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Old 07-15-2012, 01:27 PM   #121
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We financed our mortgage 7 years ago when we retired, and have refi'd several times since then. The latest refi was 2 years ago. We wanted to not worry about locking up a large percentage of our net worth into one illiquid asset.
Instead, we put the money we would have used to pay off the mortgage into a diversified portfolio of bonds, preferred stocks, and T-biils. Which overall pays about 1 1/2 times the mortgage rate, so each month we have a net profit.

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Old 07-15-2012, 02:09 PM   #122
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You lose some of the easy tax deductability of a mortgage if you pay off the original purchase amount. After that there's just the $100k home equity maximum (which is also available while you have the original mortgage). Then you have to be a little more careful to use loan proceeds only for investment, and show enough investment income to pay the interest, in order to deduct the interest as an investment expense.
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Old 07-15-2012, 02:22 PM   #123
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Exactly. Having all that trapped equity sucks. Imagine if you had a mortgage and invested that money then you could rebalance, could use it for expenses, could take the money out, and it could be a part of our portfolio (with higher expenses, due to the mortgage).
I would not put all my money into the mortgage. You should have ample funds elsewhere to cover expenses. I take a fraction of my savings and put it towards the mortgage along with investment profits. I now have no mortgage and at 51 could ER today happy that I will never need to pay a mortgage again.
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Old 07-15-2012, 02:48 PM   #124
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No Debt is good in anyone's eyes,

SWR
This of course cannot be true. If it were, why would wealthy people and corporations use debt in their finance? It is not need, it is strategic planning.

And more generally, to say <no> whatever is good in <anyone's> eyes is falsified by even a cursory look around at the environment.

Ha
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Old 07-15-2012, 05:57 PM   #125
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This of course cannot be true. If it were, why would wealthy people and corporations use debt in their finance?
.......or governments. the financing of debt is a useful too. People, Corporations and Governments do it to invest in the future. People are lucky to be able to borrow at 3.25% and should do so, and the US government should borrow at the fantastically low rates is can right now.

Debt is a necessary evil and can be a useful tool, but paying off debt in good times as a hedge against an uncertain future is a useful diversification. While I have been earning I have paid off my mortgage so that my income requirement will be entirely taken care of by SS. I have diversified my SS streams by qualifying for both US and UK payments and I also have my own equity and bond investments as well as rental income. paying off my mortgage while I have earned income and investments profits might not maximize my financial return, but I believe it to be prudent.
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Old 07-15-2012, 06:47 PM   #126
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.......or governments. the financing of debt is a useful too. People, Corporations and Governments do it to invest in the future. People are lucky to be able to borrow at 3.25% and should do so, and the US government should borrow at the fantastically low rates is can right now.

Debt is a necessary evil and can be a useful tool, but paying off debt in good times as a hedge against an uncertain future is a useful diversification. While I have been earning I have paid off my mortgage so that my income requirement will be entirely taken care of by SS. I have diversified my SS streams by qualifying for both US and UK payments and I also have my own equity and bond investments as well as rental income. paying off my mortgage while I have earned income and investments profits might not maximize my financial return, but I believe it to be prudent.
Congratulations. I think you've covered your bases darn well. Other than REWhaoo's proverbial asteroid that's as good as it gets.
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Old 07-16-2012, 11:36 AM   #127
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Apparently even Zuckerberg think's it better to have a mortgage than to not have a mortgage:

Zuckerberg
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Old 07-16-2012, 12:33 PM   #128
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Apparently even Zuckerberg think's it better to have a mortgage than to not have a mortgage:

Zuckerberg
if I could get those rates, then i'd do it to.

here's an enjoyable quote from the article, relevant to this thread:

&ldquo;Even if someone would be able to pay off that mortgage with cash or other assets, they don&rsquo;t want to tie up their holdings in real estate because they may have access to other types of more attractive investments,&rdquo; he said.
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Old 07-16-2012, 12:58 PM   #129
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if I could get those rates, then i'd do it to.

here's an enjoyable quote from the article, relevant to this thread:

&ldquo;Even if someone would be able to pay off that mortgage with cash or other assets, they don&rsquo;t want to tie up their holdings in real estate because they may have access to other types of more attractive investments,&rdquo; he said.

Of course borrowing at 1% is pretty hard to say no to. But what does he mean by "more attractive investments".

Paying off a mortgage (or not) has to be considered holistically and it would not be the first thing I would do with my money. But if you have good cash flow, have maxed out retirement savings, have a good after tax portfolio that you are contributing to every month, then I think the next place to look is that 3% or 4% mortgage that you have. That's what I did and now that it's paid off my ER draw down strategy is far less stressful. Sure I have $200k invested in my house that would have gone into after tax investments, but I already have enough in those and rental income to get me to when SS starts at which point SS will cover all my expenses. My biggest difficulty is figuring how to manage withdrawals from my retirement funds to minimize taxes and RMD issues. As my home is in Boston it has done ok through the housing bust and is worth almost twice what I paid for it back in the 1990s so I figure it's a good investment. Part of my ER strategy is to minimize my need for income and so minimize taxes, paying off my mortgage means that I can comfortably live on $30k a year in one of the more expensive places in the US.
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Old 07-16-2012, 01:53 PM   #130
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In my opinion, it just feels better to me to ER without having a mortgage. As to whether it makes financial sense, there are too many variables to consider and when much of the analysis is done, it is still not a clear answer so I just went with what FEELS better to me. I have not ER'd yet but looking to ER in early 2015 (please ignore my name, it was wishful thinking!) I decided to pay off my mortgage this year. It feels great. Not having to pay nearly $3000 per month on the mortgage allows me, when I ER, to enjoy a much smaller SWR.
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Old 07-16-2012, 01:58 PM   #131
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Of course borrowing at 1% is pretty hard to say no to. But what does he mean by "more attractive investments".

Paying off a mortgage (or not) has to be considered holistically and it would not be the first thing I would do with my money. But if you have good cash flow, have maxed out retirement savings, have a good after tax portfolio that you are contributing to every month, then I think the next place to look is that 3% or 4% mortgage that you have. That's what I did and now that it's paid off my ER draw down strategy is far less stressful. Sure I have $200k invested in my house that would have gone into after tax investments, but I already have enough in those and rental income to get me to when SS starts at which point SS will cover all my expenses. My biggest difficulty is figuring how to manage withdrawals from my retirement funds to minimize taxes and RMD issues. As my home is in Boston it has done ok through the housing bust and is worth almost twice what I paid for it back in the 1990s so I figure it's a good investment. Part of my ER strategy is to minimize my need for income and so minimize taxes, paying off my mortgage means that I can comfortably live on $30k a year in one of the more expensive places in the US.

The difference is that someone at his level has a lot more opportunites to invest at a much better return than you are me have...

It's kind of like the Shark Tank TV show... those people offer the person a small % of what the firm is worth.... but most of the people sell anyhow because they know that they will still make a lot more money at the low % ownership than with a smaller company at a higher %... so the Sharks make a killing on their return...
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Old 07-16-2012, 02:09 PM   #132
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I think one thing we can agree on is everybody will not agree what is the correct "answer" ...

And that's OK. If we knew what the future would hold, it would make it a bit easier.

As for us? We built our current (retirement) home back in '94. When we applied for the note/mortgage, the bank we went through asked us why did we not just dip into our retirement funds and pay cash?

The answer was that we could afford to make the payments without a problem since we were both employed and had the spare cash to take on a new note. The note rate at that time was 6.875% (our previous two homes were both at 10%, for those of you who think today's rates are high ).

For those of you around in the mid-late 90's, you do remember the tech boom and the folks that were scraping up every bit of cash to invest in the market. OTOH, we took our extra cash and put it on the principal to reduce the loan period, paying off the 30-year term in just over 5 years, in late 1999.

At that time, our primary goal (of being note/mortgage free in preperation for retirement) was met, and we took the amount of the monthly payment plus the extra we were paying and put it into the market.

As most know, the period of 2000-02 was not a good time to be in the market, however it was a great time to invest new money into the market, as we were doing. While we were being quite contarian at the time (my co-workers though we were fools, even though some of them had HELLOC's to allow them to invest more at the time). Why didn't we put our money to work in the market, which was the general consensus?

Let's just say we did quite well, and it allowed us to retire a few years earlier than originally planned (fools that we were).

As I said, you don't know the future but in some cases it works out much better than planned.

BTW, we have no plans to use the value of our current home for anything other than possibly purchase another retirement home in the future (we're currently looking at possibilities). It's not part of our investment net worth (to be used to satisfy current income), but it is part of our gross estate net worth, to be used for our terminal bequests.

Sometimes, you can't beat dumb luck...
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Old 07-16-2012, 02:27 PM   #133
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We will probably have to wait a few years to see if Mr. Zuckerberg carries a mortgage in retirement, though. He is still trying to build up his nest egg at this point .
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Old 07-16-2012, 02:37 PM   #134
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We will probably have to wait a few years to see if Mr. Zuckerberg carries a mortgage in retirement, though. He is still trying to build up his nest egg at this point .
Billions in Facebook stock.......I hate is AA, he needs to diversify.
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Old 07-16-2012, 02:40 PM   #135
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For those of you around in the mid-late 90's, you do remember the tech boom and the folks that were scraping up every bit of cash to invest in the market. OTOH, we took our extra cash and put it on the principal to reduce the loan period, paying off the 30-year term in just over 5 years, in late 1999.

At that time, our primary goal (of being note/mortgage free in preperation for retirement) was met, and we took the amount of the monthly payment plus the extra we were paying and put it into the market.
I never put all my eggs in one basket. I made extra principal payments while also DCAing into equities and bonds, but now that the mortgage is paid off my SW amount looks very manageable.
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Old 07-16-2012, 07:02 PM   #136
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In my opinion, it just feels better to me to ER without having a mortgage. As to whether it makes financial sense, there are too many variables to consider and when much of the analysis is done, it is still not a clear answer so I just went with what FEELS better to me. I have not ER'd yet but looking to ER in early 2015 (please ignore my name, it was wishful thinking!) I decided to pay off my mortgage this year. It feels great. Not having to pay nearly $3000 per month on the mortgage allows me, when I ER, to enjoy a much smaller SWR.
Maybe the size of the payment matters too. My P and I on my note is under $500 a month. I could care less about paying that off ever. $3k a month, I would give up eating, to pay that off!
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Old 07-16-2012, 08:32 PM   #137
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In my opinion, it just feels better to me to ER without having a mortgage. As to whether it makes financial sense, there are too many variables to consider and when much of the analysis is done, it is still not a clear answer so I just went with what FEELS better to me.
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We will probably have to wait a few years to see if Mr. Zuckerberg carries a mortgage in retirement, though. He is still trying to build up his nest egg at this point .
Yeah, I think Zuckerberg's worried about being able to pay his mortgage in ER, too. After all he has something like six decades of SWR to worry about, and he can't just live off his spouse's income for the rest of his life... can he?

If a guy with a $10B portfolio has to cut his SWR from 3% to 2% then the resulting $100M whack out of the entertainment budget might seriously impact his domestic harmony.
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Old 07-17-2012, 02:56 AM   #138
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There are three types who carry a mortgage into retirement past a short time:

1. Those that are disciplined to utilize the low rates as part of a portfolio master plan (minority)

2. Those that must due to late start or intervening events. (some, but not most)
This includes those who go the reverse mortgage route late in life to fund retirement costs.

3. Those that continue to overextend and look for a reason to not pay off their primary residence so they can continue to spend elsewhere, or are trying to rationalize that large and long mortgage (sadly, a majority). These also are those who continue to seriously look with false hope at their large home being a short-term investment to fund retirement

Just the facts..IMHO.

Primary residence is really just a place to live in and enjoy.
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Old 07-17-2012, 08:09 AM   #139
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I hesitate to post to this thread because everything has probably been said already at least once. But I wonder if rationalization does play a role for some. Maybe less of an issue for the folks here. In Canada, tax laws, and the stucture of the mortgage market make it much less desireable to hold a mortgage in retirement as compated to the US. Nevertheless many people do I think mostly because they just can't bear to divert cash flow away from current consumption. i doubt given the LBYM culture on this board that many people are in that position, or at least would care admit to it.
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Old 07-17-2012, 08:39 AM   #140
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There are three types who carry a mortgage into retirement past a short time:

1. Those that are disciplined to utilize the low rates as part of a portfolio master plan (minority)

2. Those that must due to late start or intervening events. (some, but not most)
This includes those who go the reverse mortgage route late in life to fund retirement costs.

3. Those that continue to overextend and look for a reason to not pay off their primary residence so they can continue to spend elsewhere, or are trying to rationalize that large and long mortgage (sadly, a majority). These also are those who continue to seriously look with false hope at their large home being a short-term investment to fund retirement

Just the facts..IMHO.

Primary residence is really just a place to live in and enjoy.
Reading you list made me rethink a bit...

There are four types of people that have a mortgage:
1) they have enough money in the bank to write a check to pay it off
2) struggle every month to pay the mortgage
3) easily pay the mortgage and blow the extra every month
4) easily pay the mortgage and save/invest the extra every month

My thoughts are:
If you are in group 3 you should definitely pay extra and pay it off as soon as possible
If you are in groups 1 or 4, you have the option to do whatever you like
If you are in group 2 you don't have much of a choice

I think a lot of people that are in the "pay off now" camp look at paying extra into a mortgage as a forced savings plan. Any time I have read these threads I look at it from my view of having the cash in the bank to pay it off, not from the view of trying to pay extra every month to pay it off sooner.

Part of it is the same argument on whether or not to take a 15 or a 30 year mortgage. I just went through this myself, should I refi to a 15 year, a 30 year, or just pay off the mortgage.

For me, a 30 year mortgage was the right choice... I will continue to pay to mortgage at a 15 year rate to pay a bit quicker, but the cash I have in the bank is throwing off enough income to pay a significant portion of the note and it gives me flexibility/liquidity to use that cash for other investments if I so desire.
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