Paying Off Mortgage Before Retirement

Answer: Deciding to pay off your mortgage before retirement is something many near-retirees wrestle with. Ditching the debt would feel oh so good, but would you be imperiling your long-term security in retirement? With home insurance rates and property taxes increasing, it’s fair to ask if your home could become unaffordable if you pay a mortgage on top of those costs.

In a recent conversation with a long-term client, Rush Griffith, a Schwab financial planner in Dallas, discussed a client grappling with one version of this decision: paying off her mortgage or keeping her money in the stock market. Rather than watch her investments weather the stock market’s ups and downs, the soon-to-be retiree sold a significant portion of her stocks and paid off her roughly $135,000 mortgage.

“When I asked her, ‘Which scenario would make you most happy?’ she quickly shouted out that no longer having a mortgage would be reaching a milestone she never thought was possible,” says Griffith.

Pay off your mortgage before retirement: the pros and cons

Many people strive to pay off their mortgages before they retire. It’s a legitimate objective, especially when you consider that 73% of seniors said their home is their most valuable asset, a 2021 survey by American Advisors Group found, as reported by PR Newswire. “When you buy a home, your goal is to own it one day, and retirement is a good goal post for paying off your mortgage,” says Rob Williams, managing director of financial planning at Charles Schwab.

But wiping out your mortgage before you retire isn’t always the best financial move. “Having fewer bills to pay in retirement makes your retirement savings go further and your mortgage payment is typically your biggest monthly expense,” says David Edmisten, founder and lead adviser at Next Phase Financial Planning in Prescott, Arizona. “However, there are other aspects pre-retirees need to consider before they use a large amount of their savings to pay off their home loan.”

Here are scenarios in which it does and doesn’t make sense to pay off your mortgage before you retire.

Do pay off your mortgage if you want to cut your expenses

Eliminating your mortgage means you’ll be crossing off what is almost certainly your largest debt and cutting your fixed monthly expenses significantly. That’s a big win. Consider this: The median monthly mortgage payment for older adults was $1,470 in 2022, according to a study conducted by the Joint Center for Housing Studies of Harvard University.

And who couldn’t use an extra $1,470 every month? Although you may have less in savings or investments after retiring the loan, reducing your baseline expenses will free up your cash flow for other wants and needs, such as travel, entertainment and health care.

Do pay off your mortgage if you have a high interest rate

Your home loan’s interest rate is an important factor to weigh. Although mortgage refinancing surged during the pandemic, nearly half of baby boomers told Lending Tree they didn’t refinance their home loans.

If your mortgage rate is high, or you have an adjustable-rate mortgage that has already reset to a higher rate, it probably makes sense to pay off your remaining loan balance before you retire, says Edmisten. “If your interest rate is relatively low — say, under 3% or 3.5% — it might make sense to carry that low-interest debt and put your savings toward other things,” he says.

Do pay off your mortgage if you can make more money in low-risk investments

Crunch the numbers to see whether you could make more money paying off your mortgage versus investing in short-term bonds. Let’s say you have a $100,000 mortgage with a 3% interest rate. By paying off your mortgage, you’d save 3% a year, effectively earning a guaranteed 3% return. But if you use the $100,000 to purchase a short-term Treasury note with an interest rate above 4% — yields on three-month Treasuries were around a pre-tax 4.3% at the end of January 2025 — you could nab a higher return investing the $100,000 in a short-term Treasury note, depending on the after-tax rate of return of your investment. Investing in tax-free municipal bonds is also an option to consider.

The math is slightly different if you can deduct mortgage interest from your taxes. If you do itemize taxes, compare your after-tax mortgage rate with your after-tax investment rate. And know that if you took out or refinanced your home loan after December 15, 2017, you can deduct interest on only the first $750,000 of debt ($375,000 if married filing separately); for mortgages acquired before then, interest on up to $1 million of debt is deductible.

Don’t pay off your mortgage if your cash reserves are low

“You never want to end up house rich and cash poor by paying off your mortgage,” says Brandon Ashton, director of retirement security at Cornerstone Financial Services in Southfield, Michigan.

Retirees should keep 12 to 24 months’ worth of liquid savings to protect themselves from market volatility, says Kevin Lao, a financial planner and the founder of Imagine Financial Security in Jacksonville, Fla. A home is not a liquid asset, he stresses, and while you can always take out a home equity loan or line of credit, it can take a long time to go through the borrowing process. It’s better to have ready cash on hand.

Don’t pay off your mortgage if you have other high-interest debt

Carrying high-interest debt? You’re far from alone. Baby boomers have average credit card balances of nearly $6,648, a recent Experian study found. Credit Karma data pins debts even higher, reporting in June an average credit card debt of $8,039 for those born between 1946 and 1964.

“Always pay down high-interest debt first,” says Williams. “High interest rates compound and create a significant drag.” Edmisten of Next Phase Financial Planning agrees: “You absolutely want to get high-interest debts paid off before you touch your mortgage.”

Daniel Bortz is a contributing writer at Kiplinger.com. For more on this and similar money topics, visit Kiplinger.com.

©2025 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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