The Truth About Paying Off Your Mortgage Before You Retire (2023)

The truth about paying off your mortgage before you retire is that it’s not purely a mathematical decision.

After working with many retirees that went through this, we can see how it has genuinely changed their lives for the better.

But before you make this decision, we are going to cover the advantages, disadvantages, and what truly drives retirees to make this decision.

Paying Off Your Mortgage Before You Retire

Paying Off Your Mortgage Before You Retire in 2023

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Full transcript:


Alex Okugawa & Matt Calcagno

Alex Okugawa 0:00
The truth about paying off your mortgage before you retire is that it’s not purely a mathematical decision. And after working with many retirees and taking them through this decision process, we can see how it has genuinely changed their lives for the better. But before you make this decision, we’re going to cover the advantages, disadvantages, and what truly drives a retiree to decide if they should pay off their mortgage before heading into retirement. Hey there, it’s Alex and Matt from One Degree Advisors, and we help you gain confidence in your retirement. So, Matt, there’s been a fundamental shift in the housing and the mortgage market, right? So a couple of years ago, nearly everyone and their brother was refinancing their mortgage. And so now, a lot of homeowners are sitting on a very attractive, low-interest rate mortgage, and with their portfolios falling so far this year, a lot of people are wondering, well, do I continue to keep my low-interest rate mortgage? Because it looks really attractive? Or do I pay off the mortgage, it doesn’t look as attractive nowadays. So now we’re gonna go through the advantages, and the disadvantages, and then we’re gonna wrap up with ultimately, the main driver for why retirees make this decision.

Matthew Calcagno 1:07
Yeah, and let’s talk about two advantages that we come and see. So number one is reduced monthly expenses, you know, being debt free in retirement is pretty liberating. You know you don’t have that monthly obligation to pay your mortgage. Number two is the savings on interest payments. And let’s take a look at an example here from Ramsey. So if your current monthly payment, let’s say $1,200, and you have $75,000, remaining with a 4% interest rate. What does that look like if you decide to make a lump sum payment to pay off your mortgage? Well, overall, that’s going to look like $8,744 in interest savings, and a total time of six years without payment.

Alex Okugawa 1:50
Yeah, and that can be huge for a lot of retirees. But let’s talk about some of the disadvantages of paying off your mortgage.

Matthew Calcagno 1:56
Yeah, number one is your tax bill. And that could be the case of somebody’s taking that money from a portfolio to try to pay that lump sum, especially if you’re taking it from let’s say, a 401 K or an IRA, you might look at that balance, like oh, this is a big juicy balance. Let’s use this to pay that off. But there are going to be tax ramifications on federal taxes.

Alex Okugawa 2:15
Depending on where you live state taxes aren’t always an issue. And depending upon your age, maybe you have an additional 10% withdrawal. So those are always considerations.

Matthew Calcagno 2:23
And the second disadvantage is that most people don’t think about you’re going to lose your mortgage interest deduction. Now, this is mainly in effect in disadvantage for those people that are itemizing their deductions. Now with the tax cuts and Jobs Act, fewer people are itemizing. So that’s less of an effect. But we don’t know tax law constantly changed with change.

Alex Okugawa 2:44
And maybe that standard deduction gets lower in the future and maybe more people itemize again, you ultimately never know. So we talked about interests, we talked about taxes, we talked about living expenses. But you know, ultimately, these factors are important, but it’s not ultimately driving a retiree to make the decision.

Matthew Calcagno 3:01
Exactly. So what we’ve seen at the end of the day, and I’m going to quote Morgan Housel, again, people don’t make financial decisions on a spreadsheet, they make them at the dinner table. Right? So what truly drives this decision is how you feel. And that absolutely matters, right? So yes, understand the math of it, understand the taxes, what you might lose what you might gain. But if you feel good about it, and it ultimately leads to a higher standard of living.

Alex Okugawa 3:31
Yeah, and this is the thing is we help folks with the math side of it. I mean, we’ll show retirees their financial plan on the screen to say, here’s how your financial plan looks if you do not pay off your mortgage. And here’s how your financial plan looks. If you do pay off your mortgage, right, we can help them with the math side, we can also help facilitate some conversations and ask them questions that maybe they weren’t thinking that get them to the point of making a solid decision. Right. Anthony has talked about this time and time again, the most confident and relaxed retirees in the midst of the opioid crisis, were the people that have their mortgages paid off. So it doesn’t always come down to the numbers. But once you have that firm foundation of what do my numbers look like, then you can have the confidence to say, Okay, now that I know that now that I know what it looks like, here’s what I think is best for me and my family. But let’s say retirees are sitting on a bunch of cash right now they don’t know what to do with it. We’ve recently made a video of where folks and especially retirees should be parking their cash for a higher interest rate in this environment. Once again, this is Alex Ogawa with One Degree Advisors and if you’re a retiree and you’d like to see how we help folks to enter retirement, visit our website at

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