To Pay or Not to Pay

BY: ETHAN LOHR, CFP® — January, 2025 

It’s a new year, and with that often comes dusting off old goals—and creating new ones. If you’re like many people, one of those nagging goals revolves around your house. And not whether to finally repaint the living room or repave the driveway.

This one is bigger.

It’s about being debt-free—paying off that pesky mortgage.

You’ve been paying on it for 15, 20, maybe 25 years. Over that time, your wealth has grown, your balance has come down, and now you’re staring at a number that isn’t what it used to be… but also isn’t exactly pocket change. (It’s one of those balances that’s small enough to annoy you, but large enough to still matter.)

You’ve envisioned being debt-free for years. No more sending thousands of dollars to the bank every month. No more interest. Just ownership—outright.

But this decision is a weighty one.

So you start asking around. You talk to an advisor. You talk to a friend. You talk to ChatGPT—it’s okay, a lot of us do that. Each one gives you a slightly different answer. What do you do?

I’m here to give you the answer. Exactly what you’re needing to hear. It depends.

Yes, unfortunately this isn’t a radio show where I can solve financial problems for the next caller in three minutes or less. But I can share a couple of real stories—and how we ultimately landed.

Story #1 

The first involved a household that bought their current home when interest rates were much lower—around 3–4%. After upgrading their home about ten years ago and rolling equity from the previous house, their monthly mortgage payment was very manageable. 

After retiring from their first career, they were relatively young and wanted to keep working. A couple of pensions comfortably covered their bills—and then some—before even factoring in income from what we envisioned with “career 2.0.”

At the time, their mortgage balance was still several hundred thousand dollars. While their income easily supported their lifestyle, there was an underlying desire to create more margin.

They were entering a new chapter of life and wanted to reduce some of the uncertainty that naturally comes with a transition of this magnitude. Most of us feel this way during periods of change.

Paying off the mortgage would further lower their monthly expenses and add an extra layer of perceived security.

On paper, they could do it. But doing so would meaningfully deplete their liquid reserves, and rebuilding that liquidity could take significant time.

So the question became: Do they gain some peace of mind now at the cost of meaningfully altering their broader financial picture?

In this case, we decided against paying it off.

We agreed to give career 2.0 some time to unfold. Their current income already supported their lifestyle. While being debt-free sounded great, paying off the mortgage would have functioned more like a band-aid—something to soothe nerves during a season of transition rather than a decision rooted in long-term necessity.

Story #2 

Our next situation involved a household who had recently moved to their long-held retirement destination. After selling their previous home and purchasing the new one, they carried a mortgage—but this time, it looked very different. 

Instead of interest rates near historic lows, this mortgage came with a significantly higher rate.

At the same time, they were moving from paychecks and bonuses to fully creating income on their own. Even with careful planning, that transition naturally brings some angst. The good news was that we did have a plan—and their income comfortably supported their lifestyle.

They had saved and invested very well throughout their career. After building their Four Buckets, they had sufficient liquidity to pay off the mortgage if they chose to.

So, we were back to a familiar situation. Retirement was a new season and emotions were high—shouldn’t we let it play out for a bit, just like we did in the first scenario?

Given the financial landscape, we took a different approach.

With a mortgage rate around 6.5%, and a refinance opportunity likely still some time away (in my opinion), the path ahead pointed in a new direction. Paying off the mortgage would provide meaningful, immediate relief. And importantly, they were in a strong position to do so.

Cash flow would improve significantly. The psychological burden of a large, high-interest payment would disappear. But we still needed to be thoughtful.

Using retirement assets to eliminate debt has tax consequences, and how you pay it off can matter just as much as whether you do. Rather than retiring the mortgage all in one year—and triggering an unnecessary tax hit—we spread the payoff over multiple years to manage the income tax impact.

The result? A debt-free retiree, even better cash flow and a Four Buckets strategy that remained healthy and balanced.

There you have it—two anecdotal situations to help you think through your own.

As I mentioned earlier, there isn’t a one-size-fits-all answer here. Big decisions rarely lend themselves to simple solutions. They require context, tradeoffs, and a willingness to wrestle with both the numbers and the emotions involved.

And that’s why we love what we do—walking alongside our clients, asking the right questions, and navigating these life transitions together.

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