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Created: September 24, 2020
Modified: May 14, 2024

Episode 18: Should I Pay Off My Mortgage Before Retirement?

Thank you for joining us for Episode 18 of our Money Wisdom Question Series, where we film answers to common financial and retirement investment questions. Today’s question is, “Should I pay off my mortgage before retirement or carry the payments into it?”

Having a Mortgage in Retirement

A lot of analysis can be done if you’re in this situation. If you can get a decent mortgage rate it probably makes sense to have that mortgage in retirement. If you have a low enough rate and it’s fixed, instead of paying off that mortgage you can take your money and do something else with it. You can take that money and invest or spend it. Another option is to use that money for additional retirement income. By choosing to have a monthly mortgage payment, it allows you to have control over the cash instead of paying off the debt and giving it back to the bank.

Not Having a Mortgage in Retirement

Now, the other side of that is people asking why would someone want to have any debt in retirement? People, sometimes depending on what generation they grew up in, want to get out of debt as quickly as possible and don’t want to owe any money to anyone. Their idea of having a mortgage in retirement if they don’t have to doesn’t make sense to them.

In some scenarios, it makes sense to carry a mortgage in retirement, invest the difference. You pay 4% interest and its tax-deductible. Maybe you make 6% interest. There’s a spread in there. It’s how banks make all the money that they make on an interest rate spread. It costs them less than what they can make on their money. We could have this whole long intellectual argument, but for some of you, it just makes sense to have no debt in retirement.

The Decision is Yours

This is an individual decision and some financial planners really get this wrong because they tried to appeal to the logical side of this argument when in reality we are emotional creatures. We need to have peace of mind and feel good.

Everyone needs to enjoy their retirement and for some people, that means paying off that mortgage. For others, it means I want to have control over that money that I would have given to the bank. I don’t mind making a monthly payment to the bank that way I have the cash to do something else with it, whether that’s spending or investing it.

The decision is yours. It’s a tough question to answer without knowing someone individually.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, you’ll love this podcast episode where I talk about a similar subject.

P.P.S. Feel free to submit questions here for a chance to have them answered!

Information presented in our podcasts is considered current as of the created date. Over time, some information presented may become stale. We recommend you consult with your Financial Professional before making any changes based on information contained here.

Johnson Brunetti is a marketing name for the businesses of JB Capital and JN Financial.

Investment Advisory Services offered through JB Capital, LLC. Insurance Products offered through JN Financial, LLC.

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