OK, maybe 'paying down the mortgage' is more accurate...
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Americans are paying down their mortgages. According to Freddie Mac, a record 50% of all refinancings in the fourth quarter of 2010 resulted in smaller loans than the previous mortgage. These are "cash-in" refinancings, the opposite of the cash-out refis of the late, lamented housing boom. Until the collapse of housing, cash-in refis never really exceeded 20%, but, since 2009, they have consistently been higher.
Why?
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...some of this comes from necessity. With reduced home values, refi applicants often need to put in equity to meet loan-to-value requirements. But the bigger factor is thrift. The millions of boomers headed for retirement want to conserve their wealth, and paying down the mortgage can be a good way to do that.
I thought this quote from a related article was an interesting observation:
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America's baby boomers, the largest and richest generation in history, are entering a new phase of their lives. With retirement approaching fast, the boomers are adopting the fiscal habits their parents were known for. (We all eventually become our parents, it just took the boomers a little longer than past generations.)
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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.
At last, people are starting to see things my way. Next I expect everyone will be ditching their credit cards, too.
__________________ "Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harborless immensities." - - H. Melville, 1851
That last OP quote sounds like good news for the long run (though maybe not for the short run).
We paid off our 30 year mortgage in about 16 years, if was exhilarating. We were fortunate...
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America's baby boomers, the largest and richest generation in history, are entering a new phase of their lives. With retirement approaching fast, the boomers are adopting the fiscal habits their parents were known for. (We all eventually become our parents, it just took the boomers a little longer than past generations.)
__________________ It's odd when I think of the arc of my life, from child to young woman to aging adult. First I was who I was. Then I didn't know who I was. Then I invented someone, and became her. Then I began to like what I'd invented. And finally I was what I was again. It turned out I wasn't alone in that particular progression. Anna Quindlen
Retired Jun 2011
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!
They'll do that right after they give up indoor plumbing...
You still have that?
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Originally Posted by fishtherainy
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!
That's how I feel too, but I think we may be in the minority here.
__________________ "Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harborless immensities." - - H. Melville, 1851
One consideration before completely paying off the mortgage is whether you think you'll need to borrow again or whether your credit score is used for other purposes. If you pay off a mortgage or other large installment debt, then it may affect your ability to borrow later. Although the pay-off shows on the credit history, the more time passes, the less consideration is given by the creditor because it does not represent your current financial condition or reliability.
We've paid our interest only mortgage down to $72 and now make minimal reductions. The balance is so small, the floating interest rate is easily handled. Yet we've ensured that the mortgage looks great (balance compared to original loan), show ongoing current payment activity, and continues to be reflected in our credit reports.
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.
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.
One consideration before completely paying off the mortgage is whether you think you'll need to borrow again or whether your credit score is used for other purposes. If you pay off a mortgage or other large installment debt, then it may affect your ability to borrow later.
My original mortgage on my co-op apartment back in 1989 was nearly 11% on a 5-year ARM. Interest rates fell quickly and I did a refi in 1992 to 6% on a 1-year ARM, saving me $200 a month.
By 1997, the interest rate has crept up to around 8% but once I realized that the lost tax savings from paying off the mortgage due to being able to switch to the standard deduction on my state return was nil, I paid of big chunks of the mortgage in 1997, finishing it off in 1998, just 9 years after I first got the loan.
With my salary rising a lot in the mid-1990s (I was still working FT), one biweekly paycheck now easily covered all my monthly expenses with room to spare, enabling me to replenish the accounts used to pay off the mortgage. That and the booming stock market got me back to where I was pretty fast.
I saw paying off the mortgage (becoming debt-free) as a big step toward being able to ER because having such greatly reduced expenses made it easy to switch to working PT starting in 2001, 3 years later.
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Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.
OK, maybe 'paying down the mortgage' is more accurate...
Why?
Well, this might make a really boring article for the media, but maybe the reason refis are cash-in now is because the lender charges more for a cash-out... including an appraisal and a higher interest rate. I remember this issue in at least two of our recent refis. We made sure to set the refi amount low enough that the new balance was less than the old by $1000 or so. With one of them the delays made that problematic.
But I'd rather read articles about the New American Cheap Frugality movement.
I think we Boomers became our parents when we had to start trusting anyone over thirty. Especially when we were over 30.
Hey, should we start a "dead equity" thread to balance out the debate?
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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.
+1..
__________________ “I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said” Alan Greenspan
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Join Date: Sep 2005
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Originally Posted by REWahoo
Set up a HELOC to hedge your bets...
A thread a while back took the shine off that apple. HELOCs were getting frozen, right when people needed them the most.
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Originally Posted by fishtherainy
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 think the experts would agree that 'debt free is debt free'! Little debate there
But if that was one of the very best financial decisions you've ever made, I feel sorry for you. I hope you are selling yourself short with that comment.
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Originally Posted by W2R
That's how I feel too, but I think we may be in the minority here.
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Originally Posted by pb4uski
LOL, we certainly seem to be in the minority.
Persecution complex? Funny that people on either side of the issue feel they are in the minority. But we are all above average too, so it's OK.
Investing in paying off my mortgage is 5.25% guaranteed return (ok, a bit less with the tax deduction). Looks better to me than alot of other choices lately. 23 months to go!
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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.
That's how I feel too, but I think we may be in the minority here.
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Originally Posted by pb4uski
LOL, we certainly seem to be in the minority.
Persecution complex? Funny that people on either side of the issue feel they are in the minority. But we are all above average too, so it's OK.
Interesting! Apparently pb4uski is right. I did a search, and found out that according to this bankrate article, most retirees in fact do NOT have mortages and so presumably do not want them.
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About 25 percent of those of any age who considered themselves retired had a mortgage.
__________________ "Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harborless immensities." - - H. Melville, 1851
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Next I expect everyone will be ditching their credit cards, too. 
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