The median retirement age in the United States was 62 in 2019, and the U.S. Census Bureau estimates that 10,000 people are retiring each day. By 2030, the bureau predicts, 1 in 5 Americans will be of retirement age.

Of course, retirement means a reduction in income. That means a lot of people are deciding what kind of housing expenses they can handle when they stop working, and even more people will have to make that decision in the coming years. Traditionally, part of one’s “golden years” has been living in a house with no mortgage. Having no mortgage payment sounds great, of course, as it’s typically a household’s largest monthly expense.

But paying off a mortgage before retirement doesn’t ALWAYS make financial sense. Here are some reasons to consider continuing to make mortgage payments even in retirement.

A man holding open an empty wallet

1. Higher-interest debt

It might feel good to get out from under your largest monthly expense, your home, but if you have other, higher-interest debt, it’s prudent to pay that off first.

For example, your $1,500-a-month house payment may seem like a big expense. But if the interest rate on your home loan is, say, 4 percent, and you’re making monthly payments on a credit card balance at 10 percent, the credit card is actually more expensive. It makes more sense to use the money you were going to use to pay off the mortgage to pay off high-interest debt first.

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2. Opportunity cost

Similar to higher-interest debt, higher rates of return on your investments also play a role in deciding whether to pay off your mortgage.

For instance, if you are paying 4 percent interest on your mortgage and are earning, say, 8 percent on money in an investment account, the sound financial advice would be to not use that money to pay off your mortgage.

Again, the temptation to take down your biggest monthly expense will be great, but if your money is making more for you than you’re paying in interest, you’ll be better of in the long run if you let it keep compounding.

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3. Robbing Peter to pay Paul

Financial planners would also tell you it’s unwise to use money in an emergency or “rainy day” fund to pay off a mortgage unless what remains is more than enough to cover unexpected expenses that come up.

Think about the retired couple who drains their bank account to eliminate their mortgage payment, then have to take out a home equity loan to replace a roof or all their windows. It kind of defeats the purpose of eliminating housing-related debt.

Stacks of money

4. You’re going to sell soon

Another common practice of retirees is to downsize their homes. If you’re going to move soon anyway, it might not be a great idea to pay off your mortgage unless you’re paying a very high rate of interest.

You could use the money instead as a down payment on your next home. You could use it to pay moving expenses or a real estate agent’s commission when you sell. Even if you don’t have a great-performing investment account and have a stocked rainy-day fund, giving up a large lump sum to save a couple of years of low-interest house payments might not be worth it.

Paying off a mortgage is something that feels good. People who are determined enough to be debt-free in retirement will do it no matter what. But keeping a mortgage in retirement can be a sound financial decision for some.

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