You've Been Warned: Paying Off Your Mortgage Before Retirement Could Cost You

A 2023 Harvard study found that older Americans still paying a mortgage have a median monthly housing cost of $1,470, compared to $520 for those without this addition. That's nearly three times the expense at a time when protecting every dollar in your investment portfolio is crucially important. This difference can be transformative for your retirement lifestyle, especially when having a mortgage payment looming over your head can be a warning sign that you aren't financially ready to retire. However, every dollar you earn and leverage in your working life must be accounted for somewhere. Everything you spend in one place loses the ability to impact your present and future elsewhere. This is why the order in which you pay back your debts can be particularly important — especially your mortgage.

By prioritizing your mortgage repayments earlier in life, you'll ultimately have less money available to invest in your retirement savings. Spending years overpaying on your mortgage — instead of maximizing early career retirement savings — can actually create a potent negative impact on your financial livelihood. The earlier you start saving for retirement, the less money you will actually need to contribute to meet your goals — thanks in large part to the power of time and market movements. Curtailing contributions to chase after a mortgage-free lifestyle can ultimately mean that you'll have to pay far more capital into your retirement accounts in order to catch up — or perhaps even settle for less than you want to due to annual contribution caps.

Two factors can be particularly important to consider when deciding how to prioritize your investments: the type of retirement savings accounts you have and your mortgage's interest rate. If you're a Roth saver, you've likely built up a significant volume of capital that will become tax-free income when you cross the retirement threshold. That means that paying off the remainder of your mortgage with tax-free growth dollars can actually make your net expenses more favorable. This is especially true if you still have a sizable amount left to pay off on the loan when you retire.

This is where interest rates come in. On average, buyers in the market in 2025 will be hammered with around a 6.27% rate, according to Bankrate. On the other hand, FRED data pegs the lowest rates over the preceding 50-plus years at just under 2.7% in 2020, while rates in the 2010s bottomed out in the mid-3% range. This means many older buyers will likely have either refinanced to lower costs already or simply had access to more favorable rates when they first purchased. In these cases, there's really no good reason to aggressively pay off a loan sporting a 3% interest rate when other financial approaches can provide greater leverage. This is especially true if you have high interest debts elsewhere. The cost to keep your mortgage for its full term — even if that means into retirement — might ultimately be minimal enough to make your money more advantageous elsewhere.