Retirement Planning: Will You Regret Not Paying Off Your Mortgage Sooner?
Transitioning to a retirement income can be a challenge — especially if you still have a mortgage. For many people, this can be a significant monthly expense, which can consume a large portion of their monthly income.
If you’re currently retired and still carrying a mortgage or planning to retire before your mortgage is paid off, you’re not alone. Just over one-quarter — 26% — of retired investors are still working to pay off their mortgages, according to Nationwide’s 2024 Advisor Authority study.
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Some people make this decision intentionally, especially if their mortgage has a low interest rate. Others wish they could’ve paid their mortgage off before retirement, but doing so wasn’t financially feasible.
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The Regret of Not Paying Paying Off Your Mortgage Sooner
As of June 2024, the average monthly Social Security retirement benefit was $1,869.77. While many retirees also have other forms of income, carrying a mortgage can easily stretch a retirement budget.
The financial burden of having to keep making mortgage payments causes some retirees to wish they’d done things differently — i.e., got their deed of reconveyance before retiring.
“I often see the regret some retirees experience when they haven’t paid off their mortgage before retiring,” said Derek R. DiManno, CFP, CLU, CLTC, founder of Flagship Asset Services. “Many retirees find themselves in this situation because they didn’t prioritize mortgage repayment earlier, sometimes due to other financial obligations or other times due to underestimating the impact of carrying debt into retirement.”
Of course, this isn’t the case for everyone.
“Others may have planned to pay off their mortgage but faced unexpected expenses or financial setbacks,” he said.
Regardless, carrying a mortgage into retirement can feel like a hefty burden.
“For example, I worked with a client who entered retirement with a mortgage still outstanding on their home,” he said. “They had initially planned to pay it off before retiring, but then decided to redirect funds into other investments instead.”
He said his client had a comfortable retirement income, but that still didn’t make things easy financially.
“The ongoing mortgage payments create a significant monthly expense that limits their financial flexibility,” he said. “Retirees carrying a mortgage often find it impacts their finances negatively by reducing available funds and potentially restricting their ability to fully enjoy retirement or pursue other financial goals.”
Given this, he said it can be best to try to avoid entering retirement with a mortgage.
“My advice to retirees and those approaching retirement is to prioritize mortgage repayment as part of their pre-retirement financial planning,” he said.
Opposing View: Some Retirees Regret Paying Mortgages Off Early
Going into retirement with a mortgage may not sound ideal, but not everyone considers it detrimental to their finances. Noah Damsky, principal at Marina Wealth Advisors, said he’s worked with retirees who have paid their mortgages off but ultimately regretted doing so.
“Paying off a mortgage isn’t for everyone,” he said. “Some like to keep the lump sum cash in their account instead of in their house.”
He said this may depend on when you purchased your home.
“If you have a low interest rate mortgage from years ago, it probably makes sense to hang onto it,” he said. “Or, perhaps your interest rate isn’t low, but given your income or sizable IRA distributions such as RMDs [required minimum distributions] you reap the tax benefits from your mortgage interest write-off.”
In fact, Damsky has recently seen retirees make what they consider a mistake in paying their mortgages off early.
“I’ve seen retirees who regret paying [off] their mortgages since COVID began, because stocks continue to rocket higher,” he said. “They regret paying off a low-interest-rate mortgage rather than staying invested in the stock market, which has continued to reach new all-time highs.”
Despite this, in the future, he thinks more retirees will regret not paying their mortgages off.
“With mortgage rates around 7%, the breakeven to invest in stocks is as high as 10% pre-tax returns, which can be hard to achieve in a typical market environment,” he said. “In the coming years, some retirees will regret not using this opportunity with record-high stock prices to pay off higher interest rate mortgages.”
Consequently, in many situations, he said it makes sense for retirees to pay off — or at least pay down — their mortgages. Of course, ultimately, whether people choose to pay off their mortgage before retirement or not is different for everyone.
Some may have the means to do so, but feel it’s actually in their best interest to hold onto the loan, due to having a low interest rate. Others might wish they would’ve had the ability to pay their mortgage off before retirement, but doing so wasn’t possible.
If you’re still years from retirement, it’s never too early to start thinking about whether you plan to carry your mortgage into retirement — and if not, how you’ll ensure it’s paid off before you leave the workforce.
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