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.
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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, Ariz. “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.”
Between 1998 and 2022, the share of homeowners 75 and older with a mortgage nearly tripled to about 30%, according to an analysis by the Urban Institute. Meanwhile, after adjusting for inflation, the median mortgage debt has increased nearly 50% from $71,500 in 2007 to $106,800 in 2024.
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 at Next Phase. “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. Far fewer people itemize their taxes these days because the standard deduction is so high. The Tax Cuts and Jobs Act passed in 2017 nearly doubled the standard deduction from $6,350 to $12,000 for single taxpayers, and today, the standard deduction has risen to $15,000 for single filers in tax year 2025.
But 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.
Thinking of investing your savings in the stock market instead of paying off your mortgage? Consider your risk tolerance. “The stock market can be very volatile in the short term, and stock market returns aren’t guaranteed,” says Schwab’s Williams. “Not everyone is comfortable taking on that risk.” Generally, older adults are more financially risk-averse than younger adults, and for good reason — younger adults have more time to weather market downturns.
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.
So, before paying off your mortgage, ensure you have a solid cash cushion. “The money doesn’t all have to be in a savings account,” says Lao. “It’s okay to have a few other interest-bearing assets that are liquid, like short-term corporate bonds or money market accounts.”
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.”
Don’t pay off your mortgage if you’re behind on retirement contributions
Look closely at your retirement savings, such as your 401(k) account balance. If you’ve fallen behind, Edmisten suggests prioritizing “catch-up” contributions. “You can typically get a larger return on your money by making catch-up contributions as opposed to paying off your mortgage, especially if your employer offers a 401(k) match,” he says.
If you’re age 50 or older, you can add an extra $7,500 per year in catch-up contributions, bringing your total 401(k) contributions for 2025 to $31,000. New for 2025 are super catch-up contributions in which workers between the ages of 60 and 63 can contribute $11,250 for a total of $34,750.
Other factors to consider
For many people, there’s an emotional component to paying off their mortgage before retirement, says Michael Roberts, a finance professor at the Wharton School at the University of Pennsylvania. “You can’t discount the psychological effects of debt,” he says. “If having a mortgage is causing you an enormous amount of stress, that’s an argument in favor of paying off or paying down your mortgage. If it’s not a source of stress, it’s less of a concern.”
Another factor to consider is whether you plan to pick up part-time work in retirement. More income in retirement can help free up cash flow. Of the 1,000 Americans surveyed by Allianz in 2024, 63% said they expect to work in retirement.
Before paying off your mortgage, also consider where the money is coming from. “Do you have a ton of cash sitting in the bank, or are you taking a large distribution from your 401(k) or IRA? Those are very different situations,” cautions Lao.
In addition, factor in whether you plan to move during retirement. “If you’re planning to relocate and buy a different home, you may want to put the extra cash that you have toward a down payment on your next house instead of using it to pay off your mortgage,” says Edmisten. Using the extra cash to make a larger down payment on your new home could be a particularly good idea right now, given the current mortgage market, where 30-year interest rates are around 7%.
Granted, attacking your mortgage “is not an all-or-nothing decision,” says Schwab’s Williams. “You could pay down a large chunk of your mortgage, without paying it off completely, to shorten how long you’re going to be paying off your loan.”
So, should you pay off your mortgage?
Deciding whether to pay off your mortgage before retirement ultimately depends on your financial situation, lifestyle, and peace of mind. If carrying a mortgage during retirement causes you stress, paying it off could be the right choice. However, if you can achieve a better return on your investments elsewhere and comfortably manage the mortgage payments after your paycheck stops, keeping the mortgage might be the better option. If you're uncertain, consider seeking advice from a trusted friend or financial adviser to make an informed decision.
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