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Re: How much does that paid off house cost you?
Old 04-12-2005, 08:25 PM   #41
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Re: How much does that paid off house cost you?

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TH: Those capital gains do take the edge off of living in Yuba City, Huh?
Yeppers...we spent the day "in thuh citay"...roseville. Another farmy town that turned into quite the little metropolis...
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Re: How much does that paid off house cost you?
Old 04-14-2005, 12:12 AM   #42
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Re: How much does that paid off house cost you?

I've chosen not to pay off my house for reasons that are benefiting me and that will benefit me even more if inflation runs up. But here are the costs per year beyond mortgage:

Homeowners insurance: $ 434
Property tax: $1504
House Maintenance: $5244
Phone & Utilities: $3323
TOTAL: $10,505

Some of what is lumped into House Maintenance is related to furniture and decorating and would apply to renting too. Similarly, Phone & Utilities might also apply if I were renting.

These costs have been completely swamped by the increase in my property value over the past 3.5 years since I moved in. In other words, there has been no cost of owning this home -- there has been accumulated value.

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SHORe: How much does that paid off house cost you?
Old 04-14-2005, 07:12 AM   #43
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SHORe: How much does that paid off house cost you?

I found this article at Scott Burns Website on topic:

SHOULD YOU HAVE A MORTGAGE AFTER RETIREMENT?

Q: I am on the threshold of retirement. How do I correctly understand the benefits of continuing with a mortgage vs. paying off the loan? I reviewed the homeownership model on your Web site and it calculates a (lower taxes) benefit of about $4,000 a year. However, after retirement, my withdrawals from IRAs, etc., would have to be higher if I continued to make payments vs. paying the loan off now. My marginal tax rate would be 25 percent.
Can you help? It would appear that withdrawing additional income to pay the mortgage each month is different from earning an income from employment that would not change regardless of whether I was paying a mortgage or paid off the note. -- B.H., by e-mail

A: Unless you have a very high retirement income and substantial assets, having mortgage payments after retirement isn't a good idea. For those with lots of income and assets, mortgaging their houses is a portfolio-leveraging decision.

For most people, mortgage payments in retirement present two very real dangers. The first is that the need to make the monthly payments from investments will subject your portfolio to a higher rate of withdrawal. As I have pointed out many times, the higher the annual withdrawal rate, the smaller the odds that your portfolio will survive through your retirement.

The second danger is triggering the taxation of Social Security benefits. When your income, including one-half of your Social Security benefits, exceeds $32,000 on a joint return, your Social Security benefits are subject to taxation. As a consequence, many couples will find that every $1,000 they remove from their retirement accounts to pay mortgage debt will cause between $500 and $850 of Social Security benefits to be taxed. It can make mortgage payments very expensive.




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Re: How much does that paid off house cost you?
Old 04-14-2005, 08:48 AM   #44
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Re: How much does that paid off house cost you?

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These costs have been completely swamped by the increase in my property value over the past 3.5 years since I moved in. *In other words, there has been no cost of owning this home -- there has been accumulated value. :)
Good point-- $5200/year against a five year's runup of over $400K doesn't seem like such a bad margin loan. Sure hope we feel that way in 10 years!
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Re: SHORe: How much does that paid off house cost
Old 04-14-2005, 11:21 AM   #45
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Re: SHORe: How much does that paid off house cost

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I found this article at Scott Burns Website on topic:

SHOULD YOU HAVE A MORTGAGE AFTER RETIREMENT?

Q: I am on the threshold of retirement. How do I correctly understand the benefits of continuing with a mortgage vs. paying off the loan? I reviewed the homeownership model on your Web site and it calculates a (lower taxes) benefit of about $4,000 a year. However, after retirement, my withdrawals from IRAs, etc., would have to be higher if I continued to make payments vs. paying the loan off now. My marginal tax rate would be 25 percent.
Can you help? It would appear that withdrawing additional income to pay the mortgage each month is different from earning an income from employment that would not change regardless of whether I was paying a mortgage or paid off the note. -- B.H., by e-mail

A: Unless you have a very high retirement income and substantial assets, having mortgage payments after retirement isn't a good idea. For those with lots of income and assets, mortgaging their houses is a portfolio-leveraging decision.

For most people, mortgage payments in retirement present two very real dangers. The first is that the need to make the monthly payments from investments will subject your portfolio to a higher rate of withdrawal. As I have pointed out many times, the higher the annual withdrawal rate, the smaller the odds that your portfolio will survive through your retirement.

The second danger is triggering the taxation of Social Security benefits. When your income, including one-half of your Social Security benefits, exceeds $32,000 on a joint return, your Social Security benefits are subject to taxation. As a consequence, many couples will find that every $1,000 they remove from their retirement accounts to pay mortgage debt will cause between $500 and $850 of Social Security benefits to be taxed. It can make mortgage payments very expensive.



Scott probably gives the right answer for many, but like so much financial advice out there, it is pure drivel without quantifying the details of his answer. I don't know whether I qualify as having "very high retirement income and substantial assets" or not, but I can quantify the value of keeping my mortgage rather than paying it off so far. I am significantly ahead of where I would have been had I paid off the mortgage at retirement. And if inflation runs up over the next few decades, I will benefit even more.

The tax issues are very individual dependant, so I can't comment on how this affects others, but in my case it is definately insignificant. You really have to plug in your own numbers.

Since I just turned 51, Social Security benefits are not an issue to me and won't be for some time.

If taxation disadvantages or social security benefit taxation does become an issue, or if the financial climate changes and a 5% mortgage no longer is a benefit to me, I can always pay it off when the time comes.

It seems to me that many early retirees might be in a situation simlar to mine. Others may not be.

Of course none of this relates to the original question about the cost of owning a house.
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Re: How much does that paid off house cost you?
Old 04-14-2005, 11:39 AM   #46
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Re: How much does that paid off house cost you?

Yes, for the love of god, lets not start that dialog again...

Although for the past 5 years, my 'return' on not having a mortgage is the original rate (5.5%), plus allowing me to pay zero income taxes by lowering my withdrawal rate. Since there is very little equity build-up in the first 5 years, that would have created an annual unrecoverable 'cost' of roughly $20,000 per year in interest payments and income taxes paid (in my situation).

Had that money been in the S&P500, it would have lost 3.24% per year over the last 5 years or an $8100 loss per year. In vanguards balanced index fund, it would have made about 1.41% per year or $3525 gain per year.

So far so good. If stocks were cheap today, the economy looked a little better or I could at least get a good return on cash and bonds, I'd probably have thought differently.

The only asset classes that have gained enough over the last 5 years to offset the costs are energy, reit and precious metals. Fairly different risk class there...
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