Good Question! Everyone's individual circumstance is different. In that regard there are more factors one must consider ,such as your retirement Income, tax bracket, type of assets you own, other debt, lifestyle choices, exotic travel expense, other planned expenses and so on.
Yes, its always good to be debt free espcially in Retirment, however, as one of the professionals mentioned, you may need the cash and would not want to have to refinance in an higher interest rate market. Mortgage Debt is not so bad if properly managed and good loan. Also, taxes on other assets and gains should also be considered, as you may need the interest write-off (e.g Home Mortgage Int Deduction and Property Taxes).
Sounds as if you are under the window of the captial gain exclusion for your principal residence, but that must also be considered. (there's no limit on the number of times you can use the home-sale exemption. In most cases, you can make tax-free profits of $250,000, or $500,000 depending on your filing status, every time you sell a home.
Lastly, since you mentioned having 1.2 million in assets, if that is liquid and subject to Taxation on Interests or gains, again you may need the tax write off.
In that case, you may want to consider keeping your funds borrower the amount what you can afford to pay comfortably ......and depending on loan amount / cost, the interest earned may pay part of your payments and you still have the principal.
Remember every individual circumstance is different and consult your trusted Tax Advisor for specifics to your case.
Hope this helps you ...
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