Should you pay off your mortgage in retirement (2024)

FAQs

Should you pay off your mortgage in retirement? ›

Paying off your mortgage may make sense if: You have substantial retirement savings, especially if the funds you'd be withdrawing are in a taxable account and are not earning much interest. You're downsizing.

It may make sense to do so if you're retiring within the next few years and have the cash to pay off your mortgage, particularly if your money is in a low-interest savings account. Again, this works best for those who have a well-funded retirement account and enough reserve funds for unexpected emergencies.

To O'Leary, debt is the enemy of any financial plan — even the so-called “good debt” of a mortgage. According to him, your best chance for long-term financial success lies in getting out from under your mortgage by age 45.

So all things being equal, it often is wise to pay that off. However, if you urgently need to boost your retirement or emergency funds, or if you have corrosive debt like an unpaid credit card, it can make sense to delay paying off your mortgage.

Now, as is the case during your working years, one of your biggest expenses in retirement may be none other than housing. So it's important to know how much house you can afford during that stage of life. Generally speaking, you should aim to keep your total housing costs to 30% of your income or less.

In an ideal world, none of us would have any debt—ever. And we'd certainly pay off our mortgages, credit cards, and car loans before we retire.

In 2022, researchers found that just over 40 percent of homeowners older than 64 had a mortgage, a jump from roughly 25 percent a generation ago.

40% of Americans Pay Off Their House — Are They Doing Better Financially? For most Americans, a home mortgage is the biggest financial obligation they will ever have. A traditional mortgage spans 30 years and is often in the hundreds of thousands of dollars, so the interest charges can be enormous.

Disadvantages of Paying Off Mortgage Early

If you have credit card or student loan debt, funneling your extra cash toward paying off your mortgage early can actually cost you in the long run. This is because these other types of debt likely have higher interest rates. Less money for savings.

Being debt-free — including paying off your mortgage — by your mid-40s puts you on the early path toward success, O'Leary argued. It helps you free yourself from financial obligations at a time when your income is presumably stable and potentially even growing.

Should I fully pay off my house? ›

Deciding if you should try to pay off your mortgage early is a personal decision that will heavily depend on your financial situation. Take time to assess your financial plans and decide whether making extra payments on your mortgage loan will still help you reach those financial goals.

Should I pay off my mortgage early? There are both pros and cons to paying your mortgage off early. While you save on interest and have extra funds to use elsewhere, you will lose the federal mortgage interest tax deduction and could miss out on more lucrative investments.

A Hefty Tax Bill

Overlooking the tax consequences of paying off a mortgage from a 401(k) could be a critical mistake. The tax scenario might not be much better if you borrow from your 401(k) to discharge the mortgage rather than withdraw the funds outright from the account.

Paying off your mortgage may make sense if: You have substantial retirement savings, especially if the funds you'd be withdrawing are in a taxable account and are not earning much interest. You're downsizing.

Many retirees fall far short of that amount, but their savings may be supplemented with other forms of income. According to data from the BLS, average 2022 incomes after taxes were as follows for older households: 65-74 years: $63,187 per year or $5,266 per month. 75 and older: $47,928 per year or $3,994 per month.

It is 100% possible to retire with $400,000, provided you're not looking to enjoy a particularly expensive retirement lifestyle or hoping to leave the workforce notably early.

Ownership can helps you build equity and wealth. And if it's paid off, you'll only have to pay taxes and insurance. However, home ownership comes with other costs. You'll need to fund maintenance and repairs and stay up to date on upkeep.

If you'll never need the equity from the house for retirement income, pay cash. In other words, you have plenty of savings and you will never be reliant on the equity component. This really has to do with the current interest-rate environment.

It's typically smarter to pay down your mortgage as much as possible at the very beginning of the loan to avoid ultimately paying more in interest. If you're in or near the later years of your mortgage, it may be more valuable to put your money into retirement accounts or other investments.