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RE and mortgages for ER
Old 05-13-2011, 09:09 AM   #1
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RE and mortgages for ER

Here's an article about retirees and real estate


real-estate-nightmares-for-retirees-marketwatch: Personal Finance News from Yahoo! Finance


It goes over the usual "to downsize or not" and "falling equity" stuff and then there is a nice bit that summarizes the two sides of the "pay down the mortgage or not" argument.



Quote:
For his part, Amromin said it is difficult to think of a scenario in which paying down the mortgage would be advantageous. "Assuming refinancing is an option, current low interest rates should allow for a cheap way of financing the remainder of the mortgage, potentially generate tax deductions, and free up money for alternative investments," Amromin said.


Meanwhile, the Center for Retirement Research at Boston College published a study in 2009 suggesting that all except a small minority of households are better off paying down their mortgage before entering retirement. In 2007, for instance, an increasing proportion of Americans were entering retirement with a mortgage. In fact, 41% of household aged 60 to 69 had a mortgage that year and, at least at the time, 51% had sufficient assets to pay down their mortgage. "These households could, if they wanted, be mortgage-free simply by selling some of their investments and mailing a check to the lender," Anthony Webb, the study's author, wrote at the time.
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Old 05-13-2011, 02:43 PM   #2
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As an ER I'm strong cash flow wise, but asset poor. If I had to pay off mortgage before retiring, I would be nowhere close to retiring! Mortgage fits comfortably inside monthly budget, so I don't worry about it much. I add a couple hundred extra on payment to help whittle it down though.
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Old 05-13-2011, 02:51 PM   #3
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Yes it is always better to hold a mortgage , but the emphasis is on at current mortgage rates. The current mortgage rates are the lowest ever. It becomes much less of a good thing at just a couple % higher, and it becomes a very bad thing after another couple %.
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Old 05-13-2011, 02:55 PM   #4
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Yes it is always better to hold a mortgage , but the emphasis is on at current mortgage rates. The current mortgage rates are the lowest ever. It becomes much less of a good thing at just a couple % higher, and it becomes a very bad thing after another couple %.
So you'd suggest anyone with a paid off home go get a mortgage and invest the money somewhere?
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Old 05-13-2011, 02:58 PM   #5
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The "payoff the mortgage early" debate? Again?
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Old 05-13-2011, 03:20 PM   #6
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Yes it is always better to hold a mortgage , but the emphasis is on at current mortgage rates. The current mortgage rates are the lowest ever. It becomes much less of a good thing at just a couple % higher, and it becomes a very bad thing after another couple %.
This makes sense to me.

I paid off my 7% mortgage instead of refinancing to these historically low rates. The alternative might have been financially wiser but I prefer the peace of mind of being debt-free.
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Old 05-13-2011, 03:53 PM   #7
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So you'd suggest anyone with a paid off home go get a mortgage and invest the money somewhere?

If it were me, I would do it in an instant. My problem is not only do I not have my mortgage paid off, I don't have a large enough $$$ chunk to pay it in full.

If I was debt free, I would get a mortgage on the home at current rates and put it in the market based on my current portfolio. It feels a little different (at least to me) having a "cash" balance that could cover the mortgage, if the need arose.
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Old 05-14-2011, 02:10 AM   #8
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So you'd suggest anyone with a paid off home go get a mortgage and invest the money somewhere?
Read this first, and then let us know if you still have any questions:
(FAQ archive) Should I pay off the mortgage or invest the money?
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Old 05-14-2011, 02:02 PM   #9
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My current RE exposure is limited to some Admiral shares in my Vanguard REIT Roth account, in addition to my home.
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Old 05-14-2011, 10:41 PM   #10
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When mortgage rates were historically high, we paid off our mortgages. Now that they are historically low, we are not paying off our mortgage.

We will enter retirement with a sizable mortgage, but it looks like we are going to have enough in one of our taxable account to pay off the mortgage at any time. Our gut feeling is that eventually interest rates will rise beyond the rate of our fixed rate mortgage and holding the mortgage will be a hedge against inflation.
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Old 05-14-2011, 11:08 PM   #11
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Yes it is always better to hold a mortgage , but the emphasis is on at current mortgage rates. ....

That is too narrow and makes many assumptions... as if using your homes leverage guarantees an investment return/spread (on riskier assets) without risk of loss.

Any significant impairment (for any reason) in retirement in the withdrawal phase would probably leave the person worse off.... maybe much worse off with little chance of recovery without taking even higher risk.


People do it.... But they are putting their house in play! Maybe it will work out. But if they, or something or someone else screws up... they get the consequences.


Nothing is free.

I do not consider my home an investment, but a cost of living that happens to be a physical asset. But I do look at it as diversification of assets. I also think owning it mitigates certain risks of adverse events.
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