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Old 03-31-2015, 04:34 PM   #61
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The answer is "it depends".

But what is most interesting to me is how much more popular on this board is the idea of retaining the mortgage into retirement than it was a few years earlier. There may be some interest rate differences to partially explain this. The rest I think is fashion. IMO if one wants to use this leverage he should not be fooled into thinking that by adding the loan proceeds to his allocation he has not upped his risk.

Asset prices goes up and down, but debt that one owes just sits there demanding to be serviced.

Ha
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Old 03-31-2015, 04:34 PM   #62
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Originally Posted by samclem View Post
And the answer was to draw out a lot of money all at once from the portfolio to pay off the mortgage, just before retiring?

9 years to mortgage payoff - - history may be an unreliable guide, but there hasn't been a period in the modern era when US stocks, with dividends reinvested, took more than 7 years to recover. So, there's some reason to believe the money would have been okay in the stock market.
FIRECalc and cFIREsim both gave a success rate of 56%, with pocket change for average ending portfolio. So either way, the money was coming out of my portfolio. With P&I at 15% of the unpaid balance (and rising fast), in my judgment, that's an unreasonably heavy incremental WR burden, right at the most vulnerable point of early retirement. The only viable options were to pay off or refinance.
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Old 04-01-2015, 09:25 AM   #63
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Borrowing to Invest Does More Harm Than Good - Market Realist

Interesting article I read today.

Mortgage (if one does not need to have it) in a ways is borrowing against house to finance investing.

I still stick with my believe that if you do not have one you are better off.

"Buffett doesn’t borrow to invest"
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Old 04-01-2015, 09:41 AM   #64
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It's easy to justify the risk of choosing a mortgage to increase investments when times are good. While still working you have the option to continue working to make up for investment losses or less than expected performance. However, once retired, taking on debt to invest is more risk than I'm willing to take. What if we entered a protracted downturn similar to what Japan has experienced over the past few decades. The economy has been at risk of deflation which Japan has suffered through for years. It's is not out of the question it could happen here and in Europe. Leverage is great until it isn't.
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Old 04-01-2015, 10:03 AM   #65
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The answer is "it depends".

But what is most interesting to me is how much more popular on this board is the idea of retaining the mortgage into retirement than it was a few years earlier. There may be some interest rate differences to partially explain this. The rest I think is fashion. IMO if one wants to use this leverage he should not be fooled into thinking that by adding the loan proceeds to his allocation he has not upped his risk.

Asset prices goes up and down, but debt that one owes just sits there demanding to be serviced.

Ha
Good point. I am so glad to have a paid off mortage in retirement. It's one less bare bones (non-discretionary) expense to have to pay from risk free sources. Bank accounts really don't pay much interest these days.
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Old 04-01-2015, 10:41 AM   #66
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I wouldn't mind carrying a mortgage but it would depend on the amount relative to my portfolio. Theoretically, it doesn't matter as market returns should exceed the mortgage, but I would be really uncomfortable with a mortgage that was more than 10 percent of my NW.
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Old 04-01-2015, 11:17 AM   #67
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I agree with both sides of the argument here, and I disagree with both sides.... Yeah, that's a cop out, but I'll try to explain.

It seems one side is arguing that NO MATTER WHAT, they will only feel comfortable without a mortgage. If I had the proposed "$2.5 Million" that Legg Mason says you have to have in order to retire, AND I had a $100k to $300K mortgage, I think there would be no question that as I ER'd I would pay the mortgage off. Then again, how much of that portfolio is going to be taxable vs non-taxable income, what would the mortgage do for me from Std Deduction vs Itemized, etc, etc. I think the point is you would have options that are pretty much all good in the above scenario.

On the other hand, what if I DON'T have $2.5 million, but have $1 million. And I have $100k or less of mortgage remaining (and of course the house is not just worth $100k, or gulp, less) and I could refinance at that time at todays ~3.375% rate... If that were the case and my retirement WR considering that would allow me to ER rather than work another 5-10 years at MegaCorp JUST to pay off the mortgage, then I think I could sleep like a baby with that mortgage.

Bottom line, some people have been either smarter, luckier, or whatever to be in the first situation, while others are in the second situation. There is no one answer for all. I kind of like the "relative to my NW" statement some have posted.

If we were Warren Buffett, we wouldn't worry about any of this.

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Old 04-01-2015, 11:37 AM   #68
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I've already chimed in regarding having the mortgage paid off by retirement. I also hate seeing how much of the monthly payment goes to interest vs the loan balance (even at a low interest rate). 😡


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Old 04-01-2015, 12:03 PM   #69
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I don't think this is an issue that can be individually financially optimized with a maxim, generic article or emotions. There are many factors to consider including but not limited to taxes, retirement income sources, tax brackets, local appreciation rates, historic interest rates and ACA credits. We run everything in the RIP and our own spreadsheets. Even future RMDs might be impacted by having a mortgage or not in the pre-70 years. I could never do all the calculations in my head. I always get surprising results when I run all the numbers.
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Old 04-01-2015, 12:10 PM   #70
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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

We just signed purchase agreement on a condo. We have ample cash to pay for, and even more when we sell our house. I met with mortgage guy yesterday. While I think that over 30 years, or however long I live, there is a high probability I would make more than the 3.69% before tax mortgage, the documentation required is a major hassle.

But primarily, I realize I haven't done a good job investing "cash windfalls" in the last couple years. I keep thinking the market is too high, rationalizing, I'm retired now, I shouldn't be so aggressive investing. So this mortgage money might end up sitting in a savings account, and only benefit me if interest rates shoot back up.




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Old 04-01-2015, 01:37 PM   #71
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So this mortgage money might end up sitting in a savings account, and only benefit me if interest rates shoot back up.
GCGang- I agree. If you already have all of the cash that you need/feel would be necessary, pay cash. But, if you are not one of the lucky ones in that situation, a little paper work hassle might be worth the cash in hand.
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Old 04-01-2015, 07:04 PM   #72
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GCGang- I agree. If you already have all of the cash that you need/feel would be necessary, pay cash. But, if you are not one of the lucky ones in that situation, a little paper work hassle might be worth the cash in hand.

Good discussion--and helpful.
My wife and I are debating it, since we're buying a house in Reno (at 3.1%) and then will sell the Houston home afterwards and move in June/July. We can reamortize the Reno loan within 12 months, but shouldn't quite pay off the loan since the Reno house is more expensive and it would bring available cash lower than I'm comfortable with. It's a question of how much cash we want with a mortgage of 5-8% (at max) of the net worth. Even if I'm investing cash at about the same rate as the mortagage--it adds liquidity. I've also considered the HELOC, also.

Since it's not clear when she will find a job (she's younger and wants to work for 3-5 more years), we'll probably wait to see and then keep about the loan at 8% of NW. We can always pay it off later. We also have a Colorado cabin, which we can also sell.

As several have noted, there is no clear answer--depends on circumstances, psychology, and other factors.
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Old 04-01-2015, 09:02 PM   #73
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I've already chimed in regarding having the mortgage paid off by retirement. I also hate seeing how much of the monthly payment goes to interest vs the loan balance (even at a low interest rate).
How much would the monthly investment earnings be on the investments that were liquidated to pay off the mortgage?
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The Value of Debt in Retirement
Old 04-02-2015, 09:42 AM   #74
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The Value of Debt in Retirement

Hi PB4uski. We won't have to liquidate investments. We plan to sell the house next year. House is worth more than mortgage balance so we will be debt free. We will deposit any additional cash from the home sale into CDs. Our retirement home doesn't have a mortgage.


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Old 04-03-2015, 10:41 AM   #75
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I am 5 yrs into retirement and I still have a mortgage on the house. I could pay it off tomorrow but the mortgage is at 2.8% and you would have to hold me at gun point to do so. As always YMMV.
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Old 04-03-2015, 09:00 PM   #76
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I just skimmed through the thread and didn't see this mentioned but with respect to a mortgage I would prefer to have one not so that I can invest the money at higher expected return, but to preserve the walk-away option.

E.g. you buy a house in california and it gets leveled by an earthquake but since you have a mortgage you can just walk away. Alternatively, one of my co-workers had his house in florida fall into a limestone sinkhole.
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Old 04-03-2015, 09:21 PM   #77
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I just skimmed through the thread and didn't see this mentioned but with respect to a mortgage I would prefer to have one not so that I can invest the money at higher expected return, but to preserve the walk-away option.

E.g. you buy a house in california and it gets leveled by an earthquake but since you have a mortgage you can just walk away. Alternatively, one of my co-workers had his house in florida fall into a limestone sinkhole.
Good consideration, though I do not think all mortgages in California are non-recourse. It depends on factors like refinancing and when the refinancing occurred since the laws have changed over time.

But overall I agree that is another important aspect to consider, especially in states with natural disasters that may not be covered by homeowner's insurance.
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Old 04-04-2015, 01:07 AM   #78
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I agree it has been a good discussion, and I agree the answer is "it depends".

We are close to retirement with 27 years left on a 30 year/10 year ARM refinanced mortgage (California). Over the past ten years, we had a choice to either pay down the mortgage or max out our Roth IRAs, and we chose the latter. Now happily have Roth balances that are greater than the remaining mortgage, and will pay 2.875% mortgage interest for another 7 years while hoping the Roth investments return better. Odds are 50/50 we'll stay in the house after 7 years, but if we do, we'll deal with the adjusted rate when it happens.
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Old 04-04-2015, 06:39 AM   #79
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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.
We paid off our mortgage before retirement the old fashioned way, one payment at a time, through our working careers. Despite three moves and three home sales and purchases our intentions were always to manage our mortgage so that the money borrowed decreased over time as our home equity increased culminating in a mortgage burning party just prior to retirement. That is not being irresponsible. Would you have advised us to then remortgage that home and invest the money in the market just as we retired?
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Old 04-04-2015, 08:08 AM   #80
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We paid off our mortgage before retirement the old fashioned way, one payment at a time, through our working careers. Despite three moves and three home sales and purchases our intentions were always to manage our mortgage so that the money borrowed decreased over time as our home equity increased culminating in a mortgage burning party just prior to retirement. That is not being irresponsible. Would you have advised us to then remortgage that home and invest the money in the market just as we retired?
I'm not sure if others have stated, as a strategy, to "take a mortgage" at retirement to use as investment for retirement funding. Certainly, paying off your mortgage as you also fund your retirement, would not be irresponsible but would be the choice option IMHO. I think the poster that made the irresponsible statement was referring to paying mortgage off in lieu of retirement funding, or worse, pulling LIMITED retirement funds to pay it off. Note the LIMITED. If you have several million $'s and decide to pull $300k to pay off mortgage, have at it.

I am interested in the author's thoughts on debt as part of personal finance strategy. Interested, but not necessarily buying in....
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