Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Re: Pay off the Mortgage at Retirement???
Old 04-13-2007, 01:17 AM   #81
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Pay off the Mortgage at Retirement???

Quote:
Originally Posted by wab
Never mind.
OK, you win.
__________________

__________________
*
*

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
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 the Mortgage at Retirement???
Old 04-13-2007, 11:34 AM   #82
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Pay off the Mortgage at Retirement???

Quote:
Originally Posted by Nords
OK, you win.
Oh, man. Wrong response. Now I have to assume that you didn't even understand my example on reevaluation, and I have to try to explain it again. Because if you didn't understand it, nobody understood it. Here I go. Digging myself deeper.

Here's a different and even more absurd example. Let's say you have $100,000 in your savings account and you move it to your brokerage account. No change in net worth or anything else -- just an account move.

Now, you take $1000/month and move it from brokerage back to savings. It looks like your cash flow from the brokerage account has changed, but again no net worth change or anything else. Just an account move.

Now, substitute "home equity" for "savings account." In essence, that's all a mortgage payment or home equity loan payment is. The principal repayment component is not an expense, just a move from one account to another.

That's one reason why the increased cash flow "burden" from mortgage payments is overstated when you try to model this stuff with firecalc. Even if you get the point right about mortgage expenses not increasing with inflation, leveraged investment returns, reduced taxes, etc.
__________________

__________________
wabmester is offline   Reply With Quote
Re: Pay off the Mortgage at Retirement???
Old 04-13-2007, 11:55 AM   #83
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 the Mortgage at Retirement???

Wab, that thesis works great if you're actually paying yourself.

However, you're primarily paying the interest on the 'bond' you've issued to the bank, and since most people only stay in the home for 5-7 years, you're going to continue that cycle in your next house.

Of course, if you dont invest in bonds, have a cola'd pension and a working spouse, then the equation is all different.

Back to the future, I still see no reason for an actual retiree to hold a mortgage at over 5.25-5.5%, then hold a bunch of bonds paying less or similar rates to create the safety net of reduced volatility to be able to continue paying the mortgage during a long term downturn, then pay a tax premium on the whole matter.

I'd rather pay the debt off, take the smaller portfolio, invest in more quality dividend paying equities, live off said dividends, pay a minimal tax load, and not give a hoot which way the market turns. Ever.

But like I said...if you're already 80-100% in equities, have a sub 5% mortgage, have an income stream to cover the debt load, or any of the other parameters that makes it a different ballpark...perhaps you should keep the mortgage.

To say that its a simple matter of paying 5% and making 8% and maybe factoring in a little bit about taxes seems...ridiculous.

But these sorts of discussions always seem to rotate towards the predetermined answer, then fill in the data and problem set to accommodate that decision.
__________________
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 the Mortgage at Retirement???
Old 04-13-2007, 12:06 PM   #84
Recycles dryer sheets
 
Join Date: Apr 2005
Posts: 118
Re: Pay off the Mortgage at Retirement???

Wab, my sentiments exactly. After I retired, I realized I would be spending more time at home so I wanted a nicer place. I sold my house, cleared about $100,000, and put that toward a new house I had built. Sure, I have a mortgage for $140,000 at 6.25 and the payments are about $900 a month. I add $300 more and will have the mortgage paid off in 15 years. I have always been a saver and this gives me the same feeling. I am 58 so at 73 I should be looking good. If things get a little rough, I have the $300 cushion to fall back on. If I go back to work full or part time I will probably wait until 66 to draw SS. I am setting on just under $900,000 and feel good about the situation.

Would I like to have it paid off? Yes, but like Wab said I feel I am just moving the money from one account to another. Great topic I enjoyed reading all the advice.

Bob

__________________
runnerr is offline   Reply With Quote
Re: Pay off the Mortgage at Retirement???
Old 04-13-2007, 12:34 PM   #85
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Pay off the Mortgage at Retirement???

Quote:
Originally Posted by wab
Oh, man. Wrong response.
I guess so. I thought my response would encourage you to go away happy and find something new (or at least different) to talk about.

However it is impressive that we've managed to rack up six pages without presenting a single new piece of info. I guess the good news is that in another 330 months I'll have satisfied my personal interest in this issue.

But let me clarify my previous statement. I'm done with this thread.
__________________
*
*

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
Re: Pay off the Mortgage at Retirement???
Old 04-13-2007, 12:41 PM   #86
Thinks s/he gets paid by the post
wabmester's Avatar
 
Join Date: Dec 2003
Posts: 4,459
Re: Pay off the Mortgage at Retirement???

Hmm, good idea. Me too. I officially retire from "pay off your mortgage" threads.
__________________
wabmester is offline   Reply With Quote
Re: Pay off the Mortgage at Retirement???
Old 04-13-2007, 10:04 PM   #87
Recycles dryer sheets
 
Join Date: Jun 2006
Posts: 322
Re: Pay off the Mortgage at Retirement???

Darn just when it was getting good.
My biggest gripe about paying down a mortage is once the money is in the house you have to borrow it to get it back Todays rates are good. No telling what the rates will be in the future. Even if I break even I rather have it in the bank where it doesnt cost me to get my own money. Of course I hope to do better than 8 % before taxes.
__________________
spideyrdpd is offline   Reply With Quote
Re: Pay off the Mortgage at Retirement???
Old 04-15-2007, 07:28 AM   #88
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Re: Pay off the Mortgage at Retirement???

There probably is a way to work the spread between owning a mortgage an investing assets from the loan. That is essentially what is being propose if one has the ability to payoff the mortgage.

But you are still taking on risk. Probably the safest way is to limit the risks which will limit your up side. I do not believe it is worthwhile for a small amount of money.

For example: If I had $100k outstanding principal on my mortgage @ 5%. I might calculate and find that I could buy a 10 year treasury @ 6% (enough bonds to cover the outstanding principal). (I am not including tax implications for simplicity). I could get a 1% spread (with tax it would be less). Since the note is backed by the govt, it will probably be paid back at the end of the term. Now my risk is inflation oriented. (if I wind up in a cash crunch, I could sell the bond and pay off the mortgage). Now I am hoping one asset class outperforms over a long period. To effectively work the spread angle, one needs a large amount of money in play. Once you get past all of the theoretical arguments... The small potential gain on an outstanding mortgage seems hardly worth the risk/effort.

That said if one has substantial assets such that the mortgage principal is small compared to other assets.. deciding to continue making payments on the mortgage probably does not create a large risk. On the otherhand, I would never suggest that someone go and take a home equity loan and invest it. In my book that would be foolish.

Believe it or not I have heard people discuss the same approach with taking cash from a credit card and a teaser rate This elevates boobery to an all time high.

If you are thinking of using home equity from a loan to invest in stock... you might as well open a margin account. At least the broker will shut you down with a margin calls. If you are lucky and things do not shift too quickly, your down-side is your portfolio... not your house.

Final note: If you are asking if this is a good idea... You had better steer clear. Even someone who understands it might experience problems.
__________________
chinaco is offline   Reply With Quote
Re: Pay off the Mortgage at Retirement???
Old 04-15-2007, 07:13 PM   #89
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Re: Pay off the Mortgage at Retirement???

Quote:
Originally Posted by chinaco
Believe it or not I have heard people discuss the same approach with taking cash from a credit card and a teaser rate This elevates boobery to an all time high.
No need to hurl invectives, chinaco. The idea is to lay out all the factors and let people make the decisions they're comfortable with.
__________________
*
*

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
Re: Pay off the Mortgage at Retirement???
Old 04-16-2007, 08:01 AM   #90
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 the Mortgage at Retirement???

I believe chinaco was fighting for the rights of boobs to make a quality decision.

I wont take this line of thinking any further, as its implications are rather obvious and the jokes make themselves.
__________________

__________________
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
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
Pay off or carry mortgage? runnerr FIRE and Money 15 01-14-2006 09:52 AM
Pay of mortgage ? Chris24 FIRE and Money 29 06-19-2005 01:57 PM
Declining COL in retirement?... Cb FIRE and Money 31 06-09-2005 02:47 PM

 

 
All times are GMT -6. The time now is 09:46 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.