Should You Refinance Your Mortgage as a Pastor?
Are you accidentally paying your bank thousands in interest just to save a few hundred in taxes?
As a pastor, you've probably heard that keeping your mortgage is smart tax strategy because of housing allowance benefits. And you're not wrong—but you're probably not optimizing it either.
Here's the paradox: When you pay off your mortgage, you lose a massive tax benefit that can't be replaced. But when you keep your mortgage to preserve that benefit, you often pay the bank more in interest than you save in taxes. You're robbing Peter (the government) to pay Paul (the bank). You're literally funding Wells Fargo's executive bonuses to avoid giving money to the government. At least the government builds roads.
So what's the right answer? Should you pay off your mortgage and kiss goodbye to the only tax benefit that helps you? Or stretch that mortgage as long as you can?
After building a calculator that compares all three scenarios—and running dozens of real pastor situations—I finally have the answer. And it might surprise you.
The Mortgage Paradox That Only Pastors Face
Before we dive into the math, let me explain the unique tug-of-war you're experiencing as a pastor with a mortgage:
On one hand: The longer you keep your mortgage, the longer you can continue taking housing allowance benefits on those payments. Once your mortgage disappears, you lose a significant chunk of your housing allowance exclusion. Your housing allowance can only be as high as your actual housing expenses—and for most pastors, mortgage payments represent the lion's share of those expenses.
On the other hand: The longer you keep your mortgage, the more overall interest you're paying to the bank. And keeping a mortgage longer than necessary means you're paying the bank extra money just to avoid paying the government.
Talk about a devil’s bargain, huh?
What Makes Pastor Mortgage Math So Different
Your mortgage math as a pastor is fundamentally different from everyone else's.
When a typical employee is in the 22% tax bracket and has a $2,000 monthly mortgage payment, they need to earn about $2,564 in gross income to net $2,000 after taxes.
But you? You can cover that same $2,000 payment with $2,000 in housing allowance—tax-free. That's an effective tax savings of $564 monthly, or $6,768 annually.
This changes everything. Your mortgage interest might be costing you 5-6%, but your housing allowance is effectively subsidizing that cost by whatever your tax rate is. In many cases, this makes your true cost of mortgage debt significantly lower than the stated interest rate.
So… how do you come to an answer? The reason why there’s no clear and definitive answer I can give that works for every situation is because the math depends on a number of factors. Here are the details about your particular situation that affect whether or not it’s mathematically advantageous to pay off your mortgage aggressively, or keep it for the tax benefits:
Your current mortgage information. Your interest rate, principal owed, and the number of months left.
Your potential refinance information. The new interest rate, principal, and term length.
Your federal and state tax brackets. If adding your mortgage payments to your taxable income bumps you into a higher bracket, this is relevant too.
When the Math Actually Works in Favor of Keeping Your Mortgage
Long story short, there are situations where keeping your mortgage (or even extending it via refinancing) provides a net math benefit. However, this only works under extremely narrow circumstances.
Let me share some real numbers from my book, "Shepherding Your Finances." These are the conditions where keeping a mortgage might theoretically save you money:
High tax bracket (22% or above) AND
Low interest rate (under 5%) AND
Short payoff timeline (under 10 years remaining)
Example: Let's say you have 8 years left on a 4% mortgage with $80,000 remaining principal. Over those 8 years, you'll pay $13,614 in total interest to the bank.
But if you're in the 22% tax bracket, your housing allowance coverage on those mortgage payments saves you $20,595 in federal income taxes over those same 8 years. That's a theoretical net benefit of about $873 per year just for keeping the mortgage.
"See?" you might be thinking. "I knew keeping my mortgage was smart!"
Not so fast.
How Quickly This "Benefit" Evaporates
Here's what makes this math so tenuous: bump any of those variables even slightly, and you're suddenly losing money.
Using that same example above, watch what happens:
Change the interest rate from 4% to 7%? You lose $1,671
Extend the timeline from 8 years to 12 years? You lose $1,329
Drop from the 22% tax bracket to the 12% bracket? You lose $2,380
Let me be blunt: most pastors don't meet all three of these criteria.
If your mortgage rate is 6% or higher (most mortgages from 2022-2023)... you don't qualify. If you have 15+ years remaining... you don't qualify. If you're in the 12% bracket thanks to housing allowance... you don't qualify.
And even if you DO meet all three criteria? The benefit is often less than $1,000 per year. Is that really worth staying in debt for?
The Hidden Trap: Refinancing Without Running the Numbers
This is where I see pastors make expensive mistakes. Interest rates drop, and suddenly everyone's talking about refinancing. Your neighbor refinances. Your brother-in-law refinances. Even Dave Ramsey says you should refinance if you can save at least 1% on your interest rate.
So you refinance too.
Except Dave Ramsey isn't a pastor. And neither is your neighbor. And they don't have housing allowance benefits that completely change the mortgage math. As a pastor, you don’t have the luxury of relying on generic advice.
The Three Scenarios You Need to Compare
This is why I built my mortgage refinance calculator. Because you can't make a good decision about your mortgage without comparing all three options:
Scenario 1: Keep Your Existing Mortgage. Track your current principal, interest rate, and remaining months. Calculate total interest you'll pay minus the tax savings from housing allowance coverage of those payments.
Scenario 2: Refinance to New Terms. Input the new interest rate, new loan amount, and new loan term. Calculate the new total interest minus the new tax savings. Don't forget to factor in closing costs.
Scenario 3: Pay Off Aggressively. What if you attacked your mortgage with extra principal payments or paid it off entirely? You'd lose housing allowance benefits sooner, but eliminate interest payments faster. Which strategy wins?
The answer is almost never obvious without running the actual numbers with your specific situation. That’s why I’m releasing my refinance tool—I'm tired of watching pastors make expensive mistakes simply because they didn't have access to the right information.
The Peace That Comes from Actually Knowing
Here's what I've discovered after running dozens of these calculations for pastors: most of the time, the mathematically optimal decision and the psychologically optimal decision are different. Housing allowance benefits don't eliminate the other risks of borrowing: interest rate risk, job loss risk, or the psychological burden of debt.
Sometimes the math says "keep the mortgage" but your gut says "I want this debt gone." Other times the math says "pay it off" but you're nervous about losing that housing allowance benefit.
Both are valid. Both matter.
But here's what really matters: actually having all the information equips and empowers you to make the right decision for you and your family.
Maybe you'll discover that paying off your mortgage early would cost you $500 over 8 years in lost tax benefits. That's valuable information. Now you can make an informed decision: Is the peace of mind of being debt-free worth $500? For most pastors I work with, the answer is an emphatic yes.
Or maybe you'll discover that refinancing would actually cost you $3,000 more than keeping your current mortgage, even with the lower interest rate. Now you know to skip the refinance and redirect that energy elsewhere.
The point isn't to find the "perfect" mathematical answer. The point is to stop making major financial decisions in the dark.
Your Next Steps
If you have a mortgage—or if you're considering refinancing—here's what I want you to do:
Immediate action:
Gather your current mortgage information: remaining principal, interest rate, months remaining
Find out what interest rate you could refinance at today (call your lender or check online)
Calculate your current marginal tax rates—both with and without housing allowance
Click the link below to get access to the refinance calculator
Follow Shepherd’s Wallet on YouTube to watch the Q&A walkthrough of the tool
Then ask yourself these questions:
Would paying off my mortgage early actually cost me money in lost housing allowance benefits?
If so, how much? Is it worth it for the peace of mind?
Would refinancing save me money, or would the extended loan term actually cost me more?
What if I made extra principal payments—how does that change the math?
Don't let another year go by making mortgage decisions based on gut feeling or conventional wisdom that doesn't apply to your unique situation as a pastor.
The Bigger Picture
But before you dive into the calculator, I want to zoom out for a moment and talk about why this matters so much. The housing allowance is one of the few areas where the tax code actually works in your favor as a pastor. Most of the time, you're getting the short end of the stick tax-wise—paying more in self-employment taxes, dealing with complicated quarterly estimated payments, trying to navigate rules that even CPAs often get wrong.
But with your mortgage? You actually have an advantage. You just need to understand how to use it.
This isn't about finding loopholes or gaming the system. It's about being a faithful steward of the resources God has entrusted to you. When you make informed mortgage decisions that save you thousands of dollars over the years, that's money you can use to serve your family better, give more generously, save more adequately for retirement, and focus more fully on your ministry calling.
The math matters. But it only matters if you actually run the numbers.
Click here to get the refinance tool for pastors.
Ready to go deeper in your stewardship journey? Join the Sacred Capital Community for free at shepherdswallet.com/join and get access to the mortgage refinance calculator plus the complete Q&A walkthrough.
Want personalized guidance? Schedule a free coaching consultation at shepherdswallet.com/coaching and we'll run your specific numbers together.
Going deeper into housing allowance strategy? Pre-order "Shepherding Your Finances" at a 35% discount at shepherdswallet.com/book—Chapter 8 covers everything you need to know about maximizing your housing allowance benefits.
Need help with your taxes? Get a comprehensive Tax Review for $95, or learn to file your own taxes with confidence through my Tax Mastery Training at shepherdswallet.com/taxes.
You don't have to figure this out alone. That's why I'm here.