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Managing Mortgage Debt in Retirement

Having a house payment in retirement wasn't the plan. Chip away at your mortgage with these tips

Roughly 30 percent of homeowners in the U.S. own their homes outright, according to the Mortgage Bankers Association. And many of those property owners will tell you that there's tremendous peace of mind that comes with being mortgage-free.

See also: Mortgage Payoff Calculator

But if you're among the 70 percent still whittling away at your home loan, take heart in knowing that having mortgage debt — even in retirement — doesn't have to doom you financially.

I know you didn't likely plan to have lingering mortgage debt as you approach or continue to navigate through retirement. But sometimes, even the best-laid plans can go awry.

So if your mortgage isn't going to be eliminated anytime soon, the challenge for you is to figure out how to most effectively manage that debt, and how to be able to afford all the other bills you have to pay too.

Here are five ideas to do just that:

1. Keep Contributing to Your 401(k) Plan

While a mortgage can take a major bite out of your fixed monthly budget, so can other obligations, such as medical expenses. That's just one reason that even those planning to work until their 70s may not have enough money to safely retire, according to a new study from the Employee Benefits Research Institute.

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Photo by: Yasuhide Fumoto/Getty Images

EBRI's report is called "The Impact of Deferring Retirement Age on Retirement Income Adequacy." This study revealed that if Baby Boomers delay their retirement past the age of 65, many of them will still lack sufficient income to cover their basic retirement expenses and uninsured health care costs.

"Our research finds that many people may have to delay retirement far beyond age 65 to increase the probability that they have enough money to cover their retirement expenses at a comfortable level," says Jack VanDerhei, EBRI's research director.

However, VanDerhei said that EBRI found that what really makes a positive difference is if people who continue to work after 65 also continue to contribute to a defined contribution retirement plan, such as a 401(k) or a similar plan.

What does all of this have to do with your mortgage?

One big upside to continuing to contribute to your 401(k) plan is that you'll amass a larger retirement nest egg. And as your savings build up — from your own retirement contributions and possibly matching contributions from your employer — the added financial security you'll have from your 401(k) plan can help reduce the economic and emotional sting associated with that outstanding mortgage.

2. Ask for a Raise 

For those of you still working, now is also the time to ask for a pay hike. Even though a modest raise won't change your lifestyle anytime soon, every little bit helps. Also, the compounding effect of earning a raise today will be magnified over the years, particularly if you can consistently score raises on an annual basis.

Most important, a raise can give you extra cash that can be applied toward your mortgage balance.

3. Lower Other Household Expenses

Maybe your mortgage is years away from being paid off and it seems like it will never go away. But what about other house-related bills you're paying? Can you lower some of those costs?

If you live in a state with high taxes, try appealing your property taxes. If you are spending a lot on utility bills, inquire about getting on a payment plan with your local electric or gas supplier, which can even out your monthly payments over the course of the year.

Or perhaps you're paying a lot for energy costs around the house and could easily save money by doing things like switching to energy efficient lightbulbs, taking shorter showers to lower your water and heating bills, or unplugging appliances and electronics when they're not in use.

4. Sell Some Personal Assets

If we're honest with ourselves, most of us have way too much stuff in our homes and apartments. It's so easy to collect items over the years that we no longer want, need or use — particularly if you're hanging on to items with the expectation that one day the kids or grandkids may want them.

Instead of hoarding items, let some of that stuff go. You can have a garage sale, put things for sale on eBay or Craigslist, or even list items for sale through a local community bulletin board. The method you use to unload household furniture, electronics, clothing and other goods isn't what's important. What is important is that you be willing to part with all the stuff in your home or apartment that's sitting around — often gathering dust.

The items you sell could bring in a windfall (large or small), and the cash you raise from selling those goods could be used to toward making an extra payment on your mortgage.

5. Pay Off Credit Card Debt

A final way to improve your cash flow, of course, is to lower your credit card expenses by paying off some of your debts. Reducing those big credit-card balances puts you in a better position to start socking more money toward your home mortgage. Once you eliminate your credit card debt entirely, if you want to be really aggressive about paying off your mortgage, you can take all of the money that you had been allocating toward credit card bills and use it to reduce your house note.

These ideas are just starting points. There are lots of other ways to reduce your overall housing expenses — everything from taking in a roommate to downsizing to a smaller, less expensive residence. Even refinancing an old mortgage with a higher interest rate into a more affordable, lower-rate loan can help you more quickly eliminate your housing debt.

Whatever you do, just realize that having mortgage debt, even in retirement, isn't the ideal scenario. But it's not the end of the world either. As a consolation, if you itemize your taxes, in most cases you can get a tax deduction for all the mortgage interest paid on your primary residence. But paying off your mortgage early means you would no longer get this tax break.

Lynnette Khalfani-Cox, The Money Coach®, is a personal finance expert, television and radio personality, and a regular contributor to AARP. You can follow her on Twitter and on Facebook