Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 06-10-2018, 01:50 AM   #61
Thinks s/he gets paid by the post
 
Join Date: Dec 2010
Location: Midwest
Posts: 1,336
Quote:
Originally Posted by ncbill View Post
mortgage as a % of monthly expenses is what matters.

right now I'm helping an older relative (early 70s) who has SS (taken at 62) plus about $500/month in dividends as their only income.

their mortgage/HELOC payment is close to 50% of their monthly spend.

they would be in MUCH better financial shape without the above.
So where did the money from the HELOC go?
Back when home equity was treated like a savings account, many people tapped HELOC for kids college, new cars, home repairs (some needed, some improvements), etc. Perhaps any/all of these are good reasons to borrow. However, to lump debt used for other issues than housing, and include those payments in the cost of housing is not really accurate towards the OP's point.
I don't mean to be insensitive, but we need to compare apples to apples when looking at housing costs. The financial problem these folks have is not housing related, if a HELOC is part of the problem.
__________________

brucethebroker is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-10-2018, 02:02 AM   #62
Thinks s/he gets paid by the post
 
Join Date: Dec 2010
Location: Midwest
Posts: 1,336
We are in the "mortgage is so small it isn't a problem-would rather have that cash in the bank" crowd.

Pet peeve are financial experts that lump all housing related payments (taxes, insurance) into the mortgage category: They act like a paid off mortgage removes all housing costs. It does not. You might be paying 1/2 of your mortgage payment to the tax and insurance man. Those costs continue when mortgage free. In our case, we would be saving just over a hundred a month in interest. Again, rather have the money in the bank. But I do understand the peace of mind of being totally debt free.
__________________

brucethebroker is offline   Reply With Quote
Old 06-10-2018, 05:29 AM   #63
Full time employment: Posting here.
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 612
Quote:
Originally Posted by COcheesehead View Post
For us with the new tax law, a mortgage made zero sense. We are not going to have a mortgage on our new build. It will really help with cash flow when we FIRE in 2020.
You make a good point. Have to consider after tax cost of funds versus after tax investment returns as well as time horizon if the alternative is equity investing.

Also, you have to expect to beat your after tax cost of funds by an amount sufficient to make the risk worthwhile (since you could lose money), in my view.

Still working and so far have kept the mortgage. But it is small and at 2.7% at least for 3 more years.

With the run we have had in equities, it does not seem like a crazy time to pay down the mortgage.

However I personally would not pull IRA funds to do it.
Montecfo is offline   Reply With Quote
Old 06-10-2018, 08:37 AM   #64
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,599
Quote:
Originally Posted by Texas Proud View Post
But it is conventional advice and not for everyone.... I have used ROTH money to pay expenses instead of selling more in my taxable account so I can keep under an income level for ACA purposes... I will probably be using some more later this year...



Now, when my kids go off plan or I hit 65 and it is tougher to keep the income low I will be going all in for tIRA conversions to ROTH and spending the taxable account... right now it does not make sense...
I agree that there can be other constraints like ACA that make the conventiona advice suboptimal but the OP has not mentioned anything like that.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 06-10-2018, 08:44 AM   #65
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,599
Quote:
Originally Posted by COcheesehead View Post
For us with the new tax law, a mortgage made zero sense. We are not going to have a mortgage on our new build. It will really help with cash flow when we FIRE in 2020.
The new tax law will make little difference for us... while our mortgage interest is no longer deductible since the new standard deduction exceeds out itemized deductions at the same time the income on money that we would use to pay off the mortgage isn't subject to tax either because of the 0% tax rate on qualified dividends and LTCG.

So for us it is a simple play of whether our investment earnings rate exceeds our 3.375% mortgage interest rate. It has and I expect it will continue.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 06-12-2018, 10:04 AM   #66
Full time employment: Posting here.
 
Join Date: Jun 2017
Location: Western NC
Posts: 881
Quote:
Originally Posted by brucethebroker View Post
So where did the money from the HELOC go?
Back when home equity was treated like a savings account, many people tapped HELOC for kids college, new cars, home repairs (some needed, some improvements), etc. Perhaps any/all of these are good reasons to borrow. However, to lump debt used for other issues than housing, and include those payments in the cost of housing is not really accurate towards the OP's point.
I don't mean to be insensitive, but we need to compare apples to apples when looking at housing costs. The financial problem these folks have is not housing related, if a HELOC is part of the problem.
They use the HELOC to smooth things out monthly, since their only source of income apart from taken-at-age-62 ( white collar, but low-wage) SS retirement comes from quarterly dividends.
ncbill is offline   Reply With Quote
Old 06-12-2018, 04:18 PM   #67
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 5,756
Quote:
Originally Posted by ncbill View Post
They use the HELOC to smooth things out monthly, since their only source of income apart from taken-at-age-62 ( white collar, but low-wage) SS retirement comes from quarterly dividends.
Of course the issue is any borrowing to smooth things makes everything worse the following months.

Imagine yearly income exactly yearly equaled costs, then they borrow for 1 month and pay it off, but the interest cost was $2
By the end of the year they are now short $2 as that was an added cost.
So they borrow again and pay another $2 interest, only now they will be short $4 per year.

In reality the numbers are bigger, and people don't see the problem as most folks are mathematically challenged.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 06-17-2018, 08:42 PM   #68
Dryer sheet aficionado
Eastbayboy's Avatar
 
Join Date: Jul 2017
Posts: 29
I have a question, how far, how old is your mortgage? If it is towards the end, the interest paid on the loan drops and the principal receives the bulk of the payment (amortization). So it would seem (if the mortgage is older) that paying it off for the sake of being free of it would be my next math problem to solve. BTW, I am no financial wizard.
Eastbayboy is offline   Reply With Quote
Old 06-17-2018, 09:17 PM   #69
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,599
Ours is 6 1/2 years old... out of 15 years. I don't get the "sake of being free of it".... mine is on auto-pay and as a result I hardly notice it.

My portfolio returns for 2016, 2017 and YTD 2018 were 8.84%, 14.1% and 2.62%... my mortgage cost is 3.375% (1.55% YTD)... so why would I pay it off?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Risk vs. Return - Where to draw the line
Old 06-18-2018, 07:15 AM   #70
Full time employment: Posting here.
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 952
Risk vs. Return - Where to draw the line

We kept a mortgage while we were w*rking so we could (potentially) maximize our returns. We paid off the house when we FIRED so we could reduce risk. It may make sense to consider the decision as part of your overall risk/return strategy. We keep a fairly high stock allocation, 70%. Accordingly, we take less risk elsewhere.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 06-18-2018, 07:23 AM   #71
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 805
Quote:
We paid off the house when we FIRED so we could reduce risk.
How does paying off the mortgage reduce risk? Yes, it reduces your outgoing cash flow, but risk?

The risk in having a mortgage is that you have to make the monthly payment. If you have enough money and enough incoming cash flow, the risk of being unable to make the payment is zero.
rayvt is offline   Reply With Quote
Old 06-18-2018, 07:25 AM   #72
Full time employment: Posting here.
 
Join Date: Aug 2014
Posts: 699
Quote:
Originally Posted by Eastbayboy View Post
I have a question, how far, how old is your mortgage? If it is towards the end, the interest paid on the loan drops and the principal receives the bulk of the payment (amortization). So it would seem (if the mortgage is older) that paying it off for the sake of being free of it would be my next math problem to solve. BTW, I am no financial wizard.
Assuming a fixed rate mortgage, regardless of how many years are left to pay, you are still paying the same rate for the remaining balance. i.e. If you have a 4% mortgage, you pay that same 4% on the 1st payment as on the last dollar paid.


P.S. It's been over a week since I asked for a payoff statement. So far, no reply.
CRLLS is online now   Reply With Quote
Old 06-18-2018, 07:35 AM   #73
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 1,802
For everyone who has paid it off, did you then open a HELOC for “just in case?”
COcheesehead is offline   Reply With Quote
Old 06-18-2018, 07:49 AM   #74
Full time employment: Posting here.
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 952
Quote:
Originally Posted by rayvt View Post
How does paying off the mortgage reduce risk? Yes, it reduces your outgoing cash flow, but risk?

The risk in having a mortgage is that you have to make the monthly payment. If you have enough money and enough incoming cash flow, the risk of being unable to make the payment is zero.

Many have stated they are keeping their mortgage because their investment returns out perform the interest rate on their mortgage. But to achieve this potential arbitrage they are investing in risk assets. Stating it another way, paying off the mortgage yields a "risk free" return equal to your mortgage interest rate. Nothing wrong with keeping the mortgage. Potential return goes up but so does risk. The same applies to all the stocks I own instead of CDs.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 06-18-2018, 08:49 AM   #75
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,599
Quote:
Originally Posted by flintnational View Post
....We paid off the house when we FIRED so we could reduce risk. ...
Quote:
Originally Posted by rayvt View Post
How does paying off the mortgage reduce risk? Yes, it reduces your outgoing cash flow, but risk?

The risk in having a mortgage is that you have to make the monthly payment. If you have enough money and enough incoming cash flow, the risk of being unable to make the payment is zero.
In theory, the higher your obligatory payments/cash outflow, the higher the risk... because if TSHTF you may not have sufficient cash inflows or assets to make those payments and as a result bad things may happen (foreclosure, tax sale, reposession or whatever). By paying off the mortgage one reduces those obligatory payments which in turn reduces risk.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 06-18-2018, 08:49 AM   #76
Thinks s/he gets paid by the post
 
Join Date: Nov 2015
Posts: 1,044
Quote:
Originally Posted by flintnational View Post
We paid off the house when we FIRED so we could reduce risk.
What risk?

I could make a point that you now have more risk, less free cash flow should something unexpected come up.
bobandsherry is offline   Reply With Quote
Old 06-18-2018, 08:51 AM   #77
Thinks s/he gets paid by the post
 
Join Date: Nov 2015
Posts: 1,044
Quote:
Originally Posted by pb4uski View Post
In theory, the higher your obligatory payments/cash outflow, the higher the risk... because if TSHTF you may not have sufficient cash inflows or assets to make those payments and as a result bad things may happen (foreclosure, tax sale, reposession or whatever). By paying off the mortgage one reduces those obligatory payments which in turn reduces risk.
One also has less free cash to cover all other expenses and unexpected needs such as large medical, care for parent or other disaster.
bobandsherry is offline   Reply With Quote
Old 06-18-2018, 08:55 AM   #78
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 19,599
It all depends on what the money used to pay off the mortgage was invested in. If it was invested in bonds, then you are correct but it could well be that the interest earned was lower than the mortgage interest. If it was invested in land that was bought for speculation and one sells the land and uses the proceeds to pay off the mortgage then there is not less cash flow.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is online now   Reply With Quote
Old 06-18-2018, 09:32 AM   #79
Full time employment: Posting here.
flintnational's Avatar
 
Join Date: Mar 2008
Location: Atlanta Suburb
Posts: 952
Quote:
Originally Posted by bobandsherry View Post
What risk?

I could make a point that you now have more risk, less free cash flow should something unexpected come up.
I still have the asset, the house. It could be sold or mortgaged in the future if the need arises. I just don't have the debt. I view our net worth in its totality. Paying off a mortgage provides a guaranteed return similar to cds or bonds (maybe greater). So, I can hold less of this asset class overall. I don't disagree with those that want to borrow and invest (we did so for 20 yrs). I am stating there is a price for the potential enhanced return. And, it is increased risk. Similar to the difference between a 70/30 AA and a 60/40 AA. Neither is wrong, but they have different risk/return profiles.
__________________
"Oh, twice as much ain't twice as good
And can't sustain like one half could
It's wanting more that's gonna send me to my knees" - John Mayer
flintnational is offline   Reply With Quote
Old 06-18-2018, 09:47 AM   #80
Thinks s/he gets paid by the post
 
Join Date: Nov 2015
Posts: 1,044
Quote:
Originally Posted by flintnational View Post
I still have the asset, the house. It could be sold or mortgaged in the future if the need arises. I just don't have the debt. I view our net worth in its totality. Paying off a mortgage provides a guaranteed return similar to cds or bonds (maybe greater). So, I can hold less of this asset class overall. I don't disagree with those that want to borrow and invest (we did so for 20 yrs). I am stating there is a price for the potential enhanced return. And, it is increased risk. Similar to the difference between a 70/30 AA and a 60/40 AA. Neither is wrong, but they have different risk profiles.
Well, if I had the money to pay off my house I would still have the money later to pay off my house, so no risk reduced. Cash either sitting in investments (high grade investments) or in a house is just trading one asset for another, no real risk impact. And then don't forget that once cashing in an asset to pay off your mortgage may drive gains and then you have to figure in the tax impacts, perhaps loss of ACA subsidies, etc, etc, etc.

However I do find a risk of being costlier later to borrow. Many will find that securing a mortgage in retirement harder to get or more costly. And you'll then pay for cost associated with the debt, closing costs on a mortgage that will def drive up the cost of that borrowing. And then factor that if the market is struggling a bit that interest rates are rising, not a good position to be in.

Additionally, if you are in dire straights for money it will probably be you'll have some other financial stress and impact your credit rating further, driving up the cost of any debt you would then secure.

For me, I'm feel I have much less risk currently as I have funds to pay off my mortgage in an asset that has a guaranteed rate and no chance for loss of principal which has a rate that is minimally 1.5% higher than my mortgage rate (tax deferred earnings as well). I can easily access those funds, but honestly don't see the benefit to do so and pay off my mortgage as I end up with more risk and lower returns then.

Just no one size fits all answer, many variables that need to be considered too.
__________________

bobandsherry is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Edelman - Change in thinking about LTC insurance gindie Health and Early Retirement 33 10-20-2016 06:35 PM
If You Could Change One Thing About Your Personality, What Would You Change? haha Other topics 57 09-17-2009 02:10 PM
Thinking of switching new cash inflows to the mortgage soupcxan FIRE and Money 19 09-29-2008 04:42 PM

» Quick Links

 
All times are GMT -6. The time now is 07:29 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.