Mortgage(s) in Retirement

[LeavingOhio]

It never ceases to amaze me about how many folk still have mortgages on their main abode after (or during) retirement. I can understand it on a second home. I read about people refinancing etc. at good rates, not sure if all are retired or not. Would not paying off a mortgage be a main priority first, in order to have an affordable ER or R for that matter. It was certainly a priority for us before we retired the first time. I guess if one has a high steady income or something it may not affect them. But I somehow think that most of us are not in that position. While we are probably comfortable, I would think that NO Debt would be the order of the day. Am I wrong?

I am curious as to how many of us have mortgages on their primary property and perhaps the logic of why if it is not too personal. I live in an area in Florida where about 75% - 85% of my neighbors are retired. For some the homes are seasonal or second homes. I would say from the folk I know, they ALL have paid off their mortgages, and own their homes or both if they are seasonal free an clear. There ar a couple that I do not know either way, but I would think they do. I am in the minority as I still work part time but am similar in that I do not have any debt.

Assuming a retired couple is paying on average $1000+ in this day and age for their mortgage. Does that mean that they have to find that from their retirement income sources.

Or home is worth now about $600k (hopefully) we are mortgage free. This applies to about a $2,000 PM savings IMHO. (I picked that number out of the air because I have no idea really).

What about others here if you do not mind sharing. Also you opinions on having one verses not if it is applicable. And either way how does that effect the retirement quality of life.

SWR.

There are many ways to skin this cat, but I do prefer (and will not have one) to have no mortgage in retirement. For those with decent pensions (my parents for example) and SS and other investment income, carrying a mortgage might not be a big deal. My parents still have a mortgage even though they've been retired for about 10 years now. The reason is that my father was a Methodist minister and didn't own a home until he retired (he always lived in homes owned by the church). He was forced to retire early due to a then "incurable" cancer that he had that he has now been cancer free of for about 7 years! He's the first recorded person to be "cured" (he doesn't like to use that word, so we'll say "put into remission") of this cancer. Anyway, he has a nice pension, they get SS, and my mother invested for their retirement while working as a nurse. They can handle it all just fine.

For me, it will just be my own investment money and SS. My wife has been a stay at home mom for years and only recently (last 2 years) has been working part time. Due to some health issues (fibromyalgia) she may never move from that level of working, and hopefully she will be able to continue that level of working. Our projected income when I want to retire at age 60 (before getting SS) is just about $40,000 a year. This, for us, is only doable if we are debt free including the house. When we both turn 62 just a couple years later (3 for my wife), we COULD then add Social Security income which in future dollars (and future SS projections) would more than double our income. So, if I were to continue working until age 62 and then retire, I could make it with a mortgage the size of the one I have now, but I'm looking to retire earlier than age 62, so having no debt then is a must for me.

 

[healthyandfun]

Comfort Level

Recently joined and will Be retiring in a year and a half. I'm a single teacher,57, and paid off my house 3 years ago. Been saving the house payment ever since and have built up a tidy sum, so much that I had refrigerated air installed last year. Beating the Texas heat is delightful.

My decision to have no mortgage by retirement came when I purchased my house. I read all the information I could find and decided on a 15 year loan to accomplish my goal. Real estate agent told me that people only take 30 year loans. I showed her it was possible and by the time I got the loan the rate was .5 per cent lower than a 30 year fixed. I stuck wih the plan and as my salary increased I saved it in 403b. Sure am glad I read all those books from the public library. It was a great feeling when I made the last payment.....and the decision worked for me, but I can also see why others may choose to have a house payment in retirement.

 

[Calico]

Meh. There are 319 other open mortgage payoff threads on the forum, makes no difference if this one also stays open...

 

[tapper]

I saw this article yesterday and immediately thought of this thread.

Retirees hit hard by foreclosures - Yahoo! Finance

All told, more than 1.5 million Americans aged 50 and older lost their homes in the five years from 2007 through 2011.
...
Among homeowners age 75 and older, 3.2% lost their house to foreclosure in 2011, up from the 0.33% in that age group who faced foreclosure in 2007.

I suspect that it's really difficult to be foreclosed if you have no mortgage.

 

[rayvt]

Yes. But it's still possible to lose your house if you don't pay the real-estate tax.

As for the article.....these were people who had no hope of paying off the mortgage anyway. The whole discussion in this thread is about people who *can* pay off the mortgage but choose not to. Obviously, if you can't pay it off, this discussion is moot.

 

[ejman]

Yes. But it's still possible to lose your house if you don't pay the real-estate tax.

Not everywhere, there are a number of states (eg Oregon) where once senior hood is achieved (there had to be some benefits huh?) property taxes are deferred and taken as a lien against the house upon the demise of the owner(s) given some income thresholds.

 

[Animorph]

I ran FIRECalc to look at the probabilities of mortgage loan investment success.

Inputs were defaults except:
$100k portfolio value/loan amount
$5729.04 annual spending/loan principal and interest payments (4% loan)
30 year period (a new mortgage)
0.0% inflation (loan payments are fixed)
(default portfolio: Total Market, 75% equities, 0.18% ER)

Results were:
95.5% success rate
$346,456 average portfolio end value
-$261,366 to $1,457,563 minimum and maximum portfolio end values
$270,330 median portfolio end value (half above, half below)
(you also have paid off the $100k loan)

Deflating those results by 3%/year to get back to current year dollars the results translate to:
95.5% success rate
$142,735 average portfolio end value
-$107,679 to $600,497 minimum and maximum portfolio end values
$111,372 median portfolio end value (half above, half below)
(you also have $41,199 present value invested in your house)


In terms of net worth, using the deflated $ amounts:
Starting: $100k portfolio - $100k loan + $100k house = $100k net

Present value of net worth in 30 years:
Average: $142,735 portfolio - $0k loan + $41,199 house = $184k net
Min: -$107,679 portfolio - $0k loan + $41,199 house = -$66k net
Max: $600,497 portfolio - $0k loan + $41,199 house = $642k net
median: $111,372 portfolio - $0k loan + $41,199 house = $153k net

Present value of net worth in 30 years without taking the loan:
Starting: $0k portfolio - $0k loan + $100k house = $100k net
End: $0k portfolio + $0k loan + $41,199 house = $42k net


The five negative portfolio ending values were:
-$21k
-$3k
-$27k
-$261k
-$180k
(all in future $)
That's the risk part.


House value appreciation is not shown, since it is the same for all cases. Hopefully it increases enough in value to make up for the inflation losses on that $100k.

So by taking the risk of a $100k loan, your present net worth can be increased by $184k - $42k = $142k on average. Historically you have a 95.5% chance of not losing money. Historically you could lose up to $107k in today's dollars. That all probably looks good to those of us not looking for 100% success rate SWR's. Those of us looking for 100% SWR's would probably not like this risk.

 

[ERD50]

I ran FIRECalc to look at the probabilities of mortgage loan investment success. ...

Interesting - a couple observations:

A) I don't think you need to adjust for inflation. I believe that FIRECALC presents those ending portfolio values in today's dollars.

B) Maybe I didn't follow - but what is the % success w/o the mortgage? Isn't it 95.5% also? Do the negative portfolio values become more extreme with a mortgage (OK, I think you are saying that, but I'm not sure the adjustments are relevant)?

C) A mortgage equal to one's liquid assets is probably higher than most of us would suggest, but maybe that's OK for demo purposes.

D) I have run some of these in FIRECALC in the past, and I think it was Gone4Good who pointed out it might not be a good tool for this. You would not always be able to get a 4% loan in all those years, so it might be misleading.


If the horse is beaten enough, we can always kick the saddle around a bit. Should be good for a few more [-]years[/-] decades of discussion.

-ERD50

 

[aaronc879]

If I down sized to this I could retire right now with or without mortgage:

Now that's a tiny house: 1 square meter - Yahoo! Homes

My point is mortgage or no mortgage buying a lower priced home will save you more money.

 

[Animorph]

My responses in red:

Interesting - a couple observations:

A) I don't think you need to adjust for inflation. I believe that FIRECALC presents those ending portfolio values in today's dollars.

I don't know. I did input 0% inflation, so if it uses that number for a PV calc the ending dollars will be for 2042.

B) Maybe I didn't follow - but what is the % success w/o the mortgage? Isn't it 95.5% also? Do the negative portfolio values become more extreme with a mortgage (OK, I think you are saying that, but I'm not sure the adjustments are relevant)?

I assumed without the mortgage you had none of the $100k in your portfolio. $0 invested, zero gained, zero risk, 100% certainty of $0 at the end. I just tracked the differences.

C) A mortgage equal to one's liquid assets is probably higher than most of us would suggest, but maybe that's OK for demo purposes.

That was not intended. They both have some portfolio off to the side, or maybe a big annuity. Both portfolios/annuities are the same, start and end. So I ignored the stuff that was the same and only looked at the differences.

D) I have run some of these in FIRECALC in the past, and I think it was Gone4Good who pointed out it might not be a good tool for this. You would not always be able to get a 4% loan in all those years, so it might be misleading.

Yeah, FIRECalc always has that problem. Using it in 2009, it assumes most of the Great Depression is going to happen right after the market has already gone down 50%. Not likely.

But we can get 4% loans now, and you can always try different rates. Certainly an 8% loan would be much less appealing and put a big damper on this discussion.


If the horse is beaten enough, we can always kick the saddle around a bit. Should be good for a few more [-]years[/-] decades of discussion.

-ERD50