Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Mortgage and Firecalc
Old 06-28-2016, 11:53 PM   #1
Confused about dryer sheets
 
Join Date: Apr 2016
Posts: 3
Mortgage and Firecalc

I will be retiring this year or next depending on a few variables. I am 56 and my wife is 55. We have 26 years left on a 30 year mortgage and there is a good chance we may never move. My Firecalc projections are coming in at 97% for 35 years. Since the mortgage is fixed, I had entered that value into off chart spending and then reversed it as pension income when it is paid off.

Now my question. It always bugged me that I may have that mortgage until I am 80. The 15 year rates are 2.75% and could be dropping even more with Brexit. I plugged in the new 15 year mortgage (with money pulled out to pay for a new roof and some other upgrades) into Firecalc and my success rate rose to 100%.

So my expenses will increase almost 10K if I refi but I get a new roof, various necessary upgrades and the mystical (mythical?) Firecalc 100%. It seems to be the the right strategy according to Firecalc. But taking on that extra expense is a bit unsettling. Am I missing something here?
__________________

__________________
Extinction 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 06-29-2016, 07:11 AM   #2
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Eagan, MN
Posts: 3,043
What is the old interest rate vs. the new interest rate?

Do you really need a new roof now, or can it wait a few years? What are the other "various necessary upgrades", and do you need them, or want them?

How much additional are bank fees for the refinance? Not prepaid, but fees that you never recover.

If you paid the 15-year amount on the 30-year loan, how much faster would it get paid off. Have you paid anything extra on your current mortgage? If you can't do that now, a higher loan payment will not be helpful.
__________________

__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 06-29-2016, 07:44 AM   #3
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: 16,407
I suspect that the increase from 97% to 100% is due to paying much less interest (2.75% for 15 years vs a higher rate for 26 years). What would your success rate be if you simulated paying off the mortgage by reducing your assets by the amount of the mortgage and eliminating the off-chart spending and pension offset?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 06-29-2016, 08:52 AM   #4
Thinks s/he gets paid by the post
ivinsfan's Avatar
 
Join Date: Feb 2007
Posts: 2,198
You are going to refi and cash-out equity for a roof and home improvements? A roof is not an unexpected expense, do you have cash to pay for a new roof?

IMO the difference between 97 and 100 is minimal and you really want to do this for the home repair and upgrade, don't kid yourself it's about another 3% with Firecalc....
__________________
ivinsfan is offline   Reply With Quote
Old 06-29-2016, 09:03 AM   #5
Full time employment: Posting here.
 
Join Date: Mar 2015
Location: philly
Posts: 875
I would start with Senators advice and start doubling down on the current mortgage for a few months and see how it goes.

not sure how you did the firecalc calculations. maybe I'm doing it incorrectly, anyhoo I ran the calculations with my current spending. why did you include it in off chart spending?

so my 65K annual spending includes everything, my mortgage, my healthcare expenses, food, yada yada yada and an extra 5k annually for an Armageddon apocalyptic zombie attack
__________________
My darling girl, when are you going to realize that being "normal" is not necessarily a virtue? it sometimes rather denotes a lack of courage~Aunt Francis
bclover is offline   Reply With Quote
Old 06-29-2016, 09:07 AM   #6
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: 16,407
IMO best practice is to include mortgage in off-chart spending with an offsetting pension when the mortgage ends for two reasons. First, expenses are increased each year for inflation and most mortgage payments are fixed. Second, expenses never end and your mortgage payments do.

So if you included mortgage payments in expenses then your success rate is lower than it really is. For some people it is close enough to make a difference in the decision whether or not to retire.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 06-29-2016, 09:10 AM   #7
Full time employment: Posting here.
 
Join Date: Mar 2015
Location: philly
Posts: 875
Quote:
Originally Posted by pb4uski View Post
IMO best practice is to include mortgage in off-chart spending with an offsetting pension when the mortgage ends for two reasons. First, expenses are increased each year for inflation and most mortgage payments are fixed. Second, expenses never end and your mortgage payments do.

So if you included mortgage payments in expenses then your success rate is lower than it really is
. For some people it is close enough to make a difference in the decision whether or not to retire.
so that would be a good thing right? I include my mortgage payment in my expenses and come out with a 96% success rate until age 90. you're saying that is the low side?
__________________
My darling girl, when are you going to realize that being "normal" is not necessarily a virtue? it sometimes rather denotes a lack of courage~Aunt Francis
bclover is offline   Reply With Quote
Old 06-29-2016, 09:12 AM   #8
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: 16,407
Yes. Try taking your mortgage out of expenses and putting in an off chart spending item for your mortgage and then an offsetting pension starting when your mortgage ends and your success rate should go up.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 06-29-2016, 09:18 AM   #9
Full time employment: Posting here.
 
Join Date: Mar 2015
Location: philly
Posts: 875
Quote:
Originally Posted by pb4uski View Post
Yes. Try taking your mortgage out of expenses and putting in an off chart spending item for your mortgage and then an offsetting pension starting when your mortgage ends and your success rate should go up.
thanks Pb4uski. I need to start spending waay more money.
__________________
My darling girl, when are you going to realize that being "normal" is not necessarily a virtue? it sometimes rather denotes a lack of courage~Aunt Francis
bclover is offline   Reply With Quote
Old 06-29-2016, 09:47 AM   #10
Full time employment: Posting here.
GravitySucks's Avatar
 
Join Date: Feb 2014
Location: Syracuse
Posts: 989
Quote:
Originally Posted by pb4uski View Post
Yes. Try taking your mortgage out of expenses and putting in an off chart spending item for your mortgage and then an offsetting pension starting when your mortgage ends and your success rate should go up.


I must be missing something....
I can understand the mortgage as an off chart expense in FIRECalc, but why add an offsetting pension once the mortgage is paid off?
__________________
“No, not rich. I am a poor man with money, which is not the same thing"
GravitySucks is offline   Reply With Quote
Old 06-29-2016, 09:53 AM   #11
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: 16,407
Because when the mortgage is paid off you don't make mortgage payments anymore and you can't have off-chart spending end at a certain date so you need to include an off-chart spending reduction (aka pension) of equal amount.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 06-29-2016, 10:06 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
I agree that I'd want to try the "pay off the mortgage immediately" scenario.

FireCalc is going to look at the very worst retirement years. It will probably say that, defensively, you are best off getting money out of the market and paying off a fixed expense.
__________________
Independent is offline   Reply With Quote
Old 06-29-2016, 10:11 AM   #13
Recycles dryer sheets
 
Join Date: Jun 2014
Posts: 433
I ran this scenario a bunch of times for similar reasons.

Basically what I found is the more I paid the mortgage off the tighter the range of minimum to maximum money became in firecalc (which makes total sense).

Having a few million more or less at death is much less important to me than having a smoother ride so I plan to have no mortgage in retirement.

Of course it's totally case by case... but that's what I'm doing.

Sent from my HTC One_M8 using Early Retirement Forum mobile app
__________________
petershk is offline   Reply With Quote
Old 07-02-2016, 01:02 PM   #14
Confused about dryer sheets
 
Join Date: Apr 2016
Posts: 3
Quote:
Originally Posted by pb4uski View Post
I suspect that the increase from 97% to 100% is due to paying much less interest (2.75% for 15 years vs a higher rate for 26 years). What would your success rate be if you simulated paying off the mortgage by reducing your assets by the amount of the mortgage and eliminating the off-chart spending and pension offset?

In hindsight, the added expense of interest is the simple discriminator. Spend less, have more over the long term. If one can manage their expenses, then spending less on interest is a no-brainer.

Interestly, when I simulate paying off my mortgage as pb4uski suggests, my success rate drops another few points. The reduction in my initial assets has a significant negative effect despite the reduction in expenses. An argument against paying off mortgage?

These few percentage points disturb me because we may be entering an economic period similar to the few failures I am seeing in my firecalc simulation.

So borrowing cheap money instead of using my cash assets for "upgrades" also appears to be the way to go. My roof is at least 25 years old. Not if, when. Maybe solar panels. Kid's bathroom is disaster. I want a front porch to grow old on and to yell at the kids to get off my lawn.

Thanks to all for your input. Great board
__________________

__________________
Extinction 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
Just paid off the mortgage. Putting the pay off the mortgage question to rest. FUEGO FIRE and Money 65 06-08-2015 06:08 PM
15-year mortgage vs 30-year mortgage Nords FIRE and Money 37 02-25-2012 11:21 AM
Co-Signing a mortgage - mortgage interest deduction question. Disappointed Other topics 72 03-12-2011 05:07 AM
mortgage, what mortgage? lucija Young Dreamers 48 03-26-2008 01:24 AM
Not permitted to deduct mortgage interest from taxes - mortgage v renting? claire FIRE and Money 12 01-06-2007 04:43 PM

 

 
All times are GMT -6. The time now is 04:42 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.