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Re: pay off mortgage
Old 05-04-2005, 12:44 PM   #41
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Re: pay off mortgage

I paid a big chunk off my mortgage last year and I'm going to finish paying it off in the next month or two. *I had some good gains in some stocks last year and deceided to sell some. *I also sold some lots. *I am planning on retireing soon and for me it was more of a cash flow thing. *If I payoff the mortgage it saves me from having to come up with $1000 per month. * I had a 5%, 15yr mortgage and I will have paid it off in 3. *

I only borrowed around 120k as I rolled the equity from my former house into this one. *I look at the paid for house as comparable to a fixed income investment. *What I saved is guaranteed as I fully expected to pay it off anyways. *The amount I need each month is lower also by the amount I would have to pay taxes on to clear the $12000. *

I can now have the choise of being heavier weighted in stocks or I can be more conservative as my monthly needs are lower. *It just depends on how I want to do things at the time. *I generally don't buy stocks on margin and I wouldn't take out a loan to buy stocks so it made sense to me. *Although if the right investment came up I may borrow against my house and would most likely pay more, so we will see. *

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Re: pay off mortgage
Old 05-04-2005, 01:38 PM   #42
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Re: pay off mortgage

Quote:
Originally Posted by tryan
Brinker makes the mortgage-payoff-decision this way:
1. Deduct your tax benefit. For me, it's a 4.875% rate and a FIRE tax rate of 15%. So, the resulting cost of the mortgage is 4.14% (4.875 x .85).
2. Subtract inflation, since the future payments will be made with cheaper $$. 3% would be a good historical number. So the final cost of the $$ is 1.14% (4.14 - 3).
Brinker is off. I paid off the mortgage in 200 because I had a diversified portfolio that included bonds which payed 2% less than what I was paying on the mortgage. No brainer for me. The tax writeoff is a wash, you deduct the interest, but pay tax on the investment income.

I'd go for the mortgage if I could buy a safe investment (link treasuries) and use the interest to pay the mortgage. It hasn't been close for the time I've been monitoring.

I'm not interested in lending money at 4% and borrowing it back at 6%.

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Re: pay off mortgage
Old 05-04-2005, 02:16 PM   #43
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Re: pay off mortgage

Heres My opinion. I paid off my Mortgage prior to ER. My reasoning is that absent very high retirement income and substantial assets, having mortgage payments after retirement isn't a good idea.

For those on this board with lots of income and assets, mortgaging the house is a portfolio-leveraging decision.
I believe Mortgage payments in retirement present two very real dangers. The first is that the need to make the monthly payments from investments will subject your portfolio to a higher rate of withdrawal. We all know higher the annual withdrawal rate the lower the portfolio survival rate. The second issue is rising above the "tax free" income threshold that brings taxation of Social Security benefits. When your income, including one-half of your Social Security benefits, exceeds $32,000 on a joint return, your Social Security benefits are subject to taxation. As a consequence, every $1,000 remove from your retirement funds to pay mortgage debt will cause between $500 and $850 of Social Security benefits to be taxed. It can make mortgage payments very expensive. Keep it simple.
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Re: pay off mortgage
Old 05-04-2005, 02:58 PM   #44
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Re: pay off mortgage

Admittedly Brinker does not account for taxes on the gains - or managements fees - paid when assets are sold to pay the mortgage.

We're splitting hairs ... the inflation hedge is where the meat is on this bone. Especially if you locked in the 4% range.

As a side note ...I got some state government mortgage $$ at 3% fixed for 20 years. NO WAY I am paying that early. So the question becomes at what rate do you NOT pay a loan early.

Not if, but at what rate ....
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Re: pay off mortgage
Old 05-04-2005, 03:18 PM   #45
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Re: pay off mortgage

I have enjoyed reading this exchange -- in part because almost everyone's viewpoint is valid from the perspective it represents. As many have noted, whether or not to dispatch a mortage is more psychological than anything else. But, what a sensation it must be to know that one's home is paid for and owned in "fee simple!"

In two years, when I really retire, my wife and I will sell the current home, pay cash for a newer (smaller I hope) one, and bank the rest. The idea of never having to pay a monthly note is sweeter to me personally than the marginally greater amount of money I could make by investing, taking a mortgage tax deduction, etc.

But, as the old saying goes, "to each his own."
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Re: pay off mortgage
Old 05-04-2005, 04:17 PM   #46
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Re: pay off mortgage

Tryan - your inflation protection thesis is correct, but only if you stay in the home for a very long time...again well past the statistical average.

If you stay less than 7 years, as most people do, you're paying a lot of mortgage interest, building very little principal, and paying a lot of extra income tax for that 'inflation protection'.

I'd rather own ibonds. Pick up your jaw Charlie
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Re: pay off mortgage
Old 05-04-2005, 04:31 PM   #47
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Re: pay off mortgage

Sell your highly mortgaged house after x years(we all live a booming RE market don't we) - take the dividends and interest from your stock portfolio and RENT. Also throw your RE profits into the market.

Heh, heh, heh

And wait for another house to buy.

Hey - why not dirty RE timers AND market timers!
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Re: pay off mortgage
Old 05-04-2005, 07:55 PM   #48
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Re: pay off mortgage

I have personally owned 7 residences where my family lived full time.
Average stay?.........................3.8 years. That is the main reason I never made any real money when I sold the house.

JG
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Re: pay off mortgage
Old 05-05-2005, 10:54 AM   #49
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Re: pay off mortgage

Yet another great thread with many diverging approaches.

I've made it pretty simple - I've looked at the monthly expense average with and without a mortgage---in my case, a mortgage payment is the largest (by quite a bit) category of my expenses. If I can minimize that in retirement, I will need that much less to live on, meaning I'll hopefully need that much less amassed in my portfolio. I do understand the arguments regarding what I could be doing with my money otherwise (paying down principal, etc), however, I haven't been that savvy in my investments to squeak out the extra % or two - it's simpler for me to pre-pay/pay off the mortgage.

I'll be like playaman and sell my current residence after mortgage is paid off (or pretty close), move to a lower priced area (another state - I'm currently in CA) and pay cash for a house.

Bridget
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Re: pay off mortgage
Old 05-05-2005, 11:34 AM   #50
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Re: pay off mortgage

Bridget

Don't tell them you're from California. When I was back in the Pacific NW selling my Mom's house, 1993, a lot of sour grapes articles in Portland and Seattle papers - Cal types showing up with their cash equity and running up local prices.

Since I was selling - I thought it was cool - sold to a local though.
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Re: pay off mortgage
Old 05-05-2005, 12:25 PM   #51
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Re: pay off mortgage

Bridget...I did that but I stayed in CA. While we have a stiff income tax, our prop 13 property taxes are a good deal and health care here is cheaper than a lot of places. Plus its tough to beat the weather.

I'd just like to see the "outlying areas" go back to being more affordable. Having places in the middle of frickin nowhere that are priced almost as high as really nice areas really galls me.
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Re: pay off mortgage
Old 05-05-2005, 05:58 PM   #52
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Re: pay off mortgage

Th, I also live in California. Thank the heavens for Prop 13. Can you just imagine what our property taxes would be if we didn't have this safety net. We are still not sure if we will 'take the money' and run out of State. Don't think Arnold will touch Prop 13, do you?
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Re: pay off mortgage
Old 05-05-2005, 06:24 PM   #53
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Re: pay off mortgage

I don't think Arnold will touch Prop. 13. Obviously he is not
nearly conservative enough to suit me. Still, if I voted, I would vote for him. A winner with a sense of humor............what's not to like?

JG
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Re: pay off mortgage
Old 05-05-2005, 06:51 PM   #54
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Re: pay off mortgage

A 2 faced, lying egotist with no clue how to govern?* Yeah, what's not to like.
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Re: pay off mortgage
Old 05-05-2005, 07:33 PM   #55
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Re: pay off mortgage

ROFL.
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Re: pay off mortgage
Old 05-05-2005, 09:48 PM   #56
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Re: pay off mortgage

Quote:
Originally Posted by ronin
A 2 faced, lying egotist with no clue how to govern?* Yeah, what's not to like.
Yeah, his predecessor was doing a swell job

Jg
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Re: pay off mortgage
Old 05-06-2005, 12:15 AM   #57
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Re: pay off mortgage

Certianly can't muster the energy to defend Gray Davis, but Arnold is on a record pace to break the most promises in the least amount of time. Promising education would be hurt "over my dead body", then borrowing 2 billion from the education fund and saying, "nah, Anold will not pay baak, stick araound, this is my veak aaam, remembah when I said I kill you last? I lied!" . Yeah, great guy.
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Re: pay off mortgage
Old 05-06-2005, 05:25 AM   #58
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Re: pay off mortgage

Quote:
Originally Posted by laurencewill
Certianly can't muster the energy to defend Gray Davis, but Arnold is on a record pace to break the most promises in the least amount of time.* Promising education would be hurt "over my dead body", then borrowing 2 billion from the education fund and saying, "nah, Anold will not pay baak, stick araound, this is my veak aaam, remembah when I said I kill you last?* I lied!" .* Yeah, great guy.
Well, I love the guy (of course I don't live in Calif.). He is way better than the
&**^#&&* of a ++*^#@*& we have here in Illinois. Sure, he is way to the left of me on the political scale. So is most of the population, and a lot of those who might
otherwise fit into my mold are in prison. It gets lonely way out here on the fringe

JG
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Re: pay off mortgage
Old 05-06-2005, 08:22 AM   #59
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Re: pay off mortgage

He certainly endeared himself to thousands of nurses with his "kick their butts" statement. What is this man thinking?

Speaking of butt, he'd better assign a special security detail to his if he's ever sick, cause most medication can be given 'per rectum'. You know for the better absorption...

Judy
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Re: pay off mortgage
Old 05-06-2005, 10:05 AM   #60
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Re: pay off mortgage

He has managed to piss off just about every political entity in California.* He is now a 1st term lame duck.* He will be prevented from accomplishing anything.* His plan is to govern by the initiative process, but so far the proposals have been poorly thought out and riddled with flaws.* CTA alone will probably spend whatever is necessary to crush him at the polls.
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