Retiring With a Mortgage: The Real-Life Pros and Cons I Discovered
August 11, 2025
6 min read
There’s a quiet moment that hits you when you’re close to retirement — you start looking less at your career milestones and more at your balance sheets. For me, it was a winter afternoon with a cup of tea in hand, flipping through a spreadsheet that had my future sketched out in numbers. The savings were there, the pension was modest but steady, and the investments had grown. But in the “expenses” column sat a line I’d once assumed would be gone by this age: mortgage payment.
It wasn’t small enough to ignore, and it wasn’t large enough to panic over. But it was there. And suddenly, I realized I was about to join a growing group of retirees carrying home loans into their post-working years.
If you’re picturing this as unusual, it’s not. According to data from the Federal Reserve, the share of homeowners aged 65 and older with a mortgage has more than doubled since the late 1980s. People are living longer, buying later, refinancing more often, and, in some cases, choosing to keep the mortgage intentionally.
I didn’t come to my decision lightly—in fact, I went through every possible pro and con before deciding how to handle my own situation. Here’s what I learned along the way.
Why More People Are Retiring With a Mortgage
A generation or two ago, my grandfather’s financial mantra was, “Burn the mortgage before you burn the candles for your retirement cake.” For him, paying off the house was the ultimate security.
But today’s retirees are navigating a different economic landscape:
- Higher home prices mean larger mortgages that take longer to pay off.
- Low interest rates in the 2010s made refinancing attractive, even if it extended the loan term.
- Late-life moves — downsizing, relocating, or buying a vacation property—often mean taking on new debt close to retirement.
In other words, carrying a mortgage into your 60s or 70s is no longer a rare financial misstep—it’s often the result of deliberate trade-offs.
The Pros of Retiring With a Mortgage
When I first made a list of the positives, I was surprised there were more than I expected. Not all of them applied to my situation, but here’s what’s worth noting.
1. Liquidity Preservation
Paying off a mortgage early often requires pulling a large sum from savings or investments. In retirement, having liquidity—cash or easily accessible funds—can be more valuable than having a fully paid-off home. It gives you flexibility for emergencies, travel, health costs, or opportunities.
If your mortgage rate is low and your investments are earning more, the math can favor keeping the loan and letting your money work elsewhere.
2. Potential Tax Deduction
While the 2017 Tax Cuts and Jobs Act reduced the number of people who itemize deductions, some retirees with high enough mortgage interest and other deductions may still benefit. The ability to deduct mortgage interest can help offset taxable income from pensions, Social Security (if taxable in your state), or retirement account withdrawals.
3. Low-Cost Leverage
This one sounds like finance-speak, but it’s straightforward: if your mortgage rate is significantly lower than the return you could earn from investments, you’re effectively borrowing at a discount. For example, if your loan costs 3% annually but your portfolio averages 6%, you’re ahead—as long as you’re comfortable with the risk and fluctuations.
4. Housing Stability Without Downsizing
Keeping your mortgage might mean you get to stay in the home you love — the garden you’ve tended for years, the kitchen that finally has enough counter space. Selling to pay off debt could mean sacrificing more than just a payment; it might mean losing the community and comfort you’ve built.
The Cons of Retiring With a Mortgage
Of course, there’s the flip side—and it’s not to be ignored. This is where my spreadsheet had more red flags.
1. Fixed Expense Pressure
Every dollar that goes to a mortgage in retirement is a dollar that can’t go to discretionary spending. If your income is fixed, that monthly payment can feel heavier over time, especially as other costs rise with inflation.
2. Risk in Market Downturns
If part of your mortgage plan depends on investment returns, a market downturn could leave you scrambling to make payments from a diminished portfolio. Retirees have less time to recover from market losses than younger investors.
3. Reduced Flexibility for Care or Relocation
If health changes force you to move, whether into a smaller home, assisted living, or closer to family, having a mortgage can complicate the sale or timing. It also impacts how much equity you can access in an emergency.
4. Psychological Weight
For some, the emotional burden of debt in retirement outweighs any mathematical advantage. If seeing that monthly payment drains your peace of mind, it’s a real cost — even if your financials say you can afford it.
My Decision-Making Process
When I evaluated my own situation, I started with three key questions:
- Could I comfortably make the payments from guaranteed income?
- Would paying off the loan early significantly deplete my liquidity?
- How important was it to me emotionally to own my home outright?
For me, the answer to the first was “yes,” the second was “yes,” and the third… a hesitant “no.” I realized my sense of security came more from a well-padded savings account than from a debt-free deed.
That’s not to say the choice was easy, but it was clearer once I saw the trade-offs in black and white.
Running the Numbers
Here’s a quick example, simplified for clarity:
- Remaining mortgage balance: $120,000 at 3.5% interest, 12 years left
- Available savings: $300,000 in a balanced portfolio averaging 5% annual return
Paying off the mortgage would save around $26,000 in interest over the remaining term. But leaving the $120,000 invested, assuming average returns, could potentially grow to over $216,000 in the same period — even after making the mortgage payments from portfolio withdrawals.
The gap isn’t guaranteed (markets fluctuate), but it highlights why some retirees choose to keep the mortgage and let investments work.
The Middle-Ground Options
Not every decision is all-or-nothing. Some retirees:
- Make extra payments to shorten the term without draining savings.
- Refinance into a shorter term if rates allow, aligning payoff with a target date.
- Use a partial lump sum to reduce the balance and payments without fully paying it off.
These strategies can reduce risk while preserving flexibility.
How Risk Tolerance Plays a Role
In finance, risk tolerance isn’t just about investments—it’s about your comfort with uncertainty. Retiring with a mortgage inherently means committing to a fixed payment. If your income sources are stable and predictable, you might sleep well with that arrangement. If they’re variable, the stress can outweigh the benefits.
This is where personal temperament meets financial math.
Considering the “What-Ifs”
I like to test any retirement plan against a few hypothetical scenarios:
- What if interest rates rise? (If you have a variable-rate loan)
- What if the market drops 20% in year two of retirement?
- What if your health changes and you need expensive care?
If the plan holds up under those pressures, you can feel more confident in your decision.
Insider’s Edge
If you’re unsure, run two budgets—one with the mortgage paid off and one without. Live by the “no mortgage” budget for six months. The experience will tell you more than a spreadsheet ever could.
Final Thoughts
Retiring with a mortgage is neither a universal mistake nor a guaranteed smart move. It’s a deeply personal decision shaped by numbers, lifestyle, health, and temperament.
My grandfather’s advice still has merit: there’s undeniable peace in owning your home outright. But times—and financial tools—have changed. For some, keeping the mortgage is the strategic move that frees up capital, preserves flexibility, and even supports long-term wealth. For others, it’s an anchor they’d rather lift before stepping onto the retirement deck.
The key is knowing which camp you fall into before you collect your last paycheck. And that’s something only you, your numbers, and your peace of mind can decide.
