3 Reasons Not to Pay Off a Mortgage Before Retirement

Many seniors aim to kick off retirement without housing debt, but here's why you may want to go a different route.

Many people buy homes in their 20s, 30s, and 40s and have their mortgages paid off well ahead of retirement. But if you bought a home later in life -- say, in your 40s or 50s -- paying your mortgage off ahead of retirement could mean having to sink extra money into that loan on top of your monthly payments. And while that's a route you may choose to take, here are a few reasons why it could make sense not to pay off your mortgage before your career comes to an end.

1. You have other debts to pay off

Retiring without a mortgage could make your senior years a lot less stressful. Once you retire, you may have a lower income than what you earned during your working years. So not having another debt payment to make could buy you more flexibility. That said, if you're also carrying unhealthy debt, like a balance on some credit cards, then it makes sense to put your mortgage payoff on the back burner and instead focus on whittling your credit card debt down.

Mortgage debt is considered the good kind to have, and as long as you keep up with your monthly payments, it won't hurt your credit score. On the other hand, credit card debt can damage your credit score -- or at least too much of it can. But also, credit cards tend to charge more interest than what you'll pay on a mortgage, so it makes more sense to focus on credit card debt first. Plus, the interest on a mortgage is tax deductible. You can't take a deduction for the interest you pay on a credit card.

2. You have little savings

Borrowing money to pay for a home is an affordable option. After all, that's what mortgages are for. That isn't the case with borrowing money to live on. You're going to need retirement savings once you're no longer working to supplement your Social Security benefits. If you're behind on those savings, then it pays to first work on boosting your IRA balance before you even think about paying off your home loan early. If you retire with inadequate savings, you could wind up struggling immensely as a senior.

3. You can refinance to a super low rate

Today's mortgage refinance rates are sitting near record lows. If you're nearing retirement and haven't yet paid off your home, rather than stress out trying to pump extra money into your mortgage at the expense of other things, it could pay to refinance your home loan instead. In doing so, you could lower your monthly payments substantially, thereby making them a lot easier to keep up with during retirement.

Furthermore, refinancing won't necessarily mean setting the clock back on your mortgage. Say you're 18 years into paying off a 30-year loan. That leaves you with 12 years of payments. You may be hesitant to get a 15-year mortgage, or, worse yet, another 30-year mortgage that would leave you with housing payments into your 70s or 80s. But some lenders will write custom mortgage terms. That way, if you have 12 years left on your loan, you may be able to refinance to a 12-year mortgage at a better rate than what you're currently paying. That way, you stick to your repayment schedule, and only your monthly bills will shrink.

Paying off a mortgage before retirement is a goal many people strive for. But in some cases, you're better off using that money to pad your long-term savings or pay down costlier, less healthy debt. Think about your personal circumstances before you start putting extra cash into your mortgage because it may make sense to carry that loan into retirement after all.