Anyone consider getting a mortgage in retirement?

[novaman]

I know it goes against conventional wisdom, and when I retired 2 years ago I paid cash for the house I moved into. But has anyone considered getting a mortgage in retirement for the sole purpose of pulling that equity out of their home and investing it? I was listening to Rich Edelmen and he gave an interesting statistic on high net worth individuals- more than half of them hold mortgages. It's an attractive strategy to consider- you borrow money at less than 4%, put it in a diversified portfolio and over time you should come out ahead.

I jokingly mentioned this to my wife and she gave me a dirty look so I know its not going to fly with her, but I'm curious. Has anyone considered getting a mortgage on their home in retirement for the sole purpose of investing the money?

 

[Winemaker]

Yes, I got a 15 yr $200,000 mortgage on my main residence in July at 3.25%. I paid off rentals that was at 5%, 4.375, and 4.25%. Improved my cashflow about $900/month.

 

[HI Bill]

Not exactly. I'm considering getting a mortgage to help with cash flow....depleting the taxable retirement accounts too early may result in running out of $ before 59.5, when the tax-deferred accounts become available, penalty-free. This allows me to keep several hundred K invested, while paying a lower interest rate to the bank, than the invested $ will earn. If I had enough to pay cash for the house, I would, as then I don't have to worry about market returns for that chunk of assets, and don't have any 'paper' debt. Borrowing from a house in RE for the sole purpose of outsizing gains seems overly risky to me, but it all depends on your WR....

 

[Olderschool]

If it was me.....I wouldn't do it. Your home is your fail safe safety net and I wouldn't want a mortgage on mine.
Having said that...I would consider a reverse mortgage if necessary. One reason would be if I ran out of tax free portfolio money and paying the taxes would really screw you. An example is people between 55 and 65 who have Obamacare. Since Obamacare subsidies is only based on AGI, a lot of early retirees (55) get their insurance for free because they don't have any AGI income. They live off of their Roths (age 55 Rule) for 10 years until Medicare kicks in. So.....if I ran out of tax free money at age 62,I would then pull out equity money from my home to get me through age 65 because again...if you show AGI above $66K, Obamacare insurance would cost a LOT of money.

 

[Red Badger]

Yup.

Just bought a house with a VA loan and 5% down. Then, we sold the other house and pocketed (invested) the proceeds. We are comfortable with a mortgage (death pledge) that will outlast both of us.

Even explained to DS that we are spending (some of) his inheritance, and to just suck it up. Was fun to remind him that "pigs get fed and hogs get slaughtered."

 

[Sunset]

OP - this was a great idea 10 yrs ago with the long Bull market. Now it could be a bumpy ride.

I did it back in the 2008 drop, worked out nice, but was a little nerve wracking, buying Bank of America at $4, etc..
I cashed out too early, leaving a lot on the table (in hindsight) and paid off the loan.

However when the market drops 50% again, I'll give it a go.

 

[teejayevans]

I assume for those with no income (w2 or pension), then an asset depletion loan is the only option? Has anyone got one of these?

 

[Montecfo]

I have my mortgage at 2.7%.

Will be rethinking keeping it since it is no longer deductible for me (though it is modest).

If you have no mortgage a standby HELOC is a good ideas in my view.

 

[Starsky]

We consolidated some rental property loans into a lower-interest refi of our primary residence a few years ago - prior to inheriting 4 more properties - to free up some cash flow for retirement. We are now considering selling one of the properties and buying a new one with some of the cash and a new mortgage just to gain some leverage and have cash to invest and to use for unplanned expenses. I'd rather have my tenants pay the mortgage and take the deduction than pull cash from our IRAs.

A HELOC would also be good, but it's harder to qualify for at our bank, and may not be do-able on our rentals which are in another state. I really don't want to put it on our primary residence.

 

[RunningBum]

OP - this was a great idea 10 yrs ago with the long Bull market. Now it could be a bumpy ride.

+1

I'm not a market timer, and I'm all for someone having a mortgage in retirement if they are comfortable with it. But now just doesn't seem like a good time. Your choice, but I wouldn't do it.

 

[karen1972]

I assume for those with no income (w2 or pension), then an asset depletion loan is the only option? Has anyone got one of these?

I got an asset based mortgage last year via a private lender but it wasn't anything close to 3.5%. Still makes sense financially for me, but I wouldn't normally consider it just to pull out to invest. I mean I got super lucky, took out at the high in Q4 2018 my downpayment, invested the sale of my previous home near the bottom Q1 2019 and of course we had a stellar 2019 returns which actually I made enough last year to pay off the mortgage. However I could never have planned that to have happened. Even without all that, it still was still a better option for me from a cash flow/tax planning view.

 

[DrRoy]

Not for me. I paid off my 5.5% mortgage in 2013, RE'd in 2017.

 

[NotYourAverageJones]

We have been tossing around the idea of taking out a partial mortgage or use some cash to either buy new or build our home before we retire end of 2021. We still aren't 100% sure where we are gonna live when we repatriate back from overseas. But it's looking more like Cary/Apex NC area where the homes are still reasonably priced.

The upside is my DH could work "OMY" and we could pay cash for a home and not have to draw off any of the assets we have earmarked for our fun spending. But the downside is we have to stay here "OMY" and we are not sure that it is really worth it to us after (what will be) an already long 13 years away. So not sure what we will do right now, but a mortgage isn't off the table and we have "x$" budgeted in our plan anyway for housing expense each year, because you still need a place to live. Guess you just have to weigh the pros and cons of taking on a mortgage or not. And the reality is, it doesn't really matter what anyone else would or could do because only you can decide what works best for your future.

 

[Rainbowdash]

I retired with a mortgage, 3.6%. 2 reasons, first, I think investments will easily beat the interest on a long run. Second, I can still write off interest of the mortgage, around $40k plus $10k of property tax write off, that's $50 k total, therefore I itemize my tax deduction and don't do the standard deduction.

 

[COcheesehead]

I am doing a construction loan and what I can earn even on a conservative-moderate investment outweighs laying out a chunk of my assets to pay cash. Even if my investments under perform, the time value of money, SORR protection, liquidity and being able to take more than the standard deduction are all advantages. I think now is the time to borrow.

 

[stephenson]

I started a thread in this topic, but this is exactly where we are ... our offer accepted on house, with some advising loan and others not. Paying outright will tap about 80% of liquid holdings, but we have several times that in both joint taxable, and several times that in IRA.

On income side, we might still save money annually, even after paying the mortgage - not nearly as much, though.

Been r’d for 2.5 years and still saving ... having hard time converting to spending. A mortgage on the new house will start us down that path, but still won’t require us to tap.

Not drawing SS, yet, either.

Here’s my other thread ... I used X as purchase price to try to neutralize pricing differences across country.

https://www.early-retirement.org/fo...ash-or-mortgage-what-would-you-do-102114.html

We are agonizing about this and need to decide ... really would appreciate inputs - I know they will be split, but still helpful.

 

[mrfeh]

Has anyone considered getting a mortgage on their home in retirement for the sole purpose of investing the money?

Nope.

 

[Andre1969]

I have no plans on getting a mortgage in retirement, but I'll most likely be carrying one, into retirement.

I wanted to get my "forever" home bought and out of the way before I retired, because I figured it would be easier to get a mortgage with W2 income, than without it. And, I think I was right. Even though I had the assets to pay cash for the house, I still had a bit of trouble getting financing because my income wasn't that high. And the mortgage company's reasoning was that, because my assets were invested, rather than slowly eroding away in a savings or checking account, I could theoretically lose it all.


As a result, I had to come up with a 25% down payment. I was planning on doing 20% anyway, so it wasn't that big of a difference. But, I'm sure that someone with much higher monthly income would have been able to get in with a smaller down payment. So, I can't imagine how hard it would have been to get, it I was retired!

Now granted, "retired" for me is going to be in my early 50's. And no steady source of income (no rental property income, no pension, etc, although I guess they'd consider stock dividends to be "steady" income?). So while I call it "retired", the mortgage company might call it "unemployed".

Every once in awhile, I do think about paying the mortgage down, or even off, if the stock market has a good run. But, it would take about $465K to pay it off, and I'd rather have that money invested, and working for me, even if it does mean I'm forking out ~$2200/mo for the P&I on the mortgage.

Also, my rationale is that, over time, that $2200/mo will be less painful, since it will stay at that, but become less and less significant due to inflation.

 

[Perryinva]

It really does depend on RE timing and your age. While I was still working, I got a 3.75% mortgage of $450k, on our retirement home, (age 60) but put down $200k, plus we also have a small (under $100k, same rate) mortgage on a second home, so combined they are deductible beyond the standard deduction. Both combined are just under a mil in value. Considering I did better than 20% on investments last year, so far so good. Cash flow income is not a problem for us, between pensions and DWs SS, which covers everything plus, and the second home will be paid off in 3 years max) so we did it for the cheap money, especially while converting tIRA to Roth before I file in 6-7 years. If for some reason we decide to relocate down the road, I’d much rather have the money available in my Roth & after tax, than having to depend on extraction of equity to start the process. Leaving paid off homes to heirs is VERY low on our priority.

 

[COcheesehead]

As one podcast host I listen to says about paying cash vs mortgage “one is emotional, one is logical” Investments and emotions are rarely a good combination.

 

[corn18]

We paid off our current house last year. Just wanted to see what that felt like. It was nice, I guess. But now we are moving to our initial retirement location and building a house. Should be able to retire in 2 years. Sure would be nice to have that cash vs. locked up in a house. Luckily I got a HELOC for no particular reason. It will come in handy.

I think if we can get a 30 year below 3.5%, we will get a conforming loan on the new house and keep it.

 

[karen1972]

We have been tossing around the idea of taking out a partial mortgage or use some cash to either buy new or build our home before we retire end of 2021. We still aren't 100% sure where we are gonna live when we repatriate back from overseas. But it's looking more like Cary/Apex NC area where the homes are still reasonably priced.

The upside is my DH could work "OMY" and we could pay cash for a home and not have to draw off any of the assets we have earmarked for our fun spending. But the downside is we have to stay here "OMY" and we are not sure that it is really worth it to us after (what will be) an already long 13 years away. So not sure what we will do right now, but a mortgage isn't off the table and we have "x$" budgeted in our plan anyway for housing expense each year, because you still need a place to live. Guess you just have to weigh the pros and cons of taking on a mortgage or not. And the reality is, it doesn't really matter what anyone else would or could do because only you can decide what works best for your future.

Hope you factored in the skyrocketing increases in Apex/Cary with your OMY plan. Its all anyone around here complains about, the "northerners" have taken over Cary and with their accumulated wealth are just blowing up the housing market. We just couldn't justify paying $200k for the same house so ended up in Brier Creek and why I took out the mortgage as it was buy now or pay 10% YoY housing price increase waiting for me to leverage out enough cash.

 

[pacergal]

We paid off our mortgage before retirement, then had several big expenses come up at once so we did a heloc, rather than pull from investments. Last year when rates went way down, we refinanced to a low 3% rate 15 year mortgage, paid off the heloc. Our pensions cover it in our monthly spending and we didn't need to take out of our savings.
The mortgage is less than half of the worth of the house, so its not a big financial burden.
The mortgage question is more about emotions than finances, but thats my opinion.

 

[pacergal]

We paid off our mortgage before retirement, then had several big expenses come up at once so we did a heloc, rather than pull from investments. Last year when rates went way down, we refinanced to a low 3% rate 15 year mortgage, paid off the heloc. Our pensions cover it in our monthly spending and we didn't need to take out of our savings.
The mortgage is less than half of the worth of the house, so its not a big financial burden.
The mortgage question is more about emotions than finances, but thats my opinion.

 

[SumDay]

We downsized ~5 years ago, and put down ~70% and took out a small mortgage for the rest.

We were still working, and applied for a HELOC at our local bank, just so we'd have it in case of a serious market downfall. It's much easier to get a mortgage or HELOC if you have W-2's, which we don't now.