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  • 2-Minute Article
  • |
  • Aug 01, 2017

Should I Retire With a Mortgage?

Five questions to help determine whether mortgage freedom should be part of a retirement plan.

For many, a home is most likely the largest single investment someone will ever make. It may also be the largest expense during retirement.

According to recent government figures, the average mortgage payment for people older than 65 accounts for about 14% of their annual pre-tax income.1  This figure doesn’t include money spent on real estate taxes, homeowners’ insurance, or ongoing home maintenance and repairs.

With that kind of expense looming in retirement, should paying off your mortgage before retirement be a top financial priority? Or should you focus on other financial goals instead?

The answer is: It depends. Every situation is unique because every homeowner has a different financial picture. Here are five questions to help decide.

1. Do You Have Other Debt With a Higher Interest Rate?

Carrying too much high-interest debt can be a burden in retirement, so most experts suggest eliminating as much as possible beforehand.

If the mortgage interest rate is low, consider paying off any high-interest personal loans and credit card debt first. But if your mortgage interest rate is higher than those other debts, you might want to focus on paying down the mortgage first. If your mortgage has a pre-payment penalty, you’ll want to factor that into your decision as well.

Here’s a quick chart that summarizes interest rates for various types of loans to give you an idea of where it might be best to focus your debt-reduction efforts.

Range of borrowing rates

Type of Loan Current Range
as of 7/3/172
10 years ago3 20 years ago3
Credit Cards 11.74 - 24.99%    
Home Equity 3.50 - 8.10%    
Auto 1.49 - 5.99%    
30-year Fixed Mortgage 3.75 - 4.02% 6.70 - 6.85% 7.50 - 7.69%
15-Year Fixed Mortgage 2.87 - 3.41% 6.36 - 6.50%  

Paying off a mortgage sooner rather than later can help save a substantial amount in interest over time. Let’s say someone has 10 years to go and $100,000 left to pay off on a mortgage with a 4% interest rate. By paying it off now instead of over the next 10 years, they could save more than $21,000 in interest payments.4 They’ll also have more available cash to cover other retirement expenses.

Try the mortgage interest calculator at to see how the numbers might work for you.

2.  How Would Paying Off Your Mortgage Affect Other Financial Goals?

What is the “opportunity cost” vs. other investments? Rather than pay off your mortgage, consider whether it would be more advantageous to put that money in investments that deliver a higher rate of return.

Also, think about how paying down your mortgage could affect other financial goals. If you decide to use all extra, readily available cash to get rid of the mortgage, will you end up borrowing money to meet unexpected, "rainy day" expenses?

3.  Are You Confident That You’ll Have Enough Income to Cover Your Mortgage as Well as Other Essential Expenses in Retirement?

The amount of income you anticipate receiving when you retire should be another factor in your decision. If a combination of pensions, Social Security, and savings will provide ample income, it might be easier to manage mortgage payments in retirement and still receive a substantial tax-deduction for the interest paid.

If you don’t have a guaranteed stream of retirement income beyond Social Security — such as an annuity — to help cover essential expenses, consider focusing on paying off your mortgage to eliminate that expense.

4. What is the Impact on Taxes?

Not having a mortgage means you will lose any deduction you take for mortgage interest when you file your federal income taxes. For some people, that deduction helps them save a significant amount. But if the “standard deduction” is greater and/or you don’t itemize your deductions, this won’t affect you.

5. What are Your Future Plans?

Are you planning to move to a less expensive location when you retire or buy a smaller home that’s easier to maintain? Or will you continue to improve the home you’re in?

Those plans also will affect the size of your mortgage and your ability – and desire – to continue payments in retirement.

For example, if you purchase a new, smaller home with the equity built from an older, larger one, you may have a smaller mortgage – or none at all. If you stay put and renovate, you may decide to refinance your existing mortgage and get access to cash with a new mortgage.

How much you weigh each of the five factors above depends on individual finances, preferences, and goals. The mortgage pay-off decision may be an emotional decision as well as a financial one. The freedom of not having this expense in retirement may outweigh all other considerations.

Use Your Advisor as a Sounding Board

As you consider your decision, talk to your financial professional, who can help explore the financial and personal impact of entering retirement with or without a mortgage as part of your overall retirement planning strategy.

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