Paying off the house (and car)?
- Thread starter Craig
- Start date
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Amen brother Mick.
Honestly, as said before, I believe that 99.9% of people who enter into this dialog have already made up their minds and are just looking for validation. 95% of people who continue to participate in them over and over again are just restating their points. Some small percentage offer a "sure thing" set of "reasoning" that is hardly sure, but its definitely a thing.
Threatened Mr. Head (can I call you 'doody'?) aka SalaryGuru?...hardly my miniscule friend. I will simply tell the whole story that you do not tell, every time you try to tell it.
The whole story, is that if you can get a mortgage below 5% (right now, the national average is quite a bit higher than that), AND if you plan to stay in the home for the term of the mortgage, AND you dont have any cash or fixed income investments that pay less than the mortgage rate, then your approach is rational.
I should say its rational providing you consider the 30 year periods following times of excessive stock market valuation. As smarter and far more learned people than I have postulated, the last time we saw valuations like these were just prior to the 1929 crash and the 1960's-70's long sideways periods. Both fairly awful times for stocks for several decades after. But if you did manage to conjure up the stones to stay in it, after a full 30 years you would have been slightly ahead.
Getting past the 'he said, she said' (sorry SG, you're the 'she' in this argument), theres another approach besides the one I'm using that can be beneficial if you just cant shake the gambler in you.
In a zero debt situation, you have three ways to continue on your investing journey. You can maintain the same investment posture, allocating part of your monies to various stocks and bonds in 40/60, 50/50, 60/40 or whatever floats your boat. You can take the wussy approach like I did and reduce your volatility and expected returns by cutting back on stock exposure because...well...you simply dont need the money and therefore dont need to roll the dice. You could also take this third and last approach...since you dont need to make the mortgage every month, instead of some wimpout 60/40 or 70/30, take a year or two in cash and put the rest 100% in stocks. Not just your impish s&p500 either, but half in large cap value and half in small cap value. What the hell, you can take the volatility...you dont need the money every month to pay the big bills off.
By those 30 year numbers, that last strategy would not only make you more money, you can retire earlier on about 10-15% less than keeping a mortgage and maintaining a 60/40 traditional "balanced index" split. Wow...retire earlier, with less money, and less monthly volatility risk...who the heck would want that?
Run the numbers, go ahead. All the calculations to make your eyes bleed. Its all true.
But if you stay in a house 7 to 10 years like most people, you'll be getting a new mortgage 3-5 times during that 30 year spread. I'll bet you my dividend checks from next quarter that the interest rates during 2 or 3 of those periods will be in the vicinity of or higher than the 30 year return on the S&P 500.
Nords, you're one of the few exceptions I've heard real info from. You're pretty sure you arent moving for the term of the mortgage, at least not anytime soon, and if my recollection is right, you havent got a lot of low paying bonds either? Excepting the doody head, everyone that I'm aware of that has researched this and made a fact based, non-emotional decision to keep a mortgage has had little or no bonds, an honest to god anchoring feeling about never moving, still has a working spouse (spouse meaning a real person, not a handpuppet named something like, oh, say "Mrs Guru"), has a good pension coming in, or some other form of income stream.
If you're really ER'ed and living solely off your investments, do yourself a favor and drop the debt and then think about which of those three postures you want to take after that.
For what its worth though, if the s&p does do a 40% drop (higher than what I'm expecting, but I think 20-25% next year is well within reach), I'll be bleeding my bond holdings over into stocks as well, and for a full 40% I might think about tapping that HELOC as well.
Back to painting again tomorrow, followed by teaching my mother in law how to use a computer (sigh...). Perhaps I'll see you all next week. SG, try to cut down on the extra accounts you make up, and do try to spend a little more time with people rather than handpuppets and rocks. Maybe a little less time standing out in the desert staring up at the sun?
What about this scenario:
Age: 57, Retired
Marital Status: Single
Federal government pension (indexed to inflation) $46,000
House valuation: $280,000
Annual taxes: $3000
1st Mortgate $155,000 (fixed 5.5%)
2nd Mortgage $60,000 (prime)
Rollover IRA: $150,000 (indexed equities with Vanguard)
Taxable Accounts $450,000 (indexed equites with Vanguard))
Roth IRA (Bonds with Vanguard) $10,000
ING Savings (2.25%) $12,000 - Emergency Fund
No car payments and no other debt
Should I pay off the 1st, 2nd or both mortgages?
Any suggestons for allocation?
Age: 57, Retired
Marital Status: Single
Federal government pension (indexed to inflation) $46,000
House valuation: $280,000
Annual taxes: $3000
1st Mortgate $155,000 (fixed 5.5%)
2nd Mortgage $60,000 (prime)
Rollover IRA: $150,000 (indexed equities with Vanguard)
Taxable Accounts $450,000 (indexed equites with Vanguard))
Roth IRA (Bonds with Vanguard) $10,000
ING Savings (2.25%) $12,000 - Emergency Fund
No car payments and no other debt
Should I pay off the 1st, 2nd or both mortgages?
Any suggestons for allocation?
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
This is an easy one. Pay off the second, esp. if you can get the money with a re-fi.
Hang on to the first- it will look absurdly cheap not very far in the future.
And party on, Dude.
Mikey
cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I agree. Dump the second, keep the first. You've got an income stream and your 'nut' would take too big a hit to pay both the first and second off.
As far as allocation, that depends. If you feel good about stock valuations (I dont), then a 70/30 or 80/20 allocation might suit you. Your pension should be paying most of your bills, so you could take a bit more volatility. If you're spending limits are within your pension payments, and you like the risk, take it.
Otherwise I'd stick with the box stock 60/40 balanced index or one of the target retirement funds at vanguard (say the 2015 one) and go fishing.
As far as allocation, that depends. If you feel good about stock valuations (I dont), then a 70/30 or 80/20 allocation might suit you. Your pension should be paying most of your bills, so you could take a bit more volatility. If you're spending limits are within your pension payments, and you like the risk, take it.
Otherwise I'd stick with the box stock 60/40 balanced index or one of the target retirement funds at vanguard (say the 2015 one) and go fishing.
Well, I don't need the validation as much as I need to avoid big gaping holes in my logic & calculations. I'm looking for quantitative criticism that would cause spouse & me to change our minds in the face of new facts. I'm never too proud to take advice that'll keep me from having to look for a real j-j-j-j-job.
Actually that's the emotional side of the rent/buy diatribe. This is the best house in the best location I've EVER had, and probably will ever have. When I gaze upon this domain I feel like a five-year-old who's been invited to stay at the grownups' party. And as much fun as it was to transfer to 19 different duty stations, we're not moving voluntarily.
Still no bonds in the retirement portfolio, although we're considering trading in a year of our 2-year cash stash for an I bond instead of a puny one-year CD.
Disclaimers-- We do have a small income stream (rental property) and a good govt pension. And my spouse continues part-time work despite my corruptive efforts to adjust her hedonic index. (I guess she's still learning to turn it off, but we both agree that's her problem.) When FIRECalc gives a 70% success rate without these factors, that makes it even more compelling. But I don't go to Vegas without practicing my card-counting & progressive-betting skills, either.
Ye gods, man, haven't you been paying attention to the battle-scarred married veterans? Or do you have a masochistic deathwish that makes Odysseus look like Pollyanna? Aside from the personal struggle and the inevitable conflict, what possible good can come from teaching your MIL more ways to keep in touch with your new family? What's next for her, a broadband ISP and a webcam in your nursery?!? Phew... good luck!
