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Old 02-15-2012, 08:52 PM   #21
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I just started posting here but I've been reading the "mortgage pay-off?" threads on er.org for years. The one big lesson I took away from all the discussion and debate is that the decision isn't automatic, but rather depends on your individual situation. You don't *have* to pay off your mortgage when you retire, just like you don't *have* to work until age 65 or beyond. That's been helpful to keep in mind as I'm polishing our ER plan.
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Old 02-15-2012, 09:07 PM   #22
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I bought my house new about 8 years ago. I pay a couple hundred extra a month. I imagine I will get it paid off just in time to free up money to pay for new siding, new shingles, new garage door, etc etc. So the payments will probably never end.
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Old 02-15-2012, 09:09 PM   #23
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LOL, we certainly seem to be in the minority. I just refi'd in January for 15 years at 3.375%. If my incremental investments generate more than 3.375% on average over the next 15 years, then I figure that I am ahead. If i can't do that then the mortgage will be the least of my worries. I get the peace of of mind others get by being mortgage free by knowing that I could pay it off with a few clicks of a mouse anytime I want.
We were in the pay-off camp when interest rates were historically high in the 80s and even after they dropped as low as 9%. We paid off the mortgage on our first home in 12 years and on our second home in 2.5 years; but we're in absolutely no hurry to pay this one off. We are extremely fortunate that we could pay it off if we wanted to; we simply choose not to.
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Old 02-16-2012, 03:46 AM   #24
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If we pay off the mortgage we can save the interest.
These days people realize that, even though the interest rate may be low, it is a guaranteed return of investment.
Some years ago people believed that they could make better profit if they paid interest on the mortgage and invested their own money elsewhere.
It is just a change of perspective, sometimes learned the hard way.
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Old 02-16-2012, 05:43 AM   #25
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I refi'd about 3 yrs ago at 4.5% for 30 yrs. Its the cheapest money I've gotten in years. I'm not paying it off as long as it's subsidized and I'm making 20% in equities with it.
Same here, I did a refi at 4.5 and plan to ride it for full 30 years, but I'm not getting a 20% return. If you can get the historical 6-8% return from your portfolio, and da man is kicking in 30% of your interest expenses. Some I know that have retired can't itemize any more without a mortgage, so that % of tax savings would go up. So...in my simple mind it is a 3% mortgage, with my portfolio due to return 6-8%, it is a free 3-5%.

However, I understand the logic of less bills/debts in RE. If you sleep better knowing you don't have a mortgage, drive on. That income stream to pay the mortgage has gotta be solid as steel.
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Old 02-16-2012, 05:52 AM   #26
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However, I understand the logic of less bills/debts in RE. If you sleep better knowing you don't have a mortgage, drive on. That income stream to pay the mortgage has gotta be solid as steel.
+1

If I had a pension to go along with my SS check I might feel differently about having a mortgage in retirement. For me, doing away with the mortgage prior to pulling the w*rk plug (I delayed a year and plowed some serious cash into paying that sucker off) takes a lot of pressure off the return I have to get from my investments.

The ability to invest conservatively in retirement is better than Lunesta...
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Old 02-16-2012, 06:05 AM   #27
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For us paying off the mortgage was purely an emotional decision. There a plenty of valid, reasonable, logical reasons to carry one if doing so is not a strain.

But to us outstanding debt feels like a sword hanging overhead, or an unfulfilled obligation, or something like that and we dislike it intensely. And there is satisfaction of being able to say (to ourselves, we've found it best to keep quiet about it) "we don't owe nobody nuttin'.
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Old 02-16-2012, 06:40 AM   #28
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I'm not sure that following the herd is the right thing to do here. Mortgage interest rates are at an all time low. If there was ever a better time to have mortgage, I don't know when it was. Folks should be out there maximizing their borrowing, then waiting for interest rates to go up while sitting on a nice sub-4% mortgage.
I guess some people do it because life is full of uncertainties. Possible loss of job/income, unfortunate illness, and sudden breadwinner death, etc. all could throw the maximized borrowing at low rate into a chaos. Plus it's (very) likely that mortgage interest tax reduction could be phased out in the near future if our government debt situation keeps deteriorating.
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Old 02-16-2012, 08:05 AM   #29
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I was just talking about mortgages last night with my mother. She mentioned that she and my stepdad going to refinance their house here in Maryland, and use the money to pay off their second home in Florida. They're going to take out a 30 year mortgage, but then try to pay it down ahead of schedule.

I told her that, as low as rates are, she might as well just let it go the 30 year route. There's a good chance that mortgage will outlive them, as she's 63 and my stepdad's 59. The monthly payment is only going to be around $750-800 per month (plus property taxes, as they pay that separately rather than from an escrow account).

She's been whining a bit lately about being bored and lonely in retirement, so I told her that she and my stepdad need to get out there and live, have fun, and enjoy the retirement. They don't need to save anything for me, and when they pass on, it makes no difference whether I inherit a house with a mortgage, a house free-and-clear, or no house at all!

As for me, I keep thinking about paying my mortgage off early, but with the interest rate so low, at 3.5%, it's hard to do. Mine is adjustable, as it's a HELOC, so it can go up. I should be taking advantage of the low rates and pay it down now, but I've just been finding better things to do with the money. If rates start to rise too much though, I'll try to pay it down enough so that the monthly payment stays about the same.

I had thought about refinancing to a 30 year fixed back in late 2010, but the credit union wanted something like $8,000 in closing costs. Which I thought was just too much for a $160,000 (at the time) mortgage. I figured that I'd be better served just taking that $8,000 and paying down the existing HELOC, which is what I ended up doing. Between that and other extra payments, I've managed to get it down to around $147,800, which ain't bad for a year and a half, I guess. So, despite my thoughts against paying it down early, looks like I've been managing to do that, anyway!
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Old 02-16-2012, 08:10 AM   #30
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Agreed, 48k of refi closing costs on a $160k loan makes the numbers hard to work unless interest rates spike.


Edit: Oops, I meant $8k. That darn shift key!!!
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Old 02-16-2012, 08:18 AM   #31
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Paying of our mortgage was one of the very best financial decisions I've ever made. I don't care if it goes against what the experts say- debt free is debt free!
I'll second that...nothing makes me feel free'er and richer than not owing anyone a penny....no matter how many spreadsheets folks can show me why its good to have a mortgage.

I paid my 30 year mortgage off in 3 years (10 years ago), and I didn't say "oh good, now I can save that money instead (about $3500/month), I said "thats $3500 a month I no longer need to earn every month for the next 27 years...hey, wait a minute, why am I working so much?"...and thus my slide into ER at a young age.
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Old 02-16-2012, 08:19 AM   #32
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I guess some people do it because life is full of uncertainties. Possible loss of job/income, unfortunate illness, and sudden breadwinner death, etc. all could throw the maximized borrowing at low rate into a chaos. ...
Wouldn't it be just the opposite? Rough numbers:

Say you've got a $100K mortgage, and P&I payments ~ $500/month. The $100,000 you have in the bank can pay that mortgage for over 16 years, even with zero growth. That should be plenty to get you over any bad patch.

As is often said, you can't eat your house.

If the bread winner dies, what is the difference (financially)? Pay off the mortgage or not does not affect your net worth. The family may need that liquid cash more than they need that money locked up in the house. If things are tight, they are probably going to downsize anyway. Mortgage or no mortgage seems like a minor issue.

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Old 02-16-2012, 08:24 AM   #33
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emph mine:

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Originally Posted by fishtherainy View Post
Paying of our mortgage was one of the very best financial decisions I've ever made. I don't care if it goes against what the experts say- debt free is debt free!
I'll second that...nothing makes me feel free'er and richer than not owing anyone a penny....no matter how many spreadsheets folks can show me why its good to have a mortgage. ....
How it makes you feel is up to you. But that does not change the math. If 'feelings' changed the financial aspect of a transaction, I'd make millions on individual stocks, because I always buy them with the 'feeling' that they are going to go up. If only.

-ERD50
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Old 02-16-2012, 08:31 AM   #34
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emph mine:



How it makes you feel is up to you. But that does not change the math. If 'feelings' changed the financial aspect of a transaction, I'd make millions on individual stocks, because I always buy them with the 'feeling' that they are going to go up. If only.

-ERD50
I guess by your logic, nobody should ever retire early, or at all, either. After all, mathematically, it can be proven that you will be better off financially if you continue to work until you die.
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Old 02-16-2012, 08:33 AM   #35
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nothing makes me feel free'er and richer than not owing anyone a penny....
Really? See how long you keep the house after you stop paying your taxes!

I always struggle with whether or not to pay off the mortgage and what to refi to. I am currently on a 30yr at 4.125, paying it off in 13 years. I am probably going to refi to a 15yr @ 3% and try to pay it off in 10-13 years.

Reason i struggle is I have been averaging between 6% and 10% in my investments over the last 7 years. So, basically, the interest/appreciation of my portfolio is paying my mortgage, taxes and a bit more. It is the "bit more", I would lose if I took my portfolio and used it to pay off the mortgage. Plus, by not paying it off I have all that liquidity sitting in the bank if I need it. I always ask myself how much is that liquidity worth to me.
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Old 02-16-2012, 08:46 AM   #36
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I guess by your logic, nobody should ever retire early, or at all, either. After all, mathematically, it can be proven that you will be better off financially if you continue to work until you die.
No. There is no connection between the two. None at all.

I've never claimed that ER 'was one of the very best financial decisions I've ever made' - I did it for other reasons.

And if you paid off your mortgage for other reasons, that is all well and good. But you can't turn around and say it was a great financial decision, based solely on how it made you feel.

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Old 02-16-2012, 08:58 AM   #37
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No. There is no connection between the two. None at all.

I've never claimed that ER 'was one of the very best financial decisions I've ever made' - I did it for other reasons.

And if you paid off your mortgage for other reasons, that is all well and good. But you can't turn around and say it was a great financial decision, based solely on how it made you feel.

-ERD50
Never said it was base 'solely' on the way I made me feel - those were your words you are trying to put in my mouth to make a point.

It was, without a doubt, the best financial decision I ever made - I stand by that statement - go ahead and prove I am wrong.
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Old 02-16-2012, 08:59 AM   #38
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I guess by your logic, nobody should ever retire early, or at all, either. After all, mathematically, it can be proven that you will be better off financially if you continue to work until you die.
Not at all, in my case it is just about how do I maximize the assets I have. For me, retirement is all about when retirement income meets expenses with some extra to provide assurances for un-forseen. I don't plan to work for $$ past that point, although I may do other work for other reasons, altruistic, enjoyment, keeping me busy and off DW back.

This seems to be a religous and personal decision. As a country we went overboard with spending and borrowing and living beyond our means for many years. Now common sense is to LBYM. While this is a good no, great, no awsome idea, it like all things can be taken too far. For me, no debt at all is too far. However, I really respect the view of many that want to pay off the mortgage. No matter what I say I wouldn't change many minds, and those that pay off early, would be hard pressed to change my mind. Different goals come off with different decisions.
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Old 02-16-2012, 09:09 AM   #39
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I have a friend who's slightly upside down on his mortgage. I think he owes about $370K on his mortgage, and is currently around 4.25%. He wants to refinance because he thinks he can get around 3.5% on another 30 year fixed. He's been in the house almost 7 years, and refinanced once already a few years ago. The first time he refinanced, he said the savings were pretty big, but he also went from something like 5.75% to 4.25%, which is a fairly big jump. And, he owed more back then as well. He's been paying extra on the mortgage, so the principal came down quicker than it normally would.

I told him that I don't think refinancing a second time would save much money. Maybe $230-250 per month, I'd guess. Plus, he's in a fairly high tax bracket. Not sure how high, but I'd guess the 28%. So, if closing costs are too high, I told him he might be better off just keeping the current mortgage, and upping the extra amount he pays on it.
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Old 02-16-2012, 09:20 AM   #40
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I told him that I don't think refinancing a second time would save much money. Maybe $230-250 per month, I'd guess.
good guess!!! $370k * (4.25%-3.5%) = $2,775 /12 = $231.25

Not sure how much luck he would have getting 3.5% when he is upside down without paying a high fee.
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