Q. Should I use a retirement account to pay off a HELOC (Mortgage)? I’m a retired school teacher currently collecting my pension. I am also collecting Social Security Survivor benefits from my wife’s passing. I also have a decent amount of money saved in my 403(b) from years of saving when I was employed. I own my home and have a mortgage with an interest rate below 4%, but I also have a second mortgage that is an interest-only HELOC that I pay more than 6% on. Should I withdraw money from my 403(b) to pay off the second mortgage?
— Unsure
A. The answer is probably in the numbers.
And that goes beyond the interest rates.
While making decisions about paying down a mortgage from an investment account, at a basic level, you need to consider the opportunity cost of your decision and your comfort level between the alternatives, Deva Panambur, a fee-only planner with Sarsi, LLC in West New York.
“Compare the after-tax cost of your mortgage interest with the expected after-tax return of your investment account,” he said.
Interest on a home equity line of credit (HELOC) is tax deductible depending on what the funds were used for, he said.
Withdrawals from a traditional 403(b) — assuming it is a traditional and not a Roth 403(b) — incur ordinary income tax rates, he said.
“Figuring out your tax rate is not as straightforward as looking at the tax brackets,” Panambur said. “For example, if withdrawals from the traditional 403(b) results in your social security income being taxed, then your actual tax rate on incremental taxable income could be higher than your tax bracket.”
You also need to consider your comfort level with investment risk versus having a mortgage, he said.
“While your obligation to pay interest on the HELOC is certain, you cannot be certain about the expected rate of return on your investments especially in the short term, which depends on your asset allocation and how the market performs,” Panambur said.
Keep in mind, the interest rate on most interest-only HELOCs is variable.
“While initially you only pay interest, your payments will balloon when you start paying down the principal,” Panambur said. “So you need to plan for that.”
This story was originally published in October 2025.