Should You Pay Off Your Mortgage?
March 25, 2025 Author: Tess Downing, MBA, CFP®, Complete View Financial
One of the biggest financial decisions you’ll make is buying a home—but what about the decision to pay it off? While the idea of eliminating mortgage debt can be appealing, the right choice isn’t always clear-cut.
As you approach or enter retirement, you may find yourself weighing the benefits of paying off your mortgage versus keeping that cash invested elsewhere. With differing opinions on the topic and various financial factors at play, it’s important to consider how this decision aligns with your overall retirement strategy.
Before making a final choice, it’s crucial to evaluate the financial and personal implications. While paying off your mortgage can provide a sense of security, it’s not always the best option depending on your broader financial picture.
Here are key factors to consider as you navigate this important decision
- Interest Rate vs. Investment Return: Compare your mortgage interest rate to the potential return on investments. If your mortgage rate is relatively low and your investments can earn a higher return, investing might make more sense rather than paying off the mortgage early.
- Cash Flow Needs: Paying off your mortgage can free up monthly cash flow, which may be especially valuable if you have a fixed income in retirement. Consider how much you need for everyday expenses and whether having that extra cash flow would benefit your lifestyle.
- Tax Considerations: Mortgage interest can sometimes be tax-deductible, depending on your situation. You’ll want to evaluate how paying off your mortgage early could affect your tax strategy and whether it could reduce your deductions in retirement.
- Liquidity: Paying off your mortgage means tying up a significant portion of your cash in your home, which can impact your liquidity. Having readily accessible funds is important for handling emergencies or taking advantage of investment opportunities.
- Emotional Comfort: For some retirees, the peace of mind from owning their home outright is priceless. If eliminating debt is an important step to feeling secure in retirement, it could outweigh some financial considerations.
- Longevity and Health: Consider your expected lifespan and any potential healthcare costs. If you anticipate needing long-term care or if your health is uncertain, maintaining liquid assets rather than locking them into your home may be more beneficial.
- Current and Future Housing Market Conditions: If you plan to stay in your home long-term, paying off the mortgage could be a good move. However, if you’re planning to downsize or move shortly, it may be worth evaluating whether paying down your mortgage now makes sense.
Here are five questions to think through as you navigate the topic
- Financial Trade-off: Would paying down your mortgage provide meaningful and compelling benefits to your personal life and financial situation (e.g. cash flow increase, guaranteed interest/PMI saved, reduction in stress, increase in happiness etc.) and is that more important to you than the higher potential upside of other investments?
- Tax Implications: When sourcing funds to pay down your mortgage, will there be any tax consequences that negatively impact other components of your financial plan (e.g., crossing AGI or MAGI thresholds, loss of credits or deductions, etc.)?
- Debt Prioritization: Do you have other, higher-priority debts (e.g., higher interest or relative cash flow burden) in addition to your mortgage?
- Liquidity Assessment: Do you have enough liquid assets to pay your mortgage debt in full?
- Refinancing Options: Could you refinance your mortgage to decreases the payment, lock in a lower interest rate and /or pay it off sooner?
Complete View Financial is here to provide guidance to help you make informed decisions about your overall financial strategy. Our goal is to ensure you retire confidently, live better, and leave a lasting legacy.