIAL PLANNER™ certification. I also hold the IRS Enrolled Agent license, which allows for a unique approach to planning that can be beneficial to retirees and those selling their businesses, who are eager to minimize lifetime taxes and maximize income.
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