Is Retiring With a Mortgage Such a Bad Thing?

Dan rafter
Written by
Dan Rafter
Read Time: 5 minutes

Ideally, you'd retire without owing money on a mortgage, car loan or credit card.

But this retirement ideal doesn't always happen. And if you do take a monthly mortgage payment with you into retirement, is that a financial disaster?

Not necessarily, says Lee Frush, a certified financial planner with Atlanta's Cornerstone Financial. It all depends, he says, on how you feel about your home and how much income you have coming in each month during your retirement.

As Frush says, if you can afford a mortgage payment and you don't want to leave your home, carrying a mortgage with you into retirement might not be such a bad move, even if you can afford to pay off that home loan before you leave the working world behind.

"Everyone's goal should be to go into retirement without owing people any money," Frush said. "But that isn't feasible for everyone."

A forever home?

Frush points to homeowners who purchased their residences late in life, perhaps taking out a 30-year mortgage loan at the age of 50. These homeowners might still have 10 years or more of mortgage payments to make even after they retire.

Such homeowners, depending on their finances, shouldn't necessarily think of selling their home to pay off the rest of their mortgage before retirement, Frush said.

"That house might be valuable to stay in," Frush said. "If it is the owners' forever home and they can afford the mortgage payment, it makes sense to keep that mortgage."

A mortgage payment does come with a tax deduction; homeowners can deduct the amount of interest they pay each year. Even those homeowners who can afford to pay off their mortgage balance without having to sell their home might choose to keep their mortgage payment - if they can afford it, of course - to keep that deduction.

Not always wise

This isn't to say that keeping a mortgage is always the best choice. If you'll struggle to afford your payment each month, then it's certainly not a good idea to keep that loan into your retirement years. And if that monthly payment keeps you from traveling, taking up a new sport or meeting any of your other retirement goals? Then you should ditch the mortgage if possible.

Getting rid of a mortgage might not be a simple task, especially if your home has lost value since you purchased it. Usually, you could sell your home and use the proceeds to pay off your mortgage loan. But if you owe more on your home loan than what your residence is worth, this won't be possible.

And what if your home won't fetch a big enough price tag to give you enough money to fund a new place to live? You might be better off keeping that home and making your mortgage payments. If you're fortunate, you'll be able to build enough equity to make selling your home a better option.

Financial freedom

But what about those retirees with some financial freedom, those who can actually afford to pay off their mortgage loan before retirement but who wonder if they'd be better off investing that money elsewhere instead?

Dan Smith, president of PrivatePlus Mortgage in Atlanta, says that such retirees need to consider several factors before deciding whether to keep their mortgage after they leave their working years behind.

"This is a really complex issue," Smith said.

Retirees need to consider how much money they have saved, what their monthly income is now and what they expect it to be in the future. They also should consider what their expected rate of return on their money would be if they don't use it to repay their mortgage.

"While I am not giving investment advice, my general opinion is that if consumers can pay off the mortgage and still have adequate reserves and enough income to live to their inflation-adjusted standards, then, yes, pay it off," Smith said. "Why pay interest when you don't have to?"

Risky business?

Aaron Thiel, senior wealth planner with PNC Wealth Management in Sarasota, Florida, says that some retirees might choose to keep their money in investments instead of using those dollars to pay off their mortgages.

This could be a savvy financial move. But it also comes with risk, Thiel said.

"If they earn more on their investments than their mortgage interest rate, they win," Thiel said. "But if they earn less than their mortgage interest rate, they lose."

Kyle Winkfield, president of The Winkfield Group in Rockville, Maryland, says that too many people nearing retirement become entirely expense-focused. They want to spend the five or seven years before their retirements eliminating as much debt as they can, and this often means sending in extra dollars with each mortgage payment to cut down on their principal balances.

Another option: invest more

This is admirable, Winkfield says. But too often people heading into retirement forget to focus on another way to guarantee a happier retirement, boosting their incomes.

One way to do this? People can take the extra money they are sending to their lenders in an effort to pay off their home loans before retirement and invest them in safe, secure investment vehicles that will earn them compound interest, Winkfield said.

And even if retirees want to be as safe as possible, they can take the extra money that they would have sent to their lenders and deposit it in a savings account that generates little interest. Then, if an unexpected emergency happens during their retirement years, retirees have a large emergency fund that they can dip into to handle these emergencies.

"The big question becomes, is your home a good place to park your money?" Winkfield said. "If you don't think it is, keeping the mortgage payment is not a bad thing. So many people are conditioned to want to have no mortgage in retirement, but the issue is not always that clear."

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