Accounting for Mortgage in FIRECALC

[nico08]

Hi. I have a 30 year fixed rate mortgage. I am trying to account for the mortgage expense in FIRECalc. I am questioning whether I should include the mortgage expense as part of annually living expenses in FIRECalc (Proposal 1).

I am question whether there may be a more appropriate way to input my mortgage in FIRECalc. Should I reduce my expenses on the Start Here page to exclude my mortgage since my mortgage is a fixed amount each year and does not increase for inflation each year like living expenses do. Then add my mortgage as off-chart spending beginning in 2015 and offset it with a “pension” aka off-chart spending offset beginning in 2043 (when 30 year term ends). (Proposal 2). That way, the withdrawals to support my mortgage payments are fixed and don’t inflate at CPI and end in 2043. Setting up FIRECalc this way to account for the mortgage increases my overall FIRE success rate quite a bit.

So what do you think? Which is the better approach to follow, Proposal 1 or Proposal 2?

 

[REWahoo]

Proposal 2 is more precise but most probably do it as you outline in Proposal 1. Have you run it both ways to see if you get substantially different results? I'm guessing the difference will be small.

 

[rodi]

I did your proposal 2 method when I was modelling. Then I just decided it was easier to pay off the mortgage.

 

[REWahoo]

I did your proposal 2 method when I was modelling. Then I just decided it was easier to pay off the mortgage.

Yep, same here. And it made a great excuse for OMY - but only one.

 

[nico08]

Yes, I ran it both ways and got significantly different results, there was about a 25% difference between FIRE success using either Proposal 1 or Proposal 2.

 

[REWahoo]

Yes, I ran it both ways and got significantly different results, there was about a 25% difference between FIRE success using either Proposal 1 or Proposal 2.

OK. I failed to notice you still have 28 years to go which would explain the big difference, especially if the mortgage is large. Definitely go with Proposal 2.

 

[pb4uski]

Proposal 2, because if you include your mortgage in your expenses it will inflate the cash needed at the CPI rather than have fixed payments and the payments will never end.

 

[Animorph]

I use the #2 approach. It does make a significant difference with a long mortgage period and large payment. Hopefully this will better model actions like paying off the mortgage. However, more FIRECalc "accuracy" may not improve your real life results.

 

[Grumpyretirement]

The only issue with this is that it only leaves me with one other input for pension....I have two, one mine and one my wifes. Can you add additional lines of input? Or is there another way to handle mortgage?

 

[pb4uski]

I see 3 pension/off chart spending lines so you'll have one for your mortgage, one for your pension and one for your wife's pension. If that doesn't work you could combine the pensions if they are the same type and start near the same time and it probably won;t affect the outcome much.

 

[Grumpyretirement]

The pension start 7 years apart. I married a young chick! But the mortage doesn't have a way to end it...I thought yuo needed two lines....one to start it and one to end it. I don't see a way to put an end date on the off chart spending. Thanks for your help.

 

[pb4uski]

Good point I had not noticed before. Perhaps what I had done is entered my mortgage payments as a non-inflation adjusted spending item starting now and then entered an offsetting non-inflation adjusted off-chart spending reduction when the mortgage ended, but that won't work for you because you'll run out of lines for mortgage start, mortgage stop, your pension and wife's pension.

A couple ideas. One is to become as supporter and use the manual entry of spending changes but I don't think that will work as it will inflate your mortgage payments included in the initial spending amount. The other solution, albeit a bit crude, would exclude your mortgage payments from your spending and reduce your retirement funds by the amount of your mortgage (as if you pay off your mortgage just before you retire).

 

[Grumpyretirement]

Tks I was planning to become a supporter anyway....Ilove the calculator....fun to play with and look at options.

As for the other idea....I could do that....just create another column in the excel sheet.....but the problem I have is the formula's at the bottom of the excel sheet don't all appear, I don't think. I run the program for 50 yrs....and get 50 yrs worth of numbers at the top. but it is supposed to have corresponding numbers with formula's at the bottom.....but I only get about 20-30 yrs worth, it seems. But the top part numbers seem correct, so haven't bothered with it. Any ideas?

I sure wish they would make it a little more flexible and maybe have an input for mortgages or more offchart spending input lines.