Mortgages in retirement

By Kevin Theissen

There is a lot to consider when preparing for your retirement – and it can be overwhelming for some. Saving, investing, medical costs, and making sure you have sufficient income for years to come is just the start. One question many people ask is: “Should I pay off my mortgage before I retire?” The answer is more complicated than you may think.

Maintaining a mortgage in retirement

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. It may 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 increase in value over the same period of time, but you should consider all your choices for that lump-sum of money.

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.

Make your mortgage work

Some homeowners benefit from a mortgage interest deduction on their taxes. This has changed for most taxpayers recently with the increase to the Standard Deduction but 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.

Pay off your mortgage

Don’t throw your money away

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

Uninteresting interest

Depending on the length of your mortgage term and the size of your debt, you may be paying a substantial amount in interest.

True, you may lose the mortgage interest tax deduction, but remember as you get closer to paying off your loan: more of each monthly payment goes to principal and less to interest. In other words, the amount you can deduct from taxes decreases. And again, if you are now taking the standard deduction, it may make this decision easier.

Home is where the heart is

There’s a value to your home beyond money. It’s where you raised your children, made fond memories, and you may want it to remain in the family. Paying off the mortgage may help make your home part of your legacy. After all, some things you just can’t put a price on.

Kevin Theissen is the owner of HWC Financial in Ludlow.