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Old 03-29-2015, 07:04 PM   #21
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Another FIREee who is carrying a mortgage after abandoning my career.

For us, the interest rate on the mortgage was not only less than the expected return on what we would invest the money in but it is less than the local rate of inflation. And this is before we take into account the tax deductibility. That said, we recognize that expected rates of return may (and often are) very different from actual rates of return, so while we expect that carrying the mortgage will leave us better off, there is a non trivial risk that we will end up being worse off.

We also have a different mortgage market here in that mortgages are at floating rates based on the short end of the yield curve - it makes for very cheap borrowing (currently below 1% on average) but exposes us to the risk of rising interest rates. If that happens, we will start to accelerate our repayments.

As a final thought, when the home mortgage is repaid (about 6.5 years from now), we would seriously consider borrowing against our home to invest in another property or some equities (assuming the numbers made sense at the time and that we could get a bank to lend to a retired guy in his fifties).
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Old 03-29-2015, 07:14 PM   #22
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. . . so I'm not sure what we'll do about getting another HELOC at the end of the first ten years.
Yes, the window appears to be limited. And another thing: as some folks found during the housing meltdown, HELOCs aren't perfect as a source of emergency cash--the bank can decide to do a re-appraisal on a property if home values become questionable. But, the cost for a HELOC is low, so we've got one as cheap insurance. If we need access to a chunk of money in the next decade, it will be probably be better than paying 15% of LTCG (compared to our "normal rate" of zero).
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Old 03-29-2015, 07:31 PM   #23
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Yes, the window appears to be limited. And another thing: as some folks found during the housing meltdown, HELOCs aren't perfect as a source of emergency cash--the bank can decide to do a re-appraisal on a property if home values become questionable. But, the cost for a HELOC is low, so we've got one as cheap insurance. If we need access to a chunk of money in the next decade, it will be probably be better than paying 15% of LTCG (compared to our "normal rate" of zero).
HELOCs are balance sheet products for lenders rather than stuff that is originated for sale to Fannie/Freddie, so to some extent the lenders on HELOCs can do actual underwriting and make rational credit decisions (as opposed to just making sure all the boxes are ticked off with agency lending). A 50% LTV HELOC to a multi-millionaire retiree is about as sweet as it gets for lenders, so I imagine you would not have a lot of trouble getting a new HELOC after the original goes away.
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Old 03-29-2015, 08:41 PM   #24
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The Washington Post ran an interview with Tom Anderson, the author of the book The Value of Debt in Retirement. In the interview he argues that it can make economic sense to carry debts such as a mortgage into retirement.

As part of the "keep the mortgage" group, I found it a refreshing change from the typical advice seen in media. The danger is in hearing only the part about holding onto the mortgage without implementing the offsetting part of the strategy which is to save/invest the money which would have been used to pay off the mortgage.
This sounds like the advice Ric Edelman has been giving for years.

And the opposite advice of what Dave Ramsey tells his millions of followers
daily.

Whatever helps you sleep at night is the right answer. But liquidity is a must if you do payoff your mortgage sooner than later.

Dave Ramsey tells people daily to pay off their mortgage as they head into retirement and these people are using a huge chunk of their overall retirement nest egg to do it. Thats just irresponsible.

I get the whole "slave to the lender" thing but a well funded diversified portfolio will outperform a 3% mortgage and will also provide a retirement paycheck to make the house payment.
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Old 03-30-2015, 07:49 AM   #25
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A good point, Samclem. We will likely get a HELOC, but not draw on it, or just draw the minimum if there is one, right before we pull the plug. I have noticed that most HELOCS have a ten year draw period followed by a 20 year repayment period, so I'm not sure what we'll do about getting another HELOC at the end of the first ten years.

Assuming the HELOC is the only debt or at least that other debts are small and managable, I doubt you'd have any trouble qualifying for a renewal of the HELOC. Surely you'd be able to show some sort of income stream. We;ve even used the total portfolio divided by actuarial life expectancy chart to get a potential monthly income for those folks that do not want to draw off of retirement funds quite yet.

Most lenders cry uncle at about 40%+/- Debt to Income; where debt = contractual loan payments (not the cell bill, etc.)
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Old 03-30-2015, 08:05 AM   #26
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I don't think there is a one size fits all answer.

In a different state the opposite might be true. There are many factors to consider.
+1 For me to assume any debt in retirement, the offsetting benefits would have to be very significant and virtually guaranteed.
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Old 03-30-2015, 08:12 AM   #27
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This sounds like the advice Ric Edelman has been giving for years.

And the opposite advice of what Dave Ramsey tells his millions of followers
daily.

Whatever helps you sleep at night is the right answer. But liquidity is a must if you do payoff your mortgage sooner than later.

Dave Ramsey tells people daily to pay off their mortgage as they head into retirement and these people are using a huge chunk of their overall retirement nest egg to do it. Thats just irresponsible.

I get the whole "slave to the lender" thing but a well funded diversified portfolio will outperform a 3% mortgage and will also provide a retirement paycheck to make the house payment.
My take is that Dave Ramsey's advice has more to do with human behavior than math.

Like when he tells people to pay off the smallest debt first, even if it's not the highest interest rate. Obviously, with all things being equal, one should pay off the highest interest debt, but all things are not equal. There are many people who become discouraged when they try to pay off the higher interest debt and fail. Paying off the smaller debt is easier and succeeding leads to a real psychological boost and helps many people keep with the program.

Likewise, owning a house is very different from owning a stock portfolio. Investments are pretty easy to cash out of while selling a house is a bigger deal. A house often turns out to be the largest asset some people have and can be cashed out when it's time to move into assisted living. I know both my DMIL and my DGM sold their houses when it was time to move into assisted living and the cash from that provided the money they needed.

Now, I know all of us here in this forum are strictly rational and will do whatever it takes to earn an extra 1% on their money but owning a house gives many people a real asset they can rely on.
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Old 03-30-2015, 08:18 AM   #28
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This sounds like the advice Ric Edelman has been giving for years.
Funny how Ric Edelman stopped pushing the idea that people should mortgage their house to the max and pore the money into the stock market after the troubles of 2008.

Of course, as that recedes in our memories, it's made it back into his spiel.
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Old 03-30-2015, 08:28 AM   #29
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Let me put another spin on it.

Lets say I have 24k a year mortgage. So 50 year old couple without mortgage who has income 50k a year has same money as 50 year couple with income of 74k a year. (because second couple bought lets say annuity)

Guess who is financially smarter? Couple without mortgage because they will get Obama-care subsidies.
One of the reasons I bought a Condo for cash was to lower my income from investments and get a better deal with health insurance. Luckily they don't tax "implied" or "phantom" interest. Implied interest being the amount I save by not having to pay a rent verses what I pay for taxes and maintenance.
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Old 03-30-2015, 08:29 AM   #30
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+1

There are FA's, who promote carrying a mortgage, and other who do not,
when retired. Simple fact opinion, Life is much easier mentally and financially with the house paid for.

Assuming you can make more money, by carrying a mortgage, take an
interest deduction, and invest the "mortgage" money for a better return
(equities, etc), seems to be to risky. Especially when retired.
In my humble fact opinion, having a large amount of money tied up in a relatively illiquid item such as your home is risky, especially when it's practically a no brainer to be able to match the cost of the mortgage. I don't care what others do, but I get annoyed at the "facts" that are tossed around. Make your choice, do as you will, but a fact would be true across the boards for everyone. This is not.
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Old 03-30-2015, 08:39 AM   #31
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One advantage to owning real estate outright is the homestead exemption. In my state almost all my equity is exempt from lawsuits.
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Old 03-30-2015, 10:06 AM   #32
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In my humble fact opinion, having a large amount of money tied up in a relatively illiquid item such as your home is risky, especially when it's practically a no brainer to be able to match the cost of the mortgage. I don't care what others do, but I get annoyed at the "facts" that are tossed around. Make your choice, do as you will, but a fact would be true across the boards for everyone. This is not.

When I retired I did not have enough money to pay off mortgage. Now I do, but prefer the liquidity at this point. Certainly not a math question to me, as once I get a bigger stash, I will pay that note off without regards to the math either way.


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Old 03-30-2015, 10:16 AM   #33
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+2 I did a cash-out re-fi just prior to retiring a few years ago, reducing my rate from 4.375% to 3.375%. The low rate was hard to pass up. Since that re-fi, my portfolio has averaged almost 10.98% annual return so I'm way ahead and things would have to go sour in a big way for me not to come out ahead.

That said, our mortgage is less than 10% of our NW and I am a comfortable with risk and our WR is reasonably low.

Also, having a mortgage makes my itemized deductions more than the standard deduction and allows me to do more Roth conversions that I could without a mortgage and I am gaining at least 5% on those conversions as I am paying 10% in federal income tax on those conversions to avoid 15% or more in federal income tax later in life.
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Old 03-30-2015, 10:32 AM   #34
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A HELOC would be one way to reduce your claimed income for an ACA subsidy.

If you needed to bridge a few years (till Medicare) it would certainly pay for itself.
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Old 03-30-2015, 11:19 AM   #35
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A HELOC would be one way to reduce your claimed income for an ACA subsidy.

If you needed to bridge a few years (till Medicare) it would certainly pay for itself.
+1. A HELOC or mortgage. The ACA tax credits can be well over $10K in after tax money, certainly for many households that can make up for the possibility of a slightly lower return on after tax investment returns vs. after tax mortgage interest rates.
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Old 03-30-2015, 11:20 AM   #36
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To each their own....whatever helps you sleep at night. I prefer to not have a mortgage payment as it will be $1100/month I won't need to pull from retirement accounts. Our situation may be different as we will be selling primary home (still has a 20 yr. mortgage) when DH retires next year to move full time to the home we built for retirement (no mortgage). Personally, I like the idea of being debt free (except taxes of course).
I don't believe there is a "one size fits all" answer.
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I have no mortgage, becasue at the time I bought (2011), cash talked
Old 03-30-2015, 11:46 AM   #37
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I have no mortgage, becasue at the time I bought (2011), cash talked

I then went to take out a mortgage, but I decided that the fees and hassle were not worth it to me. Also, I need less cash flow to meet my obligations, thus enabling me to keep a closer eye of income tax and Medicare fees.

I had thought that I would definitely want a mortgage at today's rates, but overll I think it turned out to be different for me.

Ha
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Old 03-30-2015, 12:10 PM   #38
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We are glad to have paid off our mortgage years ago after the interest was no longer enough to allow us to itemize on our taxes. We don't owe even a penny to anyone. Less hassle, will always have a place to live as long as we pay the low property taxes, and left us with a pant load of money since that time to invest each month in our 403b(s) and Roth IRA(s).

Worked for us.

Cheers!
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Old 03-30-2015, 02:09 PM   #39
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My take is that Dave Ramsey's advice has more to do with human behavior than math.

Like when he tells people to pay off the smallest debt first, even if it's not the highest interest rate. Obviously, with all things being equal, one should pay off the highest interest debt, but all things are not equal. There are many people who become discouraged when they try to pay off the higher interest debt and fail. Paying off the smaller debt is easier and succeeding leads to a real psychological boost and helps many people keep with the program.

Likewise, owning a house is very different from owning a stock portfolio. Investments are pretty easy to cash out of while selling a house is a bigger deal. A house often turns out to be the largest asset some people have and can be cashed out when it's time to move into assisted living. I know both my DMIL and my DGM sold their houses when it was time to move into assisted living and the cash from that provided the money they needed.

Now, I know all of us here in this forum are strictly rational and will do whatever it takes to earn an extra 1% on their money but owning a house gives many people a real asset they can rely on.
I agree with Dave Ramsey about the behavior issue with spending and saving.

But Dave Ramsey tells people everyday to pay off their mortgage completely before they retire and he doesn't even ask them for the exact details of their retirement savings situation. Thats kind of important information one should have before they tell a person to spend a huge portion of their nest egg to payoff their mortgage.

Many people live several decades in retirement so a paid off house is useless without retirement income to eat and keep the lights on. Not to mention taxes,insurance and maintenance costs.
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Old 03-30-2015, 02:33 PM   #40
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Funny how Ric Edelman stopped pushing the idea that people should mortgage their house to the max and pore the money into the stock market after the troubles of 2008.

Of course, as that recedes in our memories, it's made it back into his spiel.
The housing market crashed in 2007-2008 if I remember correctly and we were dealing with a major recession. He was probably busy dealing with investors.

Edelman has been telling people for the last several years to not put all your eggs in your housing basket. Invest in the markets while paying off your low interest mortgage at the same time.

Edelman tells people all the time the he is ok with it if they have the cash to go ahead and payoff their mortgage in full as long as they have a well funded diversified portfolio that will produce retirement income. Perfect world scenario.

Obviously in a perfect world no debt in retirement is what everybody wants but for the average person thats not going to happen.
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