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40% of those over 65 yrs old have a mortgage
Old 10-06-2014, 07:19 AM   #1
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40% of those over 65 yrs old have a mortgage

I saw and read this article this morning and wondered what the author's angle would be given the headline. It says essentially too many baby boomers will enter retirement with a home mortgage and will be servicing that debt with a reduced income. I have to think people who put themselves in this position gave little to no thought to retirement much less an early retirement. Aesop's grasshoppers vs. the ants fable come to life perhaps.

How Baby Boomers' Homes May Become Liabilities
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Old 10-06-2014, 07:28 AM   #2
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And I wonder, of the remaining 60%, are still paying rent by necessity, not by choice?

Rent is like a mortgage, if it is a necessity.
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Old 10-06-2014, 07:41 AM   #3
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We'd planned to retire mortgage-free; in 2003 we took out a 15-year mortgage and refinanced it in 2010. I still wanted it to be paid off in 2018, the year I turn 65, but I paid the regular payment and put the remainder (old payment minus new payment) in a mutual fund, which was doing far better than the mortgage interest rate. The plan was to pay the mortgage off with a lump sum in 2018.

Our plans were derailed a bit when I ER'd this past May. We're planning to downsize in the spring. We may be able to buy a new house with the equity in this one; we may not. If it comes down to taking the extra (I estimate less than $100K after all the moving, realtor, fixups on this house are paid) out of the investments or getting a small mortgage, I may go for the mortgage. Depends on where the market is and how interest rates look. If the markets have just had a huge drop and interest rates are reasonable, I'll go for the mortgage.

So, it can be a strategic decision. Sadly, for many seniors it's probably a requirement because they did cash-out refis or used it to make improvements that don't have a great payback. And when I see commercials for reverse mortgages (don't know if those are in that stat), I shudder.
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Old 10-06-2014, 09:16 AM   #4
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... I have to think people who put themselves in this position gave little to no thought to retirement much less an early retirement. Aesop's grasshoppers vs. the ants fable come to life perhaps. ...
I believe you should think again.

Many of us have decided to hold a mortgage in retirement. We have the money to pay it off at any time, should we choose to do so. I've given plenty of thought to retirement (too much!), and am definitely an ant.

You are painting with a broad brush - the issue is not 'mortgage' versus 'no mortgage', it is 'total net worth', plus the ability to pay off the mortgage if you wanted.

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Old 10-06-2014, 10:23 AM   #5
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Many of us have decided to hold a mortgage in retirement. We have the money to pay it off at any time, should we choose to do so. I've given plenty of thought to retirement (too much!), and am definitely an ant.
Yep. If we do apply for a mortgage I'll send the bank/broker the clear message that they better make it worth my while or we'll just ante up the extra cash to buy the place. I've been in the position of supplicant (can't buy the house unless they approve the mortgage) and it is SO luxurious to be able to say I'll take it or leave it!
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Old 10-06-2014, 02:55 PM   #6
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I specifically timed the mortgage to be paid off when DW finally joins me in ER in a few years. My thinking was that psychologically this would help with a smoother cash flow transition. Our income will be lower than working (based on pension) but the mortgage payments will go away at the same time. I hopped on the PenFed 1.9% fixed 5-year HELOC bandwagon several years ago, so there is no significant financial penalty for not paying it off early even though we could.

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Old 10-06-2014, 03:22 PM   #7
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I still have a mortgage and see no financial reason to pay it off although I understand some may feel better without one.
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Old 10-06-2014, 03:27 PM   #8
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I still have a mortgage and see no financial reason to pay it off although I understand some may feel better without one.
Me too, FIRE does not require no mortgage!
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Old 10-06-2014, 11:17 PM   #9
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Me too, FIRE does not require no mortgage!
Yes it Does! Turn it over and look at the fine print on the back of the card!



Mortgage-free, since 33

10% rate mortgage, after a few years accelerated payments with cheaper dollars due to high inflation.
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Old 10-07-2014, 04:02 AM   #10
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My guess would be the author did not take into account how many in the 40% had a mortgage of convenience that they could pay off. The story seemed to be directed to those who were still carrying mortgages into retirement on a reduced income without the assets to pay it off. So the question is how many in the 40% with a mortgage are grass hoppers.
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Old 10-07-2014, 06:41 AM   #11
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Mortgage or no mortgage is a very old question, but if you have the capital to pay it off I really don't see much difference. The question should be "is it better for MOST people to enter retirement mortgage free"? I think the answer to that is probably yes. Most people are not the retirement and investments geek that you get on this forum so the simple strategy of paying down the mortgage builds up equity and reduces their need for income in retirement. If you have equity investments, investing in your home is also a nice diversifier.
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Old 10-07-2014, 06:43 AM   #12
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My guess would be the author did not take into account how many in the 40% had a mortgage of convenience that they could pay off.
The assumption was probably that not many people have that much cash available if you ask outside the rarefied world of ER forums.
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Old 10-07-2014, 08:17 AM   #13
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Sounded odd at first, but what was strange about taking out a 30 year mortgage at age 35 or 40, or refinancing at 5% in 2005? Also, not everyone came out of 2008 unscathed.
The other part is the question of whether renting would cost less than owning. This does vary. I didn't see any in depth analysis about the financial situation of the people who made up the statistical base.
Mortgages aren't always bad... tax brackets stc.
And... just the fact that the analysis speaks to those who "own" says a lot about the income brackets that have been left out. 35% of households were not included in the survey.
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Old 10-07-2014, 08:30 AM   #14
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I still have a mortgage and see no financial reason to pay it off although I understand some may feel better without one.
+1 DW and I made a conscious decision not to try to pay off the mortgage when we purchased the home. Just as we don't include our home equity in our retirement funds. Mortgage is just another form of rent to us.

If we had planned to stay put (been her 20 yrs) paying off the mortgage might have been considered, but we never had any intention of staying in our house when we retired.
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Old 10-07-2014, 08:30 AM   #15
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I'll most likely still have a mortgage by the time I retire. My HELOC is going to convert to a 20 year mortgage early next year, and by the time it's paid off, I'll be almost 65. I intend to be retired long before 65!

I could afford to pay it off now, but the rate is only 3.5%, so it almost seems foolish to. If the rate starts creeping up too much though, I'll pay it down more quickly.

However, in the next 5-6 years, I'm thinking about moving, and for that I'll be taking out a mortgage. Probably retire soon after that, if the numbers jive up. I just need to make sure I don't end up like that "Broken Eggs" movie couple who bought the nice house in San Francisco at a fairly old age, and ended up falling on hard times
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Old 10-07-2014, 08:39 AM   #16
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Sounded odd at first, but what was strange about taking out a 30 year mortgage at age 35 or 40, or refinancing at 5% in 2005?
The article linked in the OP is about mortgages and high housing cost. The Harvard study it references (here) is much broader, and asks if the current stock of housing meets accessibility and location needs as well. It's an interesting study, and raises the type of issue we would typically discuss here.
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Old 10-07-2014, 09:08 AM   #17
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I ER'd a couple of years ago and still have a mortgage. At 3.25% I don't really see a reason to pull money out of investments and pay it off. It will be gone in about 6 years and we have plenty of income to pay it.
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Old 10-07-2014, 09:47 AM   #18
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I believe you should think again.

Many of us have decided to hold a mortgage in retirement. We have the money to pay it off at any time, should we choose to do so. I've given plenty of thought to retirement (too much!), and am definitely an ant.

You are painting with a broad brush - the issue is not 'mortgage' versus 'no mortgage', it is 'total net worth', plus the ability to pay off the mortgage if you wanted.

-ERD50
+1. I would think key metrics to look at for personal financial health in retirement would be common amounts and ratios like total net worth, monthly retirement income, income to debt etc.

Household A could have a $100K mortgage at 3%, offset by 100K in Treasury bonds at 4% and be worth $10M. Household B could have no mortgage and a total net worth of $100K. Which household is better prepared for retirement?
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Old 10-07-2014, 12:10 PM   #19
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For the average American not the average person on this board there is a definite advantage to having no mortgage in retirement as they haven't saved as diligently.
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Old 10-07-2014, 12:14 PM   #20
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For the average American not the average person on this board there is a definite advantage to having no mortgage in retirement as they haven't saved as diligently.
Good point. It is easy, but wrong to extrapolate to the general population from this select group.
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