Should I Pay Off My Mortgage Before I Retire?

Weigh all the facts before deciding where to put those extra dollars.

Paying off the mortgage before retiring was once considered a rite of passage, but it might not be your best option. Let's look at the pros and cons of an early mortgage payoff.

Pros: Reasons to consider paying off your mortgage early

Guaranteed return on investment

Even if you have a relatively low-interest mortgage, paying it off early could save you thousands of dollars in interest over the course of the loan. Sure, you could opt to invest that extra money and keep your mortgage, but your return wouldn't be guaranteed.

Changes in the tax law

Technically, your mortgage interest is still tax deductible, but you'll have to itemize deductions to get the tax break. And since Congress nearly doubled the standard deduction in 2017(opens in a new tab), far fewer households are itemizing. If you're not itemizing, then keeping your mortgage to get the tax benefit no longer makes sense.

Even if you do itemize, bear in mind that we're talking about a tax "deduction," not a tax "credit." A tax credit reduces your taxes on a dollar-for-dollar basis, but a tax deduction eliminates just a percentage of your taxes.

Reduced income stream

If you're like most people, you're likely to have less money coming in after you retire. Will you be able to continue paying your mortgage without dipping into retirement savings? If not, it might be worth making the extra effort to pay it off before you reach your retirement age. Learn more about how to plan for retirement income.

Peace of mind

If carrying a mortgage while in retirement feels like too much of burden, then paying it off early could be the way to go. All things considered—unless the numbers make an overwhelming case for keeping your mortgage—there's something to be said for the satisfaction that comes with owning your home free and clear.

Cons: Reasons to consider keeping your mortgage into retirement

Liquidity (access to cash)

One of the biggest disadvantages to paying off a mortgage early is reduced liquidity. For example, if you need cash for an emergency, it's probably faster, easier and less expensive to access funds from your savings than it would be to refinance or sell your home.

A good rule of thumb is to set aside 6 months' worth of living expenses in an emergency fund. If paying off your mortgage early would compromise that fund, you may want to keep your mortgage until you're in a better position.

Higher interest debts

Generally speaking, a mortgage is considered to be a "good debt." It probably makes better financial sense to pay down higher interest debt—such as auto loans, personal loans and credit cards—before turning your attention to an early mortgage payoff.

Retirement savings deficit

Consider whether paying off your mortgage will put a big dent in your retirement savings. For example, if the payoff requires you to reduce or stop contributing to your 401(k) or IRA, it may cost you in the long run, particularly if you have a mortgage with a relatively low interest rate.

Your money could probably make a bigger difference if you put it toward retirement savings, especially if your employer matches your contributions. Take a close look at your investment opportunities: If the projected rate of return is higher than your mortgage interest rate, you might be better off investing that money.

The bottom line

If you're financially sound with ample retirement savings—and if the thought of owning your home outright resonates with you—consider retiring your mortgage before retiring from the workplace.

On the other hand, if you're short on cash reserves, low on retirement savings or have higher interest debts, then you might be better off keeping your mortgage into retirement.

Either way, it's probably a good idea to seek the advice of a personal financial planner to explore all your options, including the ways your decision would impact the rest of your retirement strategy.

Could your financial plan use a tune-up?

Our advisors will work with you to create a solid plan for reaching your short- and long-term financial goals.

Related topics

3 Ways to Become Debt-Free Before You Retire  (Article)

Find out how to make a plan to pay off your loans before you leave the workforce.

30-Somethings: Now's the Perfect Time to Think About Retirement  (Article)

It's worth your time to find ways to start saving now.

Am I Saving Enough for Retirement?  (Article)

Life is unpredictable, and even the best-laid retirement plans can be thrown off track. Avoid these common financial pitfalls and increase your chances for a secure retirement.

How Can I Minimize Taxes in Retirement?  (Article)

With the right strategies, it’s possible to defer, reduce and even avoid certain taxes and penalties in retirement.

The information provided is not intended to be legal, tax, or financial advice. BB&T hopes you find this information useful but we cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided to assist you in estimating the approximate costs associated with any bank activity. Your actual costs may vary. You should consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.

Branch Banking and Trust Company, Member FDIC.