The Answer Might Surprise You
by Owen Malcolm, CFP®, from Apollon Peachtree Corners Key Takeaways:
- First, it’s important to consider how this choice could affect you on a personal level.
- Entering retirement debt-free can be a positive psychological boost.
- Paying off a mortgage early can provide a return in the form of the interest payments you’re no longer making.
- After paying off a mortgage, you can use a HELOC as a backup liquidity source.
- The math favors keeping low-rate debt if you consistently earn higher returns elsewhere.
As our clients approach retirement, they often wonder if paying off their mortgage before entering the next phase of life is worthwhile. While there are many financial reasons why this can be a wise decision, the choice also comes down to the psychology of debt. Whether you’re considering paying off your primary residence or that lake house you’ve enjoyed for years, this decision isn’t as simple as running the numbers.
Beyond Just Numbers: The Psychology of Early Debt Repayment
Before we even think about the math of how paying off a mortgage early would affect your finances, it’s important to take a step back and look at how this choice could affect you on a personal level.
Even if you have solid retirement savings, being debt-free can alleviate the stress and anxiety of debt. In my experience with hundreds of clients who’ve paid their mortgage off early, I haven’t encountered anyone who regretted it. Not one. Even in cases where their investment portfolio might have performed better had they kept the mortgage and invested elsewhere, the psychological benefits have consistently outweighed any potential financial opportunity cost.
This isn’t to say that everyone should pay their mortgage early; just that those who make this decision tend to feel relief afterward.
Why Consider Paying Off Your Mortgage
Paying off debt provides a guaranteed, risk-free return in the form of the interest payments you’re no longer making. For instance, if you have a 5% mortgage, paying it off today is equivalent to earning a guaranteed 5% return on your money (since you’re no longer paying that interest).
Some people might point out that paying off your mortgage will no longer allow you to deduct your interest payments, but the truth is, very few people itemize their deductions. Since the 2017 TCJA tax bill, and even more with the new 2025 OBBBA tax bill, more and more taxpayers take the enlarged standard deduction rather than itemizing. Without that tax benefit, you have fewer reasons to keep your mortgage in retirement.
When Keeping Your Mortgage Might Be Better
Suppose you locked in a mortgage rate in 2021 when rates were 3% or lower. In that case, you may earn a better return in your investment portfolio than your interest payments, increasing the opportunity cost of paying off your mortgage. You also may want to keep your mortgage if paying it off would wipe out your cash reserves and leave you with little liquidity. Doing so could put you in a risky position if you encounter unexpected expenses before retirement, when withdrawing from your retirement accounts could induce a penalty.
Finally, if you itemize deductions and can deduct mortgage interest payments, those tax advantages may support keeping your mortgage, particularly when you have a favorable interest rate that enables greater wealth growth through your investment portfolio.
Using a HELOC to Help Preserve Liquidity
If you want to pay off your mortgage but are worried about having enough liquidity to cover future expenses, a home equity line of credit (HELOC) may help. A HELOC is a revolving line of credit that uses your home as collateral. You can open a HELOC and access funds as needed, without submitting a new loan application each time you draw funds.
This strategy allows you to pay off your mortgage and eliminate monthly payments while maintaining access to your home’s equity when unexpected expenses arise. Keep in mind that HELOC interest rates are usually variable and may be higher than your current mortgage rate, so this strategy works best when you only draw on the line of credit when needed rather than carrying a permanent balance.
Other Factors to Consider
Aside from your interest rate and the psychological benefits of being debt-free, here are other factors you should consider when paying off your mortgage early:
- Tax status: The only way to benefit from the mortgage interest deduction is if you’re itemizing deductions (which most individuals don’t).
- Source of funds: We rarely recommend tapping into retirement accounts to pay off a mortgage. A taxable withdrawal from a retirement account changes the math entirely, even if you have the funds available.
- Cash reserves: It could be risky if paying off your mortgage completely wipes out your emergency fund or non- retirement cash reserves. Maintain adequate liquidity to pay for unexpected expenses.
- Time horizon: If you have more time before retirement, you may earn more in your portfolio than your mortgage rate.
- Future plans: Paying off a mortgage early is usually less beneficial if you plan to sell within a few years.
The Decision at a Glance
| Pay off your mortgage | Keep your mortgage | |
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| Benefits |
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| Considerations |
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Aligning Your Mortgage Decision with Your Goals
We often recommend treating mortgage payoff as a goal-setting exercise. At Apollon Peachtree Corners, we tell clients that if they want to explore paying off a mortgage early, we can perform a cash flow analysis to determine the financial implications of accelerating payments.
While the financial analysis is essential, I’ve learned that for many clients, the choice comes down to what allows them to sleep better at night. If you’re worried about carrying debt into retirement, the psychological benefits of paying off your mortgage often outweigh the potential financial gains from keeping it.
Ultimately, your decision should align with your financial goals, risk tolerance, and personal comfort level as you transition into retirement. That’s why, at Apollon Peachtree Corners, we help our clients discuss all the factors to determine what every choice means financially and for their overall well-being.
If you’re considering paying off your mortgage before retirement, we’d love to help you think through all the factors and create a plan that gives you confidence. Schedule your Retirement De-Stress Starter here. You can also connect with our team here on LinkedIn to begin the conversation.
Apollon Wealth Management, LLC (“Apollon”) provides advice and make recommendations based on the specific needs and circumstances of each client. The information contained herein is intended for information purposes only and should not be considered investment advice. Market performance information and projections have been provided by third- party sources and, although believed to be reliable, have not been independently verified and its accuracy or completeness cannot be guaranteed. Any opinions, projections, forecasts, and forward-looking statements presented herein are valid as on the date of this document and are subject to change. Past performance is no guarantee of future performance. Please contact your financial advisor with questions about your specific needs and circumstances.
