Should You Keep Your Mortgage in Retirement?

Many of us dream of living in a paid-off home in retirement. After all, your mortgage payment is probably your largest monthly expense, and eliminating it would mean significantly more room in your budget. But there are also good arguments for keeping your mortgage! If that surprises you, keep reading to learn more about why this is sometimes a good idea.

Your mortgage rate might be lower than your investment growth rate. Mortgage rates recently bottomed out at lower than 3 percent for many of us. If you refinanced your home during this time, or could do so in the future, that interest rate could fall lower than the rate of earnings from investments. That would mean that you’re better off investing money that you would otherwise put toward aggressively paying off your mortgage.

A mortgage can be considered “good debt,” in comparison with other types of debt. If you’ve obtained a very low interest rate on your mortgage, and your home is more likely to appreciate in value than depreciate, this is considered a “good debt.” Your monthly payments, even though technically going toward a debt, are still devoted to something that is likely to grow in value.

Meanwhile, you’re able to hang onto more liquid savings or reduce debts that are not so healthy.

Mortgage interest makes a handy tax deduction. Compare the impact of claiming a standard deduction with itemized deductions. Because mortgage interest can serve as an income tax deduction for some people, it might actually help you to hang onto it.

Paying down other debts is more important. While living free of a house payment can feel great, so does living free of credit card debt. And because credit card interest rates are much higher, it’s better to focus your debt strategy on those. Car loans and personal loans usually have higher rates, too, so a mortgage will generally be your lowest priority as far as eliminating debt.

But of course, every situation is unique. As you establish your retirement goals, particularly around living debt-free, remember to consult with us regularly. We can help you evaluate the risks and rewards of any strategy, and help you save and plan for a stable retirement.