Carrying a home loan into retirement? When people retires, as much as possible they want live free. This is very possible but there are costs considerations in drawing up the plan.

Here are some tips on how to go about it.

Mortgage free by your retirement?

Start with this question: Should you strive to pay off your all your home loan so you can live mortgage-free in retirement -- or should you aim instead to shrink your monthly loan payments to a more manageable level to free up some cash you can spend on other items?
Extra Cash

If you have accumulated a lot of savings and a fairly small mortgage, go for the loan payoff. Some people would go for this option as this is very easy to think of. But there are still other options.

Trade down

You might want to trade down to a smaller home. With this, you can sell your house, pay-off your mortgage and then have enough money to buy a new home paying cash. You can also apply for a mortgage with a very moderate and affordable mortgage payment.

Refinance

You can even refinance later in retirement, further shrinking your monthly payment by again extending the loan over 30 years. Even in today's tight credit environment, you shouldn't have a problem qualifying for a new loan, as long as you have a reasonable amount of retirement income.

Investments

If you have cash placed in a money-market fund held in a regular taxable account, consider using these savings to reduce your loan balance. Sure, your mortgage may be costing you just 6% and the interest might be tax-deductible. But your money-market fund is likely yielding only 5% -- and you have to pay tax on that income.

Your Retirement Account

Things get trickier when dealing with individual retirement accounts and 401(k) plans. A study found that many departing employees cash out their 401(k), often using the money to pay down debt.

But this is foolish, because a big 401(k) withdrawal would likely trigger a huge income-tax bill. Instead, you're better off slowly tapping your 401(k) or IRA to make your regular monthly mortgage payments. That way, you would also continue to enjoy the mortgage-interest tax deduction.

Annuity

If you have 15 years left on your mortgage. To ensure you can make those payments, you could buy an annuity that will give back 15 years of monthly income. "If you're risk-averse, this is a better strategy than taking a big withdrawal from your 401(k). Avoiding the big 401(k) withdrawal makes particular sense if you are in a high tax bracket or if your mortgage has a low fixed rate, he adds.

One warning: If you buy the annuity, arrange to roll over the necessary retirement-account money directly to the annuity company. Don't cash out the account first, or you could trigger the big tax bill.

There are so many ways in dealing with your mortgage. The idea is to make your life after retirement relaxed and not be thinking so much of mortgage.