Should You Pay Off Your Mortgage Before Retiring?

October 26, 2023

Anyone who has gone through the process of mapping out their retirement knows there can be a lot to keep in mind. One question we frequently hear during the process is: “Should I pay off my mortgage before I retire?”

My name is Jacob Merk, Vice President of Investment Strategy with Provident Financial Consultants. Let’s review a few different considerations when you’re deciding if you should pay off your mortgage before you retire:

1.      Pay off your mortgage

Your monthly mortgage payment may be a large part of your available capital, especially in retirement. Eliminating your mortgage payment can significantly reduce the amount of cash you need to meet monthly expenses in retirement.

2.      Pay off (other) debt

Before you pay down your mortgage, any extra cash might be better suited to paying off other kinds of debt that carry higher interest rates, especially non-deductible debt, such as credit card balances.

3.     You maintain your mortgage during retirement to take advantage of the Opportunity Cost.

Imagine you have $300,000 set aside to pay off your mortgage. But rather than using those funds to pay off your mortgage, you instead invest that money. I know it can be tempting to stop making a monthly payment, but what if that $300,000 earned a hypothetical 6% for the next five years? You would have a little more than $400,000. Yes, your house may appreciate in value over the same period of time, but you should consider all your choices for that lump-sum of money.

4.      Make your mortgage work during tax time.

Some homeowners benefit from a mortgage interest deduction on their taxes. Here's how it works: the amount you pay in mortgage interest is deducted from your gross income, which reduces your federal income tax burden. But remember, the further along you are toward paying off your mortgage, the less interest you’re paying, in which case this option may not be a benefit worth taking advantage of. If you’re unsure if you’ll be able to take advantage of this mortgage benefit, it’s best to consult your financial professional.

If you would like to review these options with me so we can see what might make the most sense to you, I encourage you to reach out.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.