Is Paying off Your House the Right Move in Light of New Tax Law?
Despite what you may be hearing and reading, paying off your home may not be the right decision for you. Homeowners need to look beyond taxes and consider the impact on investments, cash flow and lifestyle.


The new tax laws enacted at the end of 2017 changed the potential tax benefits of homeownership for many. Two major changes include:
- The new rules cap the amount of state and local taxes (SALT) that can be included in your itemized deductions at $10,000. The main components of SALT that will affect most people are state income taxes and the property taxes on your home. In many areas, $10,000 in annual property taxes alone is not uncommon.
- The standard deduction has been increased to $12,000 for single filers and $24,000 for those who are married filing jointly. This means that for those whose total itemized deductions are less than these amounts, taking the standard deduction is more beneficial.
The combination of these two changes means that for many taxpayers, itemizing deductions will no longer be the best choice as the combination of the now limited SALT deduction and mortgage interest deduction will fall below the standard amount. Some advisers are now suggesting that those who can should consider paying off their mortgages.
As a financial adviser, my answer to whether a client should pay off his or her mortgage depends upon the individual’s situation. This is not just a tax decision; considerations go well beyond that. Here are a few things to think about when evaluating your unique situation.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Emotional versus financial issues
Our homes are more than just a financial asset. This is the place where we live our lives, where our family memories are made.
For most people, having paid off the mortgage by retirement is a good idea. Not having a mortgage payment during retirement can make your retirement savings, Social Security, pension and other retirement assets go further.
Many retirees want to downsize at this stage of life. Ideally, they will sell their home, and use the proceeds to fund a substantial down payment or to pay cash for a smaller home with some money left over to add to their nest egg.
For those still accumulating assets for retirement, however, the sense of security of living in a paid-off home should be weighed against whether paying off your mortgage is the best use of this money.
Trading liquid assets for illiquid assets
Eliminating a mortgage payment can be attractive. Who wouldn’t want to get rid of a sizable monthly outlay? While a home is many things, it is still an investment.
Taking $100,000 or $200,000 or more and paying off your mortgage is an investment decision. By doing this you are saying the best use of this money is tying it up in your home, which is an illiquid investment.
Before you do this, ask yourself:
- Might I have a need for this money over the next few years? If it is tied up in a home, accessing it will be difficult at best. Before you pay off your mortgage be sure that you have sufficient liquid assets to meet any anticipated or unexpected expenses.
- Will paying off your house offer the best return on this investment? Would you be better off taking this lump sum and investing it elsewhere, perhaps in a diversified portfolio tailored to your unique situation?
Over the 23 years ending in 2016, the compound annual growth rate (CAGR) for stocks was 9.66%. This compares to 3.81% for home prices nationally over the same period. This is not a uniform rate and price appreciation varied, but returns on homes still paled in comparison to the returns on equities.
Housing prices don’t always go up
While housing prices have been strong in many areas of the country this year, that has not always been the case. In some areas housing prices still haven’t recovered since the housing bubble burst a decade ago. Ask yourself, will taking liquid assets and paying off the mortgage balance provide a better return on investment than investing those funds elsewhere?
What’s the right decision for me?
Everyone’s situation is different. While the security of a paid-off mortgage can be tempting, it should be weighed against other uses for the money. These might include other investments or simply having a sufficient emergency fund.
As with most issues, tax considerations are not the only driver of this critical financial decision. Financial decisions are complex and should almost never be determined by just one factor.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

I'm the CEO of Better Money Decisions (B$D) and co-author of the blog Better Financial Decisions. As a principal of B$D, I'm excited to continue my long career as an investment professional. Living and working in places as diverse as Saudi Arabia and Budapest, Hungary, has given me a unique perspective on the world of investing. My book, "Bozos, Monsters and Whiz-Bangs: Bad Advice from Financial Advisors and How to Avoid It!" is an insider's guide to finding the right adviser.
-
Stock Market Today: Another Quarter, More Mixed Price Action
"Up and to the right" remains the general trend despite persistent uncertainty around critical policy issues.
-
Over 100k Medicare Accounts Breached in Latest Hack: Was Yours One?
Letters are going out to 103,000 Medicare beneficiaries who may have been impacted. Here's how to protect your identity and benefits.
-
Why Homeowners Should Beware of Tangled Titles
If you're planning to pass down property to your heirs, a 'tangled title' can complicate things. The good news is it can be avoided. Here's how.
-
A Cautionary Tale: Why Older Adults Should Think Twice About Being Landlords
Becoming a landlord late in life can be a risky venture because of potential health issues, cognitive challenges and susceptibility to financial exploitation.
-
Home Equity Evolution: A Fresh Approach to Funding Life's Biggest Needs
Homeowners leverage their home equity through various strategies, such as HELOCs or reverse mortgages. A newer option: Shared equity models. How do those work, and what are the pros and cons?
-
Eight Tips From a Financial Caddie: How to Keep Your Retirement on the Fairway
Think of your financial adviser as a golf caddie — giving you the advice you need to nail the retirement course, avoiding financial bunkers and bogeys.
-
Just Sold Your Business? Avoid These Five Hasty Moves
If you've exited your business, financial advice is likely to be flooding in from all quarters. But wait until the dust settles before making any big moves.
-
You Were Planning to Retire This Year: Should You Go Ahead?
If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get It
The Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning Playbook
Consider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.