We’re in our 70s with a $260K mortgage at 3% interest and $1.6 million in savings. Should we pay off our house in full?

Finance

We’re in our 70s with a $260K mortgage at 3% interest and $1.6 million in savings. Should we pay off our house in full?

answerpulse7@gmail.com

July 27, 2025

“We have a house that is valued at $525,000 with a mortgage balance of $260,000 at a rate of 3%.” (Photo subjects are models.) – MarketWatch photo illustration/iStockphoto

My wife and I are both retired. I am 77 and she is 74. We are both in good health and stay active with hiking and yoga. We have equities, bonds and cash worth $1.6 million. We get $4,500 a month from Social Security. We have a long-term care policy with an annual premium of $9,500 and I have an annuity death benefit of $330,000.

We have a house that is valued at $525,000 with a mortgage balance of $260,000 at a rate of 3%. The monthly payment for principal, interest and taxes is $1,235. It is a 30-year mortgage with about 26.5 years left on it. We use a financial institution to manage the investment portfolio and we draw $2,000 from the portfolio to pay the mortgage and other monthly bills.

I hate being in debt and I am contemplating a few options:

Regarding taxes, we have not itemized our deductions in the past several years and haven’t paid any federal income tax in the past five years and live in Nevada, which has no state income tax, so interest deduction is not a concern.

If I did option 3 our monthly portfolio withdrawal would drop to $750 a month.

A 5% return on the $260,000 I would take out of the market is uncertain. What do you think?

Debt No MoreDebt No More

Your perspective – the interest rate being real but the return on your investments being uncertain – is a very interesting take. While it is completely valid, I ask you to think beyond the rates for a moment.

For the first two options you provided, where you put $50,000 or $100,000 toward your mortgage, what do you actually gain in the short-term? You’ll still have a mortgage, and while the duration would be shorter, they both result in at least another decade (or close to two). If you hate being in debt, I’m not sure either of those will make you feel all that much better if you’re still counting down the days until you’ve paid it off.

Obviously, you’re in a good place. You’ve got a $1.6 million nest egg, income from Social Security, a long-term care insurance plan — although expensive given your age and subsequent risk factors — and a death benefit for when life gets harder. You and your wife have set yourselves up for long-term financial success.

Mathematically speaking, you could pay off your mortgage from your savings. It would obviously bring a sense of relief, but would that be temporary or permanent? That’s something you and your wife really need to figure out before jumping in. Drawing down $260,000 from your nest egg, even when it’s as much as yours, is not something you should take lightly.

A big withdrawal like that could affect how deep of a return you can get on your investments. You mentioned your monthly draw would also be reduced, which does help matters.

Of course, this is all based on being ultra-conservative. You can afford to pay off this house. You didn’t specify what portion of your savings was investments versus cash, but even if you had $1 million in your portfolio, various retirement calculators show with an assumed 5% rate of return and a $750 withdrawal every month, that money could last you more than 30 years.

The cost of living, especially healthcare, goes up every year, and the money will have to come from somewhere. Many Social Security recipients argue the cost-of-living adjustment that comes with Social Security benefits just doesn’t keep pace with the real world of spending.

It is fortunate for you that you haven’t had to pay any taxes in recent years. Depending on how your withdrawal is generated, such a sizable amount could generate a tax liability. A higher income in one year could impact future Medicare Part B and Part D premiums. An income-related monthly adjustment amount, known as IRMAA, increases premiums and is levied when individuals’ modified adjusted gross incomes exceed certain thresholds. You can learn more about that here.

Getting back to the rates for a moment. While the return on your investments may fluctuate year to year, and are sensitive to market changes and asset allocation, you have a very, very good interest rate. Right now, rates are somewhere around 6% to 7% and those who have interest rates like yours are trying to hold on to it — some people are actually trying to avoid a move so that they don’t have to pay more in interest.

It is also important to note that not all debt is bad debt. Mortgages are a neutral debt — if they’re manageable within your overall budget and they’re not hurting your ability to pay the bills every month. Credit-card debt, on the other hand, is often considered bad debt, given that cards are linked to double-digit interest rates and may be used frivolously.

Although investment returns aren’t “real” like your mortgage rate, they’re on average higher than 3%. The difference could mean your money is working harder for you and your old age.

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