Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 02-15-2008, 08:57 AM   #121
Recycles dryer sheets
 
Join Date: Jan 2008
Posts: 314
Quote:
Originally Posted by ERD50 View Post
I thought I was clear before, but I guess not - let me put it as succinctly as I can:

1) I don't think I've ever criticized your decision to prepay your mortgage. You have explained your case. It makes sense for you.

2) I have criticized how you present the financial analysis of pre-paying the mortgage. It's just wrong to ignore the time-value of money.

Based on #2, I do have trouble understanding your excitement over the pre-pay, but to each their own.

-ERD50

PS - this was not in response to your last post pls don't take in that context, - we need that ' a post was submitted' feature!
With regards to #2, isn't it valid to present any financial analysis, whether it be pre-paying the mortgage, or investing and using the "time-value" of money?

The difference is pretty easy to calculate. Merely take what is paid if you pre-pay the mortage, minus the amount that would be paid for the regular term that you'd be paying on your mortgage.
See how much that would work out if you compounded it over the difference in length of the mortgage, and see if you'd have enough to pay the mortgage after that.

Where were you when Bush decided to use the "time value of money" to temporarily help stimulate the economy (but send the country into deeper debt). (Truly meant to be toungue-in-cheek)
__________________

__________________
Primary title "chief moron"
myself 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 02-15-2008, 09:39 AM   #122
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Quote:
Originally Posted by Want2retire View Post

Personally I choose not to engage in argumentation
Opps, sorry W2R, that post also got submitted while I was typing the other, and I missed it.

Hey, I'm sorry if what I said came across as antagonistic or aggressive. I was just trying to make my point, I didn't mean it to be personal or attacking or anything.

Did Twaddle and I get in a 'battle'? I don't recall. Maybe I get a bit animated in the process of making a point, or too direct? - no harm intended, maybe some people see that as aggressive?

You can't please all the people., etc.... and I never claimed to even try

But I am sorry if I offended.

-ERD50
__________________

__________________
ERD50 is offline   Reply With Quote
Old 02-15-2008, 10:32 AM   #123
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,255
Quote:
Originally Posted by myself View Post
With regards to #2, isn't it valid to present any financial analysis, whether it be pre-paying the mortgage, or investing and using the "time-value" of money?

The difference is pretty easy to calculate. Merely take what is paid if you pre-pay the mortage, minus the amount that would be paid for the regular term that you'd be paying on your mortgage.
See how much that would work out if you compounded it over the difference in length of the mortgage, and see if you'd have enough to pay the mortgage after that.

Where were you when Bush decided to use the "time value of money" to temporarily help stimulate the economy (but send the country into deeper debt). (Truly meant to be toungue-in-cheek)
I agree - the rub comes in when you try to calculate a reasonable investment return for the money that you hold (the money that you saved, but did not put towards the mortgage).

Since the mortgage pre-pay is 'risk-free', some feel that the only reasonable investment alternative is a 'risk free' investment. Truly risk-free investments don't pay very high interest. So that interest would offset some of the interest payment savings from a pre-pay, but probably not surpass it.

Others take the view that some risk is OK, and are willing to invest that money for the potential higher gain. Some even would say that 100% equities are OK compared with a 30 year mortgage, that equities usually outperform the mortgage interest rate over a 30 year period.

Those are two different view points. I think they are both reasonable. The first is an apples-to-apples comparison, the second isn't - but that does not make it invalid, it just depends on your view of the risk. Bottom line though, it makes discussion between the two camps pretty difficult. Neither is right/wrong, IMO, just different approaches.

I do have a question for the people in the first camp though. Have you held any investment at all (outside of an emergency fund in a MM) before you paid off the mortgage? It just seems to me that the only consistent answer is 'No'. Shouldn't any and all savings go towards that risk-free mortgage pre-pay first? So, not a single penny in stocks until the mortgage is paid off?

And yes, that stimulus package is just asking us to borrow money from ourselves.... sigh. I thought there was concern about the low savings rate and high debt rates, this just adds to it. Sad.

-ERD50
__________________
ERD50 is offline   Reply With Quote
Old 02-15-2008, 11:03 AM   #124
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Yep, we've all heard the same argument. But as usual it leaves out all the corollary items.

You cant compare different risk level costs/investments without adjusting for the risk. You cant compare the difference between an investment return and a cost of that investment without assessing the consequences of the investment. And its ridiculous to hold both scenarios in static form and not adjust the consequences of dramatic changes in risk tolerance.

Holding a mortgage virtually requires a lower risk tolerance to investing, or big brass balls when you get to those situations where you're down a lot. Go back to that discussion about firecalc results where you get through 100%, but in a bunch of cases nearly hit bottom before recovering. That reduced risk tolerance has a consequential series of actions the investor generally is forced to make...in the form of larger amounts of "emergency cash", higher fixed income allocations and less risky equities. That risk adjustment has a cost.

Its also prudent to factor in the spending risk reduction, yet that rarely happens. If your bills are small, what happens to you on the investment side is a lot less concerning.

Or you can go the entirely opposite direction, as W2R has. She's reduced her spending demands to a nearly completely controllable level and has invested more conservatively than she might need to do if she had a big mandatory payment to make every month for 30 years.

There can also be a huge tax profile change between the scenarios. In my early years of ER, without any debt to service I could keep my withdrawal rate low enough and in the right categories and as a result withhold and pay zero income taxes. With a mortgage, your withdrawal rate is going to need to be a lot higher and avoidance of income taxes is highly unlikely. Whats the cost of that?

So yes, its unreasonable to say "Let me measure this risk free return vs a high risk return, pretend the scenarios can and should remain the same, and ignore the spending risk, investment risk, costs of reacting to those or protecting oneself from them, and the tax implications."

In a nutshell, it makes my retirement completely foolproof. My budget is totally under my control and for a measly amount of money we can get by for months or even years if a severe economic situation arises.

And while the "I can *always* pay off my mortgage" comment also has some merit, I think you'd find that a pretty sucky option to attempt to execute when your portfolio is down 50% and theres no sign of an upturn.

If I can stretch this out to just ONE more paragraph, lets retrace our steps to the early years of the Bunny retirement. Quitting just before the market crash from 2000-2003. First thing I did when I retired was pay off my 6.25% mortgage. I then watched the markets drop like a rock. Pretty scary stuff. So I cut back non essential spending, dropped a few things and then in 2003 downsized my house. I 'made' 6.25%, avoided a huge loss on that cash had it remained invested, didnt pay any income taxes for three years, and frankly didnt lose any sleep at the market movements because they didnt mean that much to me.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Nothing is risk free
Old 02-15-2008, 11:34 AM   #125
Thinks s/he gets paid by the post
jIMOh's Avatar
 
Join Date: Apr 2007
Location: Milford, OH
Posts: 2,085
Nothing is risk free

Quote:
Originally Posted by ERD50 View Post
I agree - the rub comes in when you try to calculate a reasonable investment return for the money that you hold (the money that you saved, but did not put towards the mortgage).

Since the mortgage pre-pay is 'risk-free', some feel that the only reasonable investment alternative is a 'risk free' investment. Truly risk-free investments don't pay very high interest. So that interest would offset some of the interest payment savings from a pre-pay, but probably not surpass it.

Others take the view that some risk is OK, and are willing to invest that money for the potential higher gain. Some even would say that 100% equities are OK compared with a 30 year mortgage, that equities usually outperform the mortgage interest rate over a 30 year period.

Those are two different view points. I think they are both reasonable. The first is an apples-to-apples comparison, the second isn't - but that does not make it invalid, it just depends on your view of the risk. Bottom line though, it makes discussion between the two camps pretty difficult. Neither is right/wrong, IMO, just different approaches.

I do have a question for the people in the first camp though. Have you held any investment at all (outside of an emergency fund in a MM) before you paid off the mortgage? It just seems to me that the only consistent answer is 'No'. Shouldn't any and all savings go towards that risk-free mortgage pre-pay first? So, not a single penny in stocks until the mortgage is paid off?



-ERD50
There is no such thing as risk free. In this case I would say there is

a) a liquidity risk with the money used to pay down
b) inflation risk with the money used to pay down
c) opportunity cost risk with money used to pay down

Each individual balances their own risks differently. Anyone suggesting any investment is "risk free" is misleading at best.

I would say the return on paying off the mortgage is known (and guaranteed), but I dislike seeing risk free- because the money used to pay down is subjected to the risks stated above.
__________________
Light travels faster than sound. That is why some people appear bright until you hear them speak. One person's stupidity is another person's job security.
jIMOh is offline   Reply With Quote
Old 02-15-2008, 11:43 AM   #126
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,372
I think it was very clear that W2R was talking only about her own decision being best for her and she even went out of her way to say others do other things that are best for them. I don't see how a newbie would read her posts and think Oh, that's the way everyone should do it, that must be gospel. I also don't think she or anyone else needs to post the flip side of anything--and most people don't. How long would your posts be if everytime you said "Oh I got a great rate at PenFed" and then had to say, "but you must remember of course, the flip side of that great rate is...."
__________________
Bestwifeever is offline   Reply With Quote
Old 02-16-2008, 12:26 AM   #127
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Just to add, I have heard these arguments before, and come down on the paid off mortgage side, while seeing the possible merit of trying to beat the spread if that's your thing. But I certainly hope anyone reading this thread realizes if you decide to keep your mortgage and do a classic 60/40 stock/bond portfolio you're getting the bad half of both sides. As an accumulator, it's conceivable to have a 90%+ stock portfolio, but once you are in withdrawal phase it just doesn't seem worth the risk. Declining markets + big withdrawals = bad news!
__________________
laurence is offline   Reply With Quote
Old 02-16-2008, 09:38 AM   #128
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Like Brewer said, theres a lot of ways to invest with leverage. Using your house may not be the best first choice.

How about buying REIT's on margin? Doesnt that sound like a cant-miss?
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 02-16-2008, 10:43 AM   #129
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by cute fuzzy bunny View Post
I 'made' 6.25%, avoided a huge loss on that cash had it remained invested, didnt pay any income taxes for three years, and frankly didnt lose any sleep at the market movements because they didnt mean that much to me.
Quote:
Originally Posted by laurencewill View Post
Just to add, I have heard these arguments before, and come down on the paid off mortgage side, while seeing the possible merit of trying to beat the spread if that's your thing. But I certainly hope anyone reading this thread realizes if you decide to keep your mortgage and do a classic 60/40 stock/bond portfolio you're getting the bad half of both sides. As an accumulator, it's conceivable to have a 90%+ stock portfolio, but once you are in withdrawal phase it just doesn't seem worth the risk. Declining markets + big withdrawals = bad news!
Then there's the "Yes, but you sleep better at night with no volatility risk!" reasoning. Even if the bonds are earning less than the cost of the mortgage.

Sigh. 117 posts later we've established that paying off the mortgage can be a good thing. It can also be a bad thing. And that noodges will be noodges, no matter the subject.

While I'm adding this thread to the FAQ reciprocated diatribes archives, let me also add that spouse & I arb our mortgage because (1) it's so cheap to do so, (2) the volatility risk is reasonable for the size & asset allocation of our ER portfolio, and (3) if we've really screwed up and the markets take a decades-long black-swan holiday from a century of "Triumph of the Optimists", then we still have govt pension checks coming in each month.

Everyone should do their own math, and most people shouldn't try this at with their home.

There. All the impressionable newbies have been exposed to both sides of the debate.

But we did come within 1/8th of a percentage point of refinancing last month.

Quote:
Originally Posted by cute fuzzy bunny View Post
Like Brewer said, theres a lot of ways to invest with leverage. Using your house may not be the best first choice.
How about buying REIT's on margin? Doesnt that sound like a cant-miss?
I've never received a margin call on a house. And the leverage we personally use for this case is called "landlording!"

Gosh, what a great idea for a new thread. "Should I carry a mortgage on my rental home or pay it off? But... but... but what about the opportunity costs of Schedule E?!?"
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 02-16-2008, 11:11 AM   #130
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by Nords View Post
I've never received a margin call on a house.
You never used an ARM with a balloon payment.
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 02-16-2008, 01:39 PM   #131
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 716
Huh A balloon payment isn't a margin call.

From a financial point of view:
* 30 years (or ever 20 or 15) is long term.
* Over the long term, the S&P500 return is 10.5% per year.
* 10.5% (earnings) is greater than 6% (cost)
* The 6% cost is fixed and constant.
* The 10.5% earnings is highly variable from year to year. Some years it is negative.
* It is highly risky to to have a large percentage of your net worth in any single asset.
* It is highly (nay: extremely) risky to not be able to service the mortgage.

As long as you can reliably service the mortgage, the best financial option is to have a mortgage and leave your cash in investments.

From an emotional point of view, many people feel better without a mortgage. Realize, however, that there is a significant financial cost to this choice. 450 basis points is a LOT of money to give up.
__________________
rayvt is offline   Reply With Quote
Old 02-16-2008, 02:07 PM   #132
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 716
When I announced at work that I was retiring early (at age 58 ), there was a constant stream of co-workers coming to my office to discuss finances and ask how I did it.

One of my close buddies was particularly interested, especially when I told him that I had just recently refi'ed my house (yet again) with a new 30 FRM. He had had a 15 year which they had finished paying off a couple of years earlier.

At today's rates, on a 250K mortgage the payment difference between 15 yr and 30 yr is $543 a month (2003 vs. 1460).

So we ran the numbers. Deposit $543 a month in an investment which earns 10.5% per year for 15 years. Final balance: $235,678. My balance after 15 years is just about the initial mortgage amount!

After 15 years:
He has a house worth $250k with no mortgage balance. Total assets: $250,000.
I have a house worth 250K with a $175,766 mortgage balance PLUS investments worth $235,678. Total assets: $309,912.
If I wanted to, I could pay off the balance and still have $135,146 in cash.

Of course, they had the emotional satisfaction of having a fully paid for house in 15 years. But sometime in the 12th year my account balance would be greater than my mortgage balance, so I could have liquidated it and had a fully paid for house 2-3 years before he did.

If we just keep it up for another 15 years, him investing his former mortgage payment of $2003 and me investing $543:
Both houses are fullly paid off.
His balance is 250K house + $869,361 investments = $1,119361.
My balance is 250K house + $1,366,405 investments = $1,366,405.
My net work exceeds his by almost $500,000.

That's the kind of thinking and money managing that is why I could retire at 58 and he's going to have to work until 65.
__________________
rayvt is offline   Reply With Quote
Old 02-16-2008, 02:11 PM   #133
Full time employment: Posting here.
 
Join Date: Sep 2007
Posts: 716
But, of course, he isn't actually going to start saving/investing that $2003 a month. And he truly didn't. His wife saw the extra $2003 and started planning for new furniture and family vacations and other goodies that they had sacrificed in order to make those higher mortgage payments.

After they finished "negotiating" (code work for somebody sleeping on the sofa), they bumped up the 401K contribution by $500 a month. The other $1503 got spent rather that invested.
__________________
rayvt is offline   Reply With Quote
Old 02-16-2008, 03:52 PM   #134
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
One point that I don't think has been raised yet: 15 year loans may have higher rates simply because lenders get more profit when people to take longer to pay off loans. Lenders set their rates with the intention of charging you enough in interest, over and above their cost of money, that each year you hold the loan the lender gets more profit. That's why these mortgages are sold to investors in collateralized form... the buyers are paying for a stream of future profit. This is also how some mortgages can be zero cost/fees/points... in that case the lender pays the broker thousands of dollars in hopes of making it back in interest payments.

Because the mortgage companies know that people who take out 15 year mortgages are more likely to pay them off quickly, they can count on fewer years of profit, so they have to charge a comparatively higher rate on them.

Also lenders know that the higher monthly payments of a 15 year loan can be harder to pay back, so there is a somewhat higher risk of default and foreclosure. I remember when I bought my first car and I couldn't qualify for a 4 year loan but could qualify easily for a 5 year loan. Same effect.

So in a situation where the yield curve was flat, you would expect the 15 year loan to have a higher interest rate than the 30 year. This is one reason why 15 year loans can cost you extra.
__________________
free4now is offline   Reply With Quote
Old 02-16-2008, 05:02 PM   #135
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
cute fuzzy bunny's Avatar
 
Join Date: Dec 2003
Location: Losing my whump
Posts: 22,697
Quote:
Originally Posted by rayvt View Post
Huh A balloon payment isn't a margin call.
You didnt get the joke. And apparently didnt read the thread either!
__________________
Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
cute fuzzy bunny is offline   Reply With Quote
Old 02-16-2008, 08:12 PM   #136
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,946
Quote:
Originally Posted by free4now View Post
One point that I don't think has been raised yet: 15 year loans may have higher rates simply because lenders get more profit when people to take longer to pay off loans. Lenders set their rates with the intention of charging you enough in interest, over and above their cost of money, that each year you hold the loan the lender gets more profit. That's why these mortgages are sold to investors in collateralized form... the buyers are paying for a stream of future profit. This is also how some mortgages can be zero cost/fees/points... in that case the lender pays the broker thousands of dollars in hopes of making it back in interest payments.

Because the mortgage companies know that people who take out 15 year mortgages are more likely to pay them off quickly, they can count on fewer years of profit, so they have to charge a comparatively higher rate on them.

Also lenders know that the higher monthly payments of a 15 year loan can be harder to pay back, so there is a somewhat higher risk of default and foreclosure. I remember when I bought my first car and I couldn't qualify for a 4 year loan but could qualify easily for a 5 year loan. Same effect.

So in a situation where the yield curve was flat, you would expect the 15 year loan to have a higher interest rate than the 30 year. This is one reason why 15 year loans can cost you extra.
I have never seen this. I would NEVER expect to pay more for a 15yr mortgage vs. a 30 yr loan. The risk on the longer term dictates a higher rate. Did I miss something?
__________________
jazz4cash is offline   Reply With Quote
Old 02-16-2008, 08:50 PM   #137
Thinks s/he gets paid by the post
free4now's Avatar
 
Join Date: Dec 2005
Posts: 1,225
Quote:
Originally Posted by jazz4cash View Post
I have never seen this. I would NEVER expect to pay more for a 15yr mortgage vs. a 30 yr loan. The risk on the longer term dictates a higher rate. Did I miss something?
As an example of what I'm talking about today etrade mortgages lists the following rates on

https://lending.etrade.com/e/t/mortg.../mortgagerates

30 year fixed 5.875%
25 year fixed 5.875%
20 year fixed 6.000%
15 year fixed 5.750%

In this case the 20 year rate is higher than the 30 year rate! Also the 15 year rate is higher than the yield curve might predict... the treasury site lists the yield curve for today at

U.S. Treasury - Daily Treasury Yield Curve

30 year 4.58%
20 year 4.55%
10 year 3.76%

Now since they don't list a 15 year rate it's hard to compare apples to apples, but the yield curve predicts 10 year to be more than 3/4 points less than 30 year. So the 1/8 point discount for 15 year that etrade is offering is pretty clearly not a great deal.
__________________
free4now is offline   Reply With Quote
Old 02-16-2008, 09:10 PM   #138
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Laurel, MD
Posts: 2,946
The 30 yr rate you posted is higher than the 15.
You could also check here.......
Bankrate.com (tm) Averages

or here

Compare Mortgages, Refinancing Rates, Calculators, Home Loans - HSH

and you will see the same pattern. These are national averages.
__________________
jazz4cash is offline   Reply With Quote
Old 02-16-2008, 09:18 PM   #139
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 2,020
Here's what I have... feel free to punch holes in the numbers.

I have in mind for this little experiment a 25 yr old couple purchasing their first house. They have $1600 a month that they will spend on either a mortgage, investing, or a combination thereof. They're looking at a $250k place with 20% down. Their options are a 15 yr at 5.2% or a 30 yr at 5.75% (both taken off of bankrate.com, seems like a reasonable starting point).

To keep this simple, let's put the bounds at 30 years for the experiment. Either they pay off the house for 15 years and then invest for 15 years or they carry a mortgage and invest for 30 years (or something in between). Further, I'm going to assume a 9% CAGR on investments and I'm not counting the write-off for mortgage interest (the first takes into account a moderate portfolio and the latter is too much for me to include).

I'm just using the savings calculator over at dinkytown for the investment calc.

Scenario 1 - Minimum payment on the house

They'll pay $1,167 a month in interest leaving them with $433 a month to invest. At the end of 30 years, they will have paid a total of $420,170 on the loan over 360 months. Their investment account be worth $742,327.

Scenario 2 - Pay a little extra on the house

The couple wants to get ahead on the mortgage so they pay $200 extra a month on principle. They invest the remaining $233. They'll pay $1,367 a month for ~21 years. At that point, they'll have paid a total of $345,266 for the house. Their investments will be worth $166,349. At that point, they'll start putting $1600 in their investment account for the remaining 9 years. At the end of the 30 years, they'll have $623,323 in their investment account.

Scenario 3 - 15 years and then save save save!!(!)

The couple will pay $1602 a month for 15 years. At the end of the loan, they'll have paid $288,450. They will then save $1600 a month for the next 15 years. At the end of that time, they will have $590,850 in their retirement account.

Netting things out.

Scenario 1 - thirty and out: $742,327 - $420,170 = $322,157
Scenario 2 - every little bit helps: $623,323 - $345,266 = $278,057
Scenario 3 - get it over and save: $590,850 - $288,450 = $302,400

I would think scenario 1 would come out a little better if we take the mortgage deduction into account.

All of that said, I still intend to go into retirement with a paid off house. Basically, from a psychological standpoint, I know my wife and I will both sleep much better at night if our monthly expenses are as low as possible.

I think the next quick numbers to crunch would be for two 55 yr old empty nesters selling and downsizing. Their option in that point would be to pay cash for the next house or carry a mortgage and invest the lump sum. In that case, I think the yield would be lower as they're entering a moderate risk time period (at least, my imaginary people are, ymmv).
__________________
Marquette is offline   Reply With Quote
Old 02-16-2008, 10:27 PM   #140
Moderator Emeritus
laurence's Avatar
 
Join Date: Feb 2005
Location: San Diego
Posts: 5,234
Those who say 10.5% - 6% = profit! I ask this, is your portfolio 100% stocks? Because that's what it will take to make the plan work. Also, that's the looong term for the S&P 500, meaning if you are in the don't buy green bananas stage of life, you run the risk of hitting a ten year bear market a la late 60's through the 70's. Young dreamers should definitely be socking their money into retirement vehicles vs. paying extra on the house, but I don't see how a 55+ retiree should be advised to have a fat mortgage and go 100% stocks.
__________________

__________________
laurence is offline   Reply With Quote
Reply

Tags
mortgage


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
Mortgage Rates & the Fed scooter260 Other topics 6 12-08-2007 08:09 AM
Mortgage Rates runnerr FIRE and Money 1 12-02-2007 03:49 PM
Mortgage Rates Arc FIRE and Money 37 03-26-2007 09:21 PM
Refi Question for all you Mortgage Gurus Patrick FIRE and Money 7 10-03-2006 11:19 PM
Mortgage/Withdrawal Rates stevelb FIRE and Money 2 07-02-2002 02:04 AM

 

 
All times are GMT -6. The time now is 12:02 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.