The number of Americans retiring while still having to pay off a mortgage has increased in recent decades:

In 1989, just 26.4% of all households were retired with a mortgage, according to data from the Federal Reserve’s Survey of Consumer Finances. That jumped to 46.5% by 2007, before receding a bit during the recession.

These stats trouble traditionalists, who view owing money on a house in retirement as heresy. After all, paying off a mortgage brings peace of mind, because you know your living expenses have been cut and that your home equity offers a sturdy safety net.

Yet clinging to a mortgage in retirement has benefits too, especially with the average 30-year fixed-rate mortgage running at just 3.5%. You might be better off keeping the mortgage and investing the money elsewhere, which amounts to borrowing at a tax-deductible 3.5% in order to start a business, invest in stocks, or purchase an income property. Over time, such investments should provide superior returns.

This new calculus assumes that you have the means to pay off your mortgage in the first place. Many folks have been downsized into retirement prematurely and may still hold a mortgage because they can’t do anything about it. But for those with a choice, the basic rule of thumb: If you expect to earn more after tax on your investments than you pay after tax on your mortgage, keep the mortgage. However, if you are a conservative investor and keep your money in bank CDs and Treasury bonds, it is probably better to pay off the housing debt.

I imagine most of these Americans who have retired with a mortgage would say they don’t like having a mortgage at retirement. But, they likely have some say in this: they could wait longer to retire to help pay off their mortgage.

What is behind this? It could be a number of reasons. Perhaps Americans moving around more at later ages, leading to more mortgages near retirement age in the first place. Perhaps this is the result of economic issues – people are not as able to pay off mortgages. Homeownership rates haven’t changed all that much since 1989, roughly 2% point difference in recent years (Table 14 here), so something is happening with the nature of mortgages or the age at which mortgages are started.