Should You Carry A Mortgage Into Retirement

Although it remains the goal of many households to repay their mortgage by retirement, an increasing proportion now enters retirement with a mortgage. At the same time, households are increasingly likely to hold substantial amounts of financial assets, as a result of the growth of 401(k) and similar plans. Among households aged 60 to 69 in 2007, 41 percent had a mortgage. Of these, 51 percent had sufficient assets to repay their mortgage. These households could, if they wanted, be mortgage-free simply by selling some of their investments and mailing a check to the lender. This Issue in Brief considers whether households should use retirement or non-retirement wealth to pay down their mortgage. It first shows that it is unlikely that many retired households will be able to earn a return on risk-free investments such as bank certificates of deposit, Treasury bills, and Treasury bonds that will exceed the cost of their mortgage. Liquidity considerations aside, households holding such assets will generally be better off using them to pay down their mortgage. It then considers and (for most households) rejects the argument that households should retain their mortgage because they can earn a higher expected return in stocks and other risky assets. It concludes with practical advice for most households.