Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Pay off or carry mortgage?
Old 01-13-2006, 10:14 AM   #1
Recycles dryer sheets
 
Join Date: Apr 2005
Posts: 118
Pay off or carry mortgage?

After the interesting discussion of taking SS at 62/65 I have another that might be interesting. Shortly after early retirement I got married and my wife is 45. Well we decided to build a house and the question is should I pull 150000 out of my investment money to pay it off or carry the 6.25% mortgage. I would hope I could make at least close to 6.25% return and being able to write off the interest payment is money ahead. I am 56 and the portfolio of investments is about 850,000. There is no pension seeing I took the lump some. I am carried on wife’s health insurance. Comments please. Is it wiser to pay off a mortgage or continue with one for tax purposes?

runnerr
__________________

__________________
runnerr 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!

Re: Pay off or carry mortgage?
Old 01-13-2006, 10:19 AM   #2
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: Pay off or carry mortgage?

This has come up a few times before and a thread search should find it for you. I think it all depends on your individual circumstances like how far are you into your loan; what kind of rate do you think you can earn on your investments; what will a mortgage do to your daily living expenses in retirement; how long do you intend on staying in the house; how much equity do you have now; whick option lets you sleep at night?

Do the math and see what will change if you pay off the mortgage. Don't forget taxes and loss of investment future income to pay off the mortgage. It will all come down to what works for you.
__________________

__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 10:30 AM   #3
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,156
Re: Pay off or carry mortgage?

Quote:
Originally Posted by runnerr
Is it wiser to pay off a mortgage or continue with one for tax purposes?


In one corner, we have the "EE Bomber", SG. In the other corner, we have the "IQ Crusher", (). Let's Get Ready To Rrruuuummmble!!!!

Wait, is that Don King I see coming toward the ring? No, that's just Dory36 with his hair standing on end.

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 10:33 AM   #4
Thinks s/he gets paid by the post
SteveR's Avatar
 
Join Date: Jul 2005
Posts: 2,803
Re: Pay off or carry mortgage?

Quote:
Originally Posted by REWahoo!


In one corner, we have the "EE Bomber", SG.* In the other corner, we have the "IQ Crusher", ().* Let's Get Ready To Rrruuuummmble!!!!

Wait, is that Don King I see coming toward the ring?* No, that's just Dory36 with his hair standing on end.*
Duck and Cover...............incoming!!!
__________________
Work? I don't have time to work....I'm retired.
SteveR is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 10:43 AM   #5
Thinks s/he gets paid by the post
 
Join Date: Jul 2003
Location: Pasadena CA
Posts: 2,695
Re: Pay off or carry mortgage?

Quote:
Originally Posted by runnerr
Is it wiser to pay off a mortgage or continue with one for tax purposes?

runnerr
Analytically you can answer this either way dependending on your assumptions and forcasts. IMHO what is at least as important is your personal pschology about debt and risk. I vote for paying off a mortgage fully realizing that there are some financial circumstances where it would be advantagous to have a mortgage. You also have to sleep well at night or at least I do.

As others have suggested, search through old posts as this has been discussed. If there is *anything* new or unique that post again and you will probably get some great responses.
__________________
T.S. Eliot:
Old men ought to be explorers
yakers is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 10:47 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: Pay off or carry mortgage?

I'm still accumulating and I maintain a fixed mortgage at 4.99% (12.5 years to go). I don't quite have the cash to wipe it out in one go, so I just leave it alone, but I could probably gin up the dough in a year or two if I pulled out the stops. However, I will likely not pay it off until I either retire or I can no longer deduct the interest for some reason. Its too easy to beat 3.33% after tax.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 11:02 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: Pay off or carry mortgage?

And then and then

We have the 62 year old phart - who looked thru the classified ads for what was there in rentals(3 women, dog and a cat).

Said screw the the numbers - took out a 30 yr fixed at 5.7%.

Not all things are spreadsheet driven.

Sleep pretty good at night - so far. Will I pay it off early - someday??

I don't honestly know.

heh heh heh heh
__________________
unclemick is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 11:07 AM   #8
Dryer sheet wannabe
 
Join Date: Mar 2005
Posts: 19
Re: Pay off or carry mortgage?

Everyone's personal situation is different.

I paid mine off very early and am glad. It bought me a certain level of satisfaction. I wouldn't consider taking out a new mortgage or line of credit unless my back was to the wall. I would not want to invest on margin in anticipation of a higher rate of return. I hope to remove as much unnecessary risk as possible from my life.

Aronnax
__________________
HnE is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 11:13 AM   #9
Recycles dryer sheets
 
Join Date: Aug 2003
Posts: 474
Re: Pay off or carry mortgage?

It's all here.

http://early-retirement.org/forums/i...hp?topic=753.0
__________________
bongo2 is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-13-2006, 11:42 AM   #10
Recycles dryer sheets
 
Join Date: May 2005
Location: In the fog of San Francisco
Posts: 241
Re: Pay off or carry mortgage?

We're with Aronnax. We feel a lot better having things paid off.

I was talking with a friend (FIRE'd about 12 years ago) and we both agreed that not having $XXX.00 going out every month on housing sure makes a fixed income a lot more bearable. I have trouble seeing how people who have rented all their working life and continue to rent into retirement manage to have any significant disposable income while retired.

cheers,
Michael
__________________
Michael Moore is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-14-2006, 12:10 AM   #11
Recycles dryer sheets
 
Join Date: Oct 2004
Posts: 325
Re: Pay off or carry mortgage?

IMHO pay it off and pocket the bankers profits for your own account! Debt limits ones personal options just like a job...."I owe, I owe, so its off to work I go...." 8)
__________________
"TEMPUS FUGIT"
LEX is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-14-2006, 01:05 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Feb 2003
Location: Mesa
Posts: 3,588
Re: Pay off or carry mortgage?

FIRECalc really offers an incredibly versatile way to examine this. You have to approximate tax impact.

The best option for you depends first on your temperment. If you just don't feel comfortable with a mortgage, then pay it off. If you want to look at the financial implications, FIRECalc can tell you how you would have done historically by keeping the mortgage vs by paying it off. The result depends on at least all of the following:

1 - the mortgage rate
2 - the length of the loan
3 - the ratio of loan to total portfolio you have
4 - how you would invest the money you do not use to pay off the mortgage
5 - your specific tax situation (this is usually a second order issue)

Go read the previous threads and run the simulations.
__________________
sgeeeee is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-14-2006, 02:06 AM   #13
Recycles dryer sheets
 
Join Date: Dec 2005
Location: San Diego
Posts: 468
Re: Pay off or carry mortgage?

Quote:
Originally Posted by runnerr
should I pull 150000 out of my investment money to pay it off or carry the 6.25% mortgage.

First consideration would be is the 150k coming out of a tax-advantaged retirement plan? If so, would be wise to wait until age 59.5 (or age that you can withdraw funds w/o penalty) to look at options.
__________________
califdreamer is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-14-2006, 08:14 AM   #14
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
Re: Pay off or carry mortgage?

Adding to what SG said:

- On #2 make sure your "loan length" is the time you expect to be in the home when running simulations; using a loan length of 30 years when you expect to be in the home for 7 will give you different results.

- #3 - good one to pay attention to. It may or may not make sense to hold REITS if you have a paid off house - thats another good windy discussion. It may or may not make sense to hold a lot of bonds to 'ballast your portfolio' if you have a paid off house. It may or may not make sense to hold the proverbial 1-3 years of 'emergency cash' if you can tap a low cost home equity line of credit.

- #4 - building on the comments in the last paragraph, under some circumstances you can tweak your investments to take on more volatility and/or default risk but increase your rate of return if you have the mortgage money to invest. Without the mortgage debt you'll have less, but you'll also have less monthly expense 'risk' in that your total monthly bills will be a lot lower. So feel free to take on a little or a lot more risk as you can handle the volatility. Or go the other way and take on a lot less risk and the associated lower returns...you may not need the money.

#5 - Definitely one to look at closely. If you dont have to pay a mortgage, you can reduce your withdrawal amount (not necessarily the percentage) significantly. With the lowered drain, you may be able to get by on qualified dividends thrown off of your investments rather than sell shares. Since qualified dividends dont count as "ordinary taxable income" and are taxed at a separate rate of 5 or 15% depending on your taxable income (salary, interest, non qual dividends), you may be able to reduce the latter to the point where your qualified dividends drop below the 15% level to 5%, or perhaps even get your income tax situation to zero.

So whats next Runerr? Gay marriage? Right to life? Arming bears?
__________________
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
Re: Pay off or carry mortgage?
Old 01-14-2006, 09:05 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2003
Location: Kansas City
Posts: 7,409
Re: Pay off or carry mortgage?

Hmmm

Here be a left handed INTJ, former fish camp owner from LA now in MO view:

1. All housing is expenses - I don't count any equity in my retirement portfolio.
2. Any remodeling is entertainment - in the same expense catagory as travel, taking a cruise, etc. If anyone has seen me remodel - they would understand the entertainment factor.

Like food - a house is consumption - not investment - either a necessary expense - or sometimes a gourmet meal - depending on the entertainment value.

BTY - my BIL is a mining engineer - given location, location, location over the last thirty years here and there - he counts himself in the hole real estate wise.

My duplex(15 yrs) was an accident/luck. I would love to attribute skill - but got a good buy and learned as I went along - AND* sold and consumed the proceeds early in ER.

Just NOT a R.E. cat. My hat's off to those that are.

heh heh heh
__________________
unclemick is offline   Reply With Quote
Re: Pay off or carry mortgage?
Old 01-14-2006, 09:52 AM   #16
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Re: Pay off or carry mortgage?

Quote:
Originally Posted by ((^+^)) SG
Go read the previous threads and run the simulations.
I'm tracking a spreadsheet of our mortgage money invested (& reinvested) in the S&P600 Small-cap Value ETF (IJS).

The results won't be in for another 28.5 years, but so far we're up 23.6%. (Admittedly the ETF is setting new 52-week highs this month.) That kind of early performance gives a pretty comfortable pad for a 30-year 6.7% withdrawal rate.
__________________

__________________
*
*

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
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
Millionaires: do they pay off their mortgages? LOL! FIRE and Money 93 05-17-2008 09:31 PM
Mortgage payments after Early Retirement walkinwood FIRE and Money 19 04-28-2007 07:45 PM
Military pay (ECI) vs military retiree pay (CPI) Nords Other topics 0 11-05-2005 11:51 AM
Advice Needed - Taxable Invest vs Pre-Pay mortgage Trace Young Dreamers 5 09-14-2004 07:16 PM
Pay off mortgage early ? renferme FIRE and Money 75 02-07-2004 02:17 AM

 

 
All times are GMT -6. The time now is 02:37 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.