When retiring with a mortgage, you should really think about whether downsizing would make more financial sense.

Q: I currently have 10 years left on my home mortgage of about $200,000 and I am 64 years old.  I plan to work past 70, but I am concerned that my job might disappear or that I might have health issues that would force me to become unemployed.  

My anticipated retirement income won’t cover both my mortgage and living expenses. The only reference to mortgage insurance I can find is PMI.  What kind of mortgage insurance would you suggest to cover my situation?

A: You should know that within a couple of years, most of your monthly mortgage payment would go towards paying down your loan. At first, when you take out a loan, you pay mostly interest and very little in principal. Later in the term of the loan it balances out and at the end of your loan, your payment is almost entirely principal. But you will still need to continue to make those mortgage payments.

PMI, or private mortgage insurance, is insurance for the benefit of the lender only and not for your direct benefit. PMI allows borrowers to borrow more than 80 percent of a home’s value. You already have a loan and PMI is way off the mark in your needs at this time.

There are insurance products out there that will pay your mortgage should you become disabled or unemployed. However, these insurance products on a dollar for dollar basis are quite expensive. In the past, we have seen mortgage insurance go for 3 to 4 times more than term life insurance. Granted, to get the benefit of term life insurance, you die, but you appear to be looking for an insurance product that will provide you a monthly income stream that will be sufficient for you to pay your living expenses in case you become unemployed or disabled.

You are 64 years old, may soon start receiving Social Security benefits and may be able to start tapping in your retirement funds as well to pay for your living expenses.

From your letter, it appears that your social security benefits and other retirement savings aren’t enough to cover your living expenses so that you must continue to work so long as you own your home.

This might be a good time to sit down with a retirement specialist at one of the large mutual fund companies to assess what you have and how much you will need going forward. You might also want to talk to your family and talk over your financial situation with them.

It may be time for you to reassess your housing situation as well. While you might be able to buy insurance to cover your mortgage payment, the cost of that insurance will make your monthly living expenses even higher.

Maybe you should think about whether the home you live in is the right choice for you for the next twenty years or through your retirement. If your current home expenses are too high, you might want to take this time to consider whether you’d be financially better off in a smaller home or a different housing environment.

Your question implies that you want to stay in your current home, but if you stay in the home, you may not be able to retire. You know that during the next 20 years, you will likely face issues that will force you to stop working, so wouldn’t this be a good time to assess whether a change in your living situation would allow you greater flexibility in the time for your retirement.

Once you go over these issues, if you decide that you are looking for insurance to help you out in case you become unemployed, we’d suggest you talk to a qualified insurance agent to work with you in locating a company that might handle your situation.

Most mortgage insurance products will be similar to life insurance products, your mortgage will be paid off in the event of your death, but not if you lose your job. Some insurance companies may offer assistance for borrowers that become unemployed, but that assistance does not go so far as to pay your living expenses and costs.

The reality is that you need to plan now for your retirement years, even if you continue to work during those years and cover yourself for those situations that you face in the future.