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05-13-2011, 08:09 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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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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05-13-2011, 01:43 PM
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#2
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2009
Posts: 9,343
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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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05-13-2011, 01:51 PM
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#3
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Full time employment: Posting here.
Join Date: May 2008
Location: Lexington
Posts: 714
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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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05-13-2011, 01:55 PM
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#4
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Full time employment: Posting here.
Join Date: Apr 2011
Posts: 625
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Quote:
Originally Posted by plex
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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So you'd suggest anyone with a paid off home go get a mortgage and invest the money somewhere?
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05-13-2011, 01:58 PM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,022
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The "payoff the mortgage early" debate? Again?
__________________
Numbers is hard
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05-13-2011, 02:20 PM
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#6
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Recycles dryer sheets
Join Date: Jun 2007
Posts: 413
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Quote:
Originally Posted by plex
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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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.
__________________
Retired - Class of 2011
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05-13-2011, 02:53 PM
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#7
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Full time employment: Posting here.
Join Date: Feb 2008
Posts: 748
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Quote:
Originally Posted by arebelspy
So you'd suggest anyone with a paid off home go get a mortgage and invest the money somewhere?
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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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I don't want to spend my entire life at work. I deserve more. - Want2retire aka W2R
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05-14-2011, 01:10 AM
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#8
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Moderator Emeritus
Join Date: Dec 2002
Location: Oahu
Posts: 26,860
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Quote:
Originally Posted by arebelspy
So you'd suggest anyone with a paid off home go get a mortgage and invest the money somewhere?
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Read this first, and then let us know if you still have any questions:
http://www.early-retirement.org/foru...ney-30644.html
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Co-author (with my daughter) of “Raising Your Money-Savvy Family For Next Generation Financial Independence.”
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I don't spend much time here— please send a PM.
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05-14-2011, 01:02 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2004
Location: South Texas~29N/98W Just West of Woman Hollering Creek
Posts: 6,674
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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.
__________________
Part-Owner of Texas
Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx
In dire need of: faster horses, younger woman, older whiskey, more money.
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05-14-2011, 09:41 PM
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#10
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Recycles dryer sheets
Join Date: Jan 2010
Posts: 243
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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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05-14-2011, 10:08 PM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2007
Posts: 5,072
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Quote:
Originally Posted by plex
Yes it is always better to hold a mortgage , but the emphasis is on at current mortgage rates. ....
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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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