While many retirees aim to be mortgage-free, a significant and growing portion carries debt, with estimates suggesting around 60-70% of retirees have paid off their mortgages, meaning roughly 30-40% still have mortgage debt, a figure that has increased over the decades due to longer lifespans, rising home values, and delayed retirement.
In particular, only 37% of retirees do not have any debt, according to an Employee Benefit Research Institute (EBRI) study. 1 While that is not always a bad thing—some debt, like a low-interest mortgage, can be financially advantageous—that still leaves many people struggling in retirement.
Mortgages make up about 70% of household balances. Conventional wisdom has long recommended that homeowners pay off their mortgage before retiring. Yet over the past three decades, more older adults are carrying their mortgage into retirement, while the amount owed has increased dramatically.
In fact, according to Census Bureau data, nearly 40% of Americans already have. But are you really better off paying off your home mortgage, or are there strategies you can employ to put yourself ahead even more?
The average age to pay off a mortgage in the U.S. is around 62, with many becoming mortgage-free in their early 60s, coinciding with or just after typical retirement age, though figures vary by source. While some financial experts suggest paying it off by 45 for aggressive investing, data shows a significant portion of homeowners, especially older ones (60+), are mortgage-free, but increasingly, older adults (60s, 70s, 80s) carry more mortgage debt than previous generations, according to Marketplace.
According to Census Bureau data, while approximately 63% of homeowners aged 65 and over have fully paid off their homes, less than 28% of working-age homeowners (under 65) have done so.
As a homeowner, your equity is your biggest advantage in today's market. If you're mortgage-free (or close to it), it could give you the power to buy your next home in cash. That means you'd still have no mortgage payment in retirement, plus: Less financial stress as you age.
Federal Reserve data shows that about 23% of Americans have no debt.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Suze Orman strongly advocates paying off your mortgage by retirement for financial freedom and peace of mind, but her advice on how varies by situation, often prioritizing a solid emergency fund and retirement savings first, especially if interest rates are low. While she pushes for paying down debt aggressively (even reducing retirement savings beyond the 401(k) match), she cautions against draining savings for low-interest mortgages if it leaves you vulnerable to job loss or emergencies, suggesting you should have a strong safety net before using savings to pay it off.
The study showed that 97.1% of Americans aged 66 to 71 have debts that are not mortgages. The most recent Federal Reserve Study of Consumer Finances was in 2022, and that showed that the average debt for older adults is between $95,000 and $172,000.
“For some people, the peace of mind that comes with being debt-free makes paying off the mortgage worth it, no matter the numbers.” Weiss says that's especially true for retirees: “Most aren't looking to take big risks with their money. So using extra funds to pay off their home is often seen as a safe 'investment.
About 40 percent of all U.S. households where the head of the household is between 35 and 64 are expected to run short of money in retirement, according to a 2019 report by the Employee Benefit Research Institute.
Myth 1: Being debt-free means being rich.
A common misconception is equating a lack of debt with wealth. Having debt simply means that you owe money to creditors. Being debt-free often indicates sound financial management, not necessarily an overflowing bank account.
If the savings rate is higher than your mortgage rate, it might be better to prioritise saving for the future. It's worth factoring in any tax you might have to pay on your savings, as this might reduce how much interest you earn.
“Paying off your mortgage early seems impossible but it is completely doable and people do it all the time, but how can you do it and why would you want to put in the extra effort? Paying off your mortgage early will rev up your wealth building.”