Pay off the House

[unclemick]

The curmudgeon in me asks this question - has anybody tried to run the numbers on the power of UN as in unownership. When I do my backup rent/buy I assume costs vs my ER portfolio. But I've never SWAGed how many ER hours I would free up by renting let alone billing myself at an hourly rate to throw into the equation. The local joke is that ten years of camp ownership is when the fun/maintenance lines cross and you run out of 'free labor' from friends and relatives. We've done lawns and stuff on previous threads.

Assume time is luxury - has anybody added time to the mix.

[bongo2]

Salaryguru:

I match your no mortgage number of $2,175,143, but the with mortgage number of $3,525,505 can't be right. I get $2,373,551 for that scenario.

[cute fuzzy bunny]

Salaryguru:

I match your no mortgage number of $2,175,143, but the with mortgage number of $3,525,505 can't be right. I get $2,373,551 for that scenario.

On a lark I made a change and was able to identify the incorrect entry that produced the problem.

If you enter the mortgage amount SG used (6260) as a NEGATIVE amount in the additional withdrawal line, as opposed to a POSITIVE amount, you get the 3.5M number. This is telling firecalc that you're MAKING an extra 6260 a year rather than paying it out.

[bongo2]

Arrgh! I tried a dozen things to find the error, but not that one. Good detective work!

[Sheryl]

Thanks again for all the thoughtful replies and comments. I had a much longer response typed up here but waving my hand in the vicinity of the laptop's touch pad seemingly sent it to cyberspace.

So, I still don't know if I'll pay off the house but I definitely have some tools and considerations to help with the decision.

Sorry if I re-opened an old topic... that just seems to be the way message boards are.

Please, throw only full beer cans or clean dryer sheets.

[Sheryl]

What absolutely floors me? *The guy who bought my old McMansion did 100% financing with a jumbo first at the limit and a second for the rest of thel half million... * ...Granted money is cheap these days...but the guy is going to be pushing about a $3600-3800 mortgage payment...

Ya know, that's just insanity to me. *Our friends think we're joking or crazy when we talk about retiring in a few years -we're 43 and 48. *Instead they pile up debt and plow all their income into bigger houses, $50,000 SUV's, and $10,000 vacations. *A LOAN for a vacation?!? *Are you kidding me?

Since I grasped the concept of FIRE a few years ago all my efforts have been focused in that direction, as opposed to piling up insurmountable debt for toys I'd never have time to play with.

[Sheryl]

The local joke is that ten years of camp ownership is when the fun/maintenance lines cross and you run out of 'free labor' from friends and relatives.
Assume time is luxury - has anybody added time to the mix.

In my mind time is a resource that must be factored somehow. * But you can still own, ie a condo, and not have the high level of time commitment. *If you enjoy puttering, it's not a "waste" of time. *

The mobility factor is big too. * Someone mentioned will you stay more than 5-7 years? *My thought is to keep my cheap paid-off-or-almost house forever. *Sort of a home-base, fall-back-in bad-times thing. *It is in one of AARP's *10 best places (HEY, I was here FIRST!) And maybe also own a property or half of one in Mexico and live the life of a snowbird.

[cute fuzzy bunny]

Yep he was nuts to leverage himself in that far.

Odd guy all in all. Had a realtors license for a couple of years, and a real estate brokers license. Had never used them. I thought up front I was getting a real estate expert and actually gave him a little extra break on the price for the benefit of not dealing with an emotional person...which he turned out to be.

Had about a half dozen "businesses" according to a rash of business cards..."marketing" stuff mostly. Said he was married to the lady he looked at the house with, but he wasnt, and the home only ended up titled in his name, although the two of them and his son were moving in.

The real kicker is that I had deferred as much upgrade and maintenance as possible on the property. It needed a full kitchen upgrade, some bathroom updates, full carpet, about 1000 square feet of deck replacement, some new siding, and complete interior and exterior painting. On top of his 100% financing.

Time, as ***** said in his "new luxuries" post, is in fact one of our greatest new friends. Condo's by the way though, require one to pay out in the monthly condo fee far more than the reduced work is worth, especially if you're ER'ed and most certainly if you like to tinker...or discover you do once a 55 hour a week millstone is removed from your neck.

Reopening old discussions IS bound to happen. One thing that might truly benefit the soon to be ER'ed and newly ER'd (or long term badly ER'd) might be a "Guide to Early Retirement" that picks up where the investment knowledge leaves off. Addressing debt, monthly costs, approaches to offset costs without dropping lifestyle, social changes, etc. I think we've collectively addressed most elements, with several viewpoints. A cleaning up and restructuring of the FAQ or the creation of a nice little document that puts together a list of the big items to consider and plan for, with different perspectives.

Could be as simple as a big thread to which we each contribute, update or add to...which sounds messy...a redo of the FAQ...a regular document that one of us maintains...or something cool like one of the wiki type web documents that allows dozens of people to build a document. Perhaps I'll make a separate topic of all of this to draw more input to the idea...or perhaps someone has already written a book to address all of this? Or perhaps *****'s new book is in this vein?

By the way Sheryl, you ever been hit with a full 14oz can of guiness?

[Hyperborea]

Condo's by the way though, require one to pay out in the monthly condo fee far more than the reduced work is worth, especially if you're ER'ed and most certainly if you like to tinker...or discover you do once a 55 hour a week millstone is removed from your neck.

I think it depends on what one wants to do in retirement. If one travels a reasonable amount or is a snowbird then a condo provides the basic external upkeep (snow removal, grass cutting, etc) for the maintenance of the property and avoiding an unlived in looking home.

As one ages too, I can see that one won't be as willing to do home maintenance. For example, my retired tradesman father in his late-60's isn't wanting to do much work on the house anymore himself. This despite having remodeled 3 basements and tackled multiple other home projects over the decades.

[cute fuzzy bunny]

What I meant was comparing the paying of a condo a fee vs paying someone else to do the work.

My dads old condo fee in MA, where both grass cutting and snow removal are required, and where roofs and painting are also important, was $260 a month.

Accumulated and safely invested, one could easily pay for the basic lawn and snow services, with more than enough left over for a new roof every 25 years and a paint job every 10.

I had this same dilemma and used the following logic to justify paying off my mortgage.

Although my portfolio was returning over 5% average return over many years, the fixed income portion (bonds) was not consistently returning less than 5%.

Since I had a significant amount invested in bonds, which had a lower return than my mortgage, it was a no-brainer for me -- paying down the mortage is the way to go.

If your bond savings is small relatve to your mortage debt, then it doesn't make sense to pay it off.

If you are a very aggressive investor, and don't diversify into bonds, then it make make sense to invest in stocks, and hope that the market outperforms your mortgage payments. I'm more conservative than that.

You should also consider where you'll get the money from to pay off the mortage, and if there are any tax implications.

Think of it this way, your mortgage (compared to many) is probably a very safe investment for the lender. Are they (the lender) getting a better deal than you are on your fixed-income bond investments? Can you invest the money in an equally non-volatile, safe investment, use the return to pay the mortgage? The tax savings is a wash, yeah, you get a tax break on the mortage (or maybe not, if you exceed your sched A deductions), but you have to pay tax on the returns of the invested money.

That's some of the thinking that I used to pay off the mortgage. It's also very satifying to have a place to live, and only have to pay property tax, utilities, and upkeep.

[cute fuzzy bunny]

Bingo!!!

[cute fuzzy bunny]

Yet now, the advice of many seems to be that the risk of losing their house should dominate their decision process.

Again I'm at a loss. Can you show where even one person has ever said this even once?

I still think people would be best advised to run some simulations and weigh the odds before they give up the opportunity to gain significant financial advantage.

Yes, clearly theres a significant financial advantage to paying off the mortgage and increasing the ratio of stocks in your portfolio, if higher average terminal yield against historical returns is what you want. Thanks for pointing that out.

I put some more thought into this today.

When I ran my analysis, and paid off my mortgage interest rates were falling. This is why the decision was a no-brainer Ior me.

These days, interest rates are generally raising. If you have an ultra-low interest rate mortgage, it may make sense to keep it. However, at today's prices, mortgage rates are still significantly higher than the yeild on the 30 year treasury. No points mortgage are around 5,75%, and the 30 year treasury is paying 5.24.

If I had a mortage today and the interest rate was less than 5.25% I'd probably hold onto it.

If your rate is in the 5.25-5.75% range, you might also gradually pay it down. If interest rates go up, put the money that you would use to pay the mortage down more quickly into bonds. If interest rates drop, pay more of the mortage off.

Either way, it's a nice position to be in.

[haha]

The curmudgeon in me asks this question - has anybody tried to run the numbers on the power of UN as in unownership.Assume time is luxury - has anybody added time to the mix.

Uncle,
Last evening I ran around my big yard for 2 hours, cutting grass. Has to be done once a week. I came in, cleaned up, and poured some Jack Daniels for myself and a neighbor who had come over. I wanted to go to a club 30 miles away. I went, but missed the first set. To me it's obvious that if you can find an apartment that isn't full of meth labs, and is reasonably priced, it's a lot less work than a house. I think a decent apartment will usually cost in rent about twice the tax and upkeep costs of a free and clear house. This is if you do your own gardening. With less worry. Still, for many of us there is a powerful pull to owning one's own piece of dirt, and pile of boards on top.

A guy I talked to at the club last night told me an interesting story about the perils of real estate ownership. He is from a Midwestern city, and he and his wife built a retirement cabin out of rough sawn oak on some acreage they bought in southern Indiana. They planned to use it on vacations for a few years, and then retire there when his youngest daughter was out of college. To make a long painful story short, some local punks broke in. They were stealing gasoline, and one of them must have lit a match. Because everything went k-bang! Two dead kids and one labor of love down the drain. Then it really got interesting, with lawsuits about should the fuel have been better protected, etc, etc.

After a lot of sleepless nights and attorney fees they got out more or less intact, but they took the first offer to get rid of the place and decided to stay put in the big city for retirement.

Another interesting thing. This guy is no early retiree- he is 77. But I thought he was about my age (63). He is a widower now. Shortly before he and his daughter went home, he told me there is one thing he regrets. I expected something about his homestead. Or that his wife were still alive or something else heavy. But I was wrong. He said he regretted not learning how to dance, because then he could meet all the girls he wanted.

Moral-sell your house and get dancing lessons while you still have time.

Mikey

Hey Mikey................ Anyone can be sued for almost
anything. All you can do is try to protect yourself without going bankrupt. As Al Pacino said,
"You can get killed walkin' your doggie!" Life is risky.
Deal with it.

As far as learning to dance. I am 59, not 77 and can
only dance a little. Tell you what though. I've met
all of the girls I've ever wanted to, in spite of my
shortcomings. Not meeting enough girls is not even
on my list of life's regrets.

John Galt

Take the dollars that sit in your house getting a suntain and put that same money and use it to pay off a home to use as a rental. Take 10% off the top to pay someone else to manage. Cause you er guys dont want no work and then run the numbers again.

I kinda wonder how such conservatives managed to retire early? Did you retire and be able to do what you want ?

[haha]

As *far as learning to dance. *I am 59, not 77 and can only dance a little. *Tell you what though. *I've met all of the girls I've ever wanted to, in spite of my shortcomings. *Not meeting enough girls is not even on my list of life's regrets.

Hey John,

It's clear that you are a player and would not need an angle like dancing. Still, not everyone can be so cool. And besides, I am only joking. Many people feel that dancing is a gay activity, not indulged in by true men. So I would never recommend it-(or anything else for that matter.)

One of the great things about being grown up is that you get to make your own decisions. Wise or otherwise.

Mikey

When I first met my wife's son-in-law, he told her
afterwards that he thought I was a "player". I was
accused of this when I was younger. All behind me now, I can assure you.

John Galt

[unclemick]

Ah yes - dancing with women and dryer sheets, now I remember why I never paid off the mortgage.

Being a lousy dancer back in the early accumlation phase and single, I always checked out apartment complexes with a view toward opportunities to meet women - a large laundry room (heh,heh dryer sheets) was one of several indicators and of course location, location, location( RE angle).

Another cup of coffee and maybe I'll get serious. Owning was never on the radar in the early days - being single, ability to move(aerospace) frequently on the job was - soooo 'portable' saving/investment was stocks/mutual funds. Never even looked at numbers - housing/mortgages was kids and dogs stuff.