Mortgage help, please and thank you :-)

[canuck5]

It's been 1994 since we have paid interest on anything. We've lived well below our means and we are both 60 and sincerely considering retirement and a move.

I'm comfortable that we have enough savings to last us, but I'm wondering, with us planning to move in to a new or newer home, in the not too distant future, whether there is logic in getting a mortgage at these incredibly low interest rates. Maybe in the 3.5% range. When I paid off our house, our mortgage was 6% and felt that was a reasonable investment back then.

Interest rates on CD's, bonds and mortgages are likely to go up, maybe not rapidly, but I would think in 5-7 years, we could see them go up a couple %. I'd take maybe $300,000, out of the sale of my current home and invest it.

So, I am conservative, but somehow, in the back of my mind, getting a mortgage might be a no-brainer? What am I missing or what do y'all think? Right now, we have no other tax deductions. Any help is appreciated!

 

[athena53]

We downsized a year ago and had the ability to pay cash but chose to take out a mortgage. It's at 3% with a $700 monthly payment (principal and interest only- taxes and insurance separately). So, not a big, scary amount to us.


Our reasoning was that we can do better than 3% on the investments (and have). For many people, though, the freedom of not having a monthly payment is worth it.

 

[canuck5]

We downsized a year ago and had the ability to pay cash but chose to take out a mortgage. It's at 3% with a $700 monthly payment (principal and interest only- taxes and insurance separately). So, not a big, scary amount to us.


Our reasoning was that we can do better than 3% on the investments (and have). For many people, though, the freedom of not having a monthly payment is worth it.

Thanks! That's my thinking too. I'd just put the mortgage payment on autopilot.

 

[HaveEnough]

To me the answer depends on how "comfortable" you are and as athena53 said, returns on your investments. My thoughts and advice to the young ones at work was that you can't eat your house. In other words, if you have enough to pay cash, but not much else, then don't pay off the house because, you need money for food and other expenses. While this is obvious to some, I worked with some incredibly intelligent folk that just don't get money. For me, I'd probably take out the loan at the tax deductible 3% interest rate.

 

[canuck5]

Valid points. I'm very comfortable that I have enough savings, etc., that paying cash for the next house would not be a burden and would not leave us in any kinds of a bind. It's just one of those "once in a lifetime" situations, with interest rates so low, where it seems logical to take advantage of.

I guess it might make sense to keep the job too, till I get the mortgage?

 

[athena53]

I guess it might make sense to keep the job too, till I get the mortgage?

Absolutely. The mortgage company didn't quite seem to know what to do with us when we applied; DH had retired years ago and started collecting SS at age 65. I'd retired 1 year before and had a $933/month pension. I swear all they did was look at our combined pension and SS income and ignore our assets. Heck, I even put together a lovely spreadsheet of our various accounts, including money in and out of each, for the past year, showing that our net worth had increased by $100K since retirement. Our credit ratings were excellent. We wanted to borrow $150K. They loaned us $100K, not because of any loan-to-value issues but because (apparently) our investment income wasn't predictable enough to consider.

Definitely get the mortgage while you still have wages. They like wages.

 

[canuck5]

Thanks athena53!

 

[Ready]

If you get a decent tax deduction, it's probably a wash between the interest you will pay on a mortgage and the interest you can earn on a CD. However, if you would take the money and invest it in the stock market, then it's anyone's guess as to which choice will have the higher yield.

Unless you have a need for the cash, I can't see any point in taking out a mortgage. Why pay the up front fees if you don't have to?

 

[Souschef]

Unless you have a need for the cash, I can't see any point in taking out a mortgage. Why pay the up front fees if you don't have to?

I agree 100%. When I retired, I paid cash for our home. Since we are both over 65, our standard deduction is about $15K. I cannot come up with anything like that in deductions.

 

[karen1972]

1) absolutely have a job, its a pain to get a mortgage once its gone.. just went through that and they don't consider dividend predictable (which of course makes no sense to me but it is what it is)
2) Not sure how long your going to live in this new bigger home I took out the mortgage because we weren't planning on staying more than 5-7 years, so tying up all that cash for the short term made no sense, I totally win on the borrowing side since I don't have to pay any tax to pull money out of the market, the trivial cost of borrowing is a non issue.
3) if you still plan to have wages longer term then of course the tax deduction comes into play .. however if your going to ER very soon then you have to figure out where the house payments are going to come from and what tax you'll have to pay to pull that money out to pay the mortgage...especially if your going to try to deploy any number of tactics that are talked about on this board such as ROTH conversions and such.

Its never a simple answer...but it is so tempting given the low rates ( I managed 2.85% on a 7 year ARM)...it was just screaming at me to take basically free money.

 

[tps7742]

As Athena53 mentions do take what she says into consideration pertaining to a home mortgage. There are threads on here pertaining to this topic if I remember correctly? If you look enough you can find a mortgage company or bank that is familiar with some new ways/rules that take your assets (IRA/401k) into consideration when applying for a mortgage. We are in the process of building a home and are taking out a portion of the cost of it due to the low interest as mentioned above. My wife and I both have defined pension plans, iras over 1m etc., savings etc. I know it doesn't sound realistic. We should have not even went through this process looking back. I have read some articles that have said some
mortgage lenders think of retirees as unemployed. Put some thought into this before moving forward.

 

[Teacher Terry]

WE just paid cash.

 

[canuck5]

Lots of good thoughts, for me to look in to and consider. I appreciate it!

 

[Just_Steve]

I retired 12/2/15 started a refi 5/20/16 and closed 7/5/16 combined remaining mortgage and HELOC, lowered my PITI payment by $700 a month. They wanted a copy of my pension award letter and they wanted to know that I had taken my 457 payments for more than 3 years. No fuss using my credit union as a retiree. Neither original mortgage nor HELOC were with credit union. LTV ratio is about 50%.

 

[daylatedollarshort]

We usually get whatever the lowest mortgage rate we can with no points and no fees, no closing costs and then refinance every time with the same kind of loan whenever rates drop. I usually have to ask what would be the rate with no out of pocket and no costs rolled into the loan, but most lending places will give me a rate quote. We'll probably keep the low interest fixed rate mortgage we have now unless rates drop, then we will refinance as many times as we can get a lower rate.

 

[jfn111]

In my never ending desire to edumacate everyone.
You don't "get" a mortgage. You "give" a mortgage to the lender in exchange for a loan.

 

[pb4uski]

I had stopped working but was "on vacation" when we refinanced with cash out, lowering our interest rate from 4.375% to 3.375%... they verified my employment a couple days before the loan closed and I went off payroll about 3 weeks later. In our case, the mortgage was about 10% of our nestegg so its not like we were betting the farm. I put the monthly mortgage payments on auto-pay and adjusted our monthly transfer from our nestegg so I really don't have to do much other than change the autopay when they change servicers (I'm on my third in 5 years ).

According to Quicken, our nestegg has returned 9.3% annually since we got that mortgage and we have paid 3.375% so I'm happy.

 

[UpAnchor]

In my never ending desire to edumacate everyone.

You don't "get" a mortgage. You "give" a mortgage to the lender in exchange for a loan.

Well I never figured you would "get" a mortgage. If the banker is considered a "mortgage lender" then I just assumed he would lend you one of his.

 

[UpAnchor]

Regarding the original post, I went through this same head scratching when purchasing our retirement home four years ago at ages 60/56. Ended up taking a 30-yr fixed at 3.875% on $213k fully intending to carry it full term. (More likely the kids would inherit it with a minor balance left on the books but oh well.)

Fast forward four years and here we are refi-ing down to a 15-yr fixed at 2.875 on $150k, so go figure. DW asked, "So what was that you were saying last time about cheap money, 30-yr inflation hedge, blah blah?"

So I guess we're splitting the difference between maximizing the advantage of a low fixed-interest mortgage vs. standing a chance of paying it off while still alive to enjoy a few truly debtless years. (We've been debtless before so it's not an unknown feeling, but still.)

Another thing that played into it was my retiring in a few weeks and DW in a couple years. Thought doing this while still having steady incomes to show might not be a bad idea. We close day after tomorrow and I expect this will be the last time! As an aside, I was surprised to find that - outside of our wage income - the only assets they asked to see were the account from which we were going to produce the down payment of ~$47k, I guess just to make sure the funds were in place.

 

[canuck5]

Thanks everybody, I appreciate the input!

 

[bingybear]

Like you, I've not paid interest since the early 90's.
Yes, it is likely that you could invest it at a better rate of return.
Many add the fact that they can write off the interest by itemizing on their taxes. This is really dependent on how much you exceed the standard deduction. For me in my first full year of retirement, I did not have enough deductions without giving heavily to charity. Many things limit deductions... with healthcare deductions being limited to those that exceed 10% of income. If I keep my income low enough that I can deduct health expenses, then the tax rate is small which reduces the benefit. If I do roth conversions up to the top of the 15% bracket... I can write off little to none of my healthcare expenses. Model your situation.

Some people I know had issues getting a loan after retiring due to lack of defined income. You may need to find a lender that will consider your nest egg.

Another good reason to hold a mortgage is that the appreciation on the property... and you pay back with cheaper dollars (assuming we have inflation).

But all this really works if you keep the $ invested.

For me I'm not sure it is worth the time. I look at what the percentage of my investable assets this mortgage would be. If the number is small, is it worth doing? If we go into a deflationary cycle (at least in your housing)... it may bite you.

 

[canuck5]

Good point ..... the money I would pull out of the house would be about 10% of my investable assets. I need to run the numbers a little more refined with my plans of Roth conversions, etc.. Thanks! Might be more trouble than it's worth.

 

[convergent]

You are leaving risk out of your calculations. I would not borrow money to invest. There is more risk in that vs. having your home paid for. I did the opposite... took about $100K in an investment account and finished paying off my house several years back. Its all what you are comfortable with.

 

[eta2020]

Get mortgage if having mortgage will help you to get ObamaCare subsidies. I see no other good reason to carry a mortgage.

 

[Dash man]

Ask yourself what your comfort level would be if the markets dropped 50% for an extended period of time (think Japan). Would paying your mortgage be an difficulty or would you still feel comfortable?


Enjoying life!