Richard GoldsteinRichard Goldstein

During the course of the year, I always get a few questions regarding whether paying off your mortgage makes financial sense.

Fewer Americans are paying off their mortgage before they retire. A Fannie Mae study found that less than 50 percent of homeowners age 65 to 69 were mortgage-free in 2015, down 10 percent from 2000. Despite the shift, you’ll probably come out ahead by eliminating your mortgage before you stop working. For starters, you’ll have a bigger cushion for other expenses that are often harder to predict, such as healthcare.

It’s a good idea if …

When your mortgage is gone, you probably can reduce the amount you withdraw from your retirement accounts each month to cover living expenses. That’s a benefit when and if financial markets decline, because you won’t need to sell as many retirement investments that have dropped in value.

In addition, there’s the psychological benefit of knowing you’re free of this expense. If you’re like many people, your mortgage is your largest monthly bill.

What about itemizing …

One of the reasons often given for hanging onto a mortgage is the ability to deduct from your taxable income. But the 2017 Job Cuts and Jobs Act nearly doubled the standard deduction to $12,000 for single filers and $24,000 for joint filers. Even with a mortgage, you might not have enough total deductions to making itemizing worthwhile. Note, charitable donations and state and local taxes can be the tie-breaker here. If you have a $10,000 state and local income tax deduction and contribute $5,000 to charity, you will still end up using the standard deduction if a joint return is filed.

Some argue you can use the money you would put toward your mortgage to make other investments that may earn a higher return. But because almost all investments fluctuate in value, paying off your mortgage is likely to offer a more riskless return.

It doesn’t make sense when …

Although entering retirement mortgage-free can be a sensible move for many people, it’s not right for everyone. If you have credit card or other debt that carries a higher interest rate, you’ll want to whittle down those balances first. If you haven’t adequately funded your retirement accounts, you should do everything you can to boost those savings.

Also, liquidating a large portion of your investments to pay off your mortgage might leave you “house poor,” with much of your wealth tied to your home and not easily accessible in an emergency.

There might be penalties …

Before paying off your mortgage, check to insure there’s no prepayment penalty. The Dodd-Frank Act of 2010 limited lender’s ability to impose penalties on many mortgages, but it still makes sense to confirm this. Also, check that your lender will apply the extra payments to your principal, rather than to interest. This will help you pay off your mortgage as quickly as possible.

If you’re unsure of paying off your mortgage, your CPA can offer guidance.

Something extra

If you haven’t already checked the latest social security changes, this is what you need to know.

Based on the increase in the Consumer Price Index—from the third quarter of 2018 through the third quarter of 2019—Social Security and Supplemental Income beneficiaries will receive a 1.6 percent COLA for 2020. The tax rate for 2020 remain the same as 2019: employee 7.65 percent and self-employed 15.30 percent. The maximum taxable earnings for 2020 has increase to $137,700 from $132,900.


Richard Goldstein is a partner at Buchbinder Tunick & Company LLP, New York, Certified Public Accountants.