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On the Oct. 13 episode of “The Ramsey Show,” a caller from Detroit said he owes about $420,000 on his mortgage at 5% and has enough money to pay it off. (1)
Dave Ramsey sided with paying it off. “And so that data tells me that that’s the way to go,” he said. (1)
His reasoning: “The data tells us that people who have paid off homes build more wealth than people who don’t,” he said, pointing to a study in which “we studied 10,167 millionaires.” (1)
How many of them said they got rich by keeping a mortgage and investing the money instead? None of them, he said — “precisely zero.” (1)
I’ve been a CPA since 1981, so let me referee this one. For a lot of retirees, Ramsey lands in the right place. But today’s numbers matter, and how you pay off the house matters as much as whether you do.
Some context: The average 30-year fixed mortgage rate was 7.40% as of Oct. 15, according to Freddie Mac. (2)
The one-year Treasury yield was 4.49% that same day, according to the St. Louis Fed. (3) And most taxpayers don’t itemize: in 2022, just 9.5% of returns did, according to the IRS. (4)
Here are 5 things to check before you write that big check.
1. Compare your mortgage rate with what safe money pays
Here’s how I look at it: Paying off a mortgage is like earning a guaranteed return equal to your mortgage rate. For the caller, that’s 5%.
Now compare that with a safe alternative. On $420,000, a 4.49% one-year Treasury yield would earn about $18,858 a year before taxes. (3) The 5% mortgage costs a little under $21,000 in interest in the first year, and a little less each year after that as the balance falls.
So at today’s rates, paying off a 5% loan can beat parking the same money somewhere safe. If your mortgage rate is 3%, the math flips. Know your rate before you decide.
2. The mortgage-interest deduction probably isn’t saving you anything
People often keep a mortgage for the tax break. But you get that break only if you itemize. (9)
For 2026, the standard deduction for married couples filing jointly is $32,200, according to the IRS. (5) A retired couple with a modest mortgage balance may not have enough deductions to beat that. If you take the standard deduction, your mortgage interest saves you $0 in federal income taxes.
3. Don’t pay it off with IRA money in one shot
This is where retirees can make a costly mistake. If the payoff money is sitting in a traditional IRA or 401(k), every dollar you pull out can be taxed.
The IRS says distributions from a traditional IRA “are fully or partially taxable in the year of distribution.” (6) Pull out a few hundred thousand dollars in one year and you could push yourself into a much higher bracket.
There’s a second bill, too. Social Security generally uses your tax return from two years earlier to decide whether you pay higher Medicare premiums. For 2026, those surcharges apply when modified adjusted gross income tops $109,000 for individuals or $218,000 for married couples filing jointly. (7)
Quick aside — most internet financial advice comes from people who weren’t alive during the last recession. I’ve been writing about money for more than 35 years. Want rock-solid advice? Sign up for the free Money Talks Newsletter. Takes 10 seconds. No fluff. No spam.
4. Don’t drain your cash cushion
A paid-off house is wonderful. A paid-off house and no cash is a problem.
Once your money is in the house, it isn’t easy to get back out. You can borrow against it with a home equity line of credit.
But the Consumer Financial Protection Bureau warns that a lender “might also freeze your ability to take out additional funds if your financial circumstances change and your lender does not believe you will be able to make your payments.” (8)
So keep a real emergency fund after the payoff. And if you want a line of credit as a backstop, compare offers before you need the money, not after.
A home equity line of credit (HELOC) lets you tap your home’s equity to consolidate high-interest debt, fund home improvements, or cover a large expense — typically at a lower rate than credit cards or personal loans.
Money.com's home equity table lets you compare offers from multiple lenders in one place, so you can see what you may qualify for in just a couple of minutes.
5. The peace of mind is real, and it counts
Ramsey made one more point I agree with. Why pay off a house? The reason “likely has nothing to do with if the market’s going to be up or down,” he said. “It’s probably because you want some peace in your life.” (1)
No mortgage payment means lower monthly bills in retirement, and that’s worth something you won’t see on a spreadsheet.
Where the money comes from, what it does to your taxes and what you keep in reserve are the parts that trip people up. If you’re dealing with six figures, it can pay to have a professional run the numbers first, especially if you’re also looking for some investment advice.
One option: Advisor.com offers a free matching service that pairs you with a fiduciary financial advisor, legally required to put your interests first. They rigorously vet advisors based on factors such as regulatory history, assets under management, client ratios, and third-party reviews.
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To use it, you’ll fill out a short questionnaire. You’ll be asked for a phone number near the end: provide it, but you control whether and when you respond.
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My honest take
Ramsey’s conclusion is right more often than his critics admit, especially for retirees who don’t itemize and don’t need the cash.
But “pay it off” isn’t a complete plan. Pay it off with money that’s already been taxed, keep a cushion and check what it does to your Medicare premiums.
Do that, and the day you send the last payment will feel as good as Ramsey says it will. I know. I’ve been there.
Sources: 1. The Ramsey Show transcript (Podscripts); 2. Freddie Mac; 3. Federal Reserve Bank of St. Louis; 4. IRS Statistics of Income; 5. Internal Revenue Service; 6. Internal Revenue Service; 7. Social Security Administration; 8. Consumer Financial Protection Bureau; 9. Internal Revenue Service
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