Dying With a Huge Mortgage

[corn18]

If that is what you want to do, why don't you sell the house, rent a small apartment, and invest the money in the market?

Rent goes up with inflation. Mortgage payments do not.

Assume 2.25% inflation:

My P&I today is $1920.09. 30 years from now when I make that last payment, it will be $1060.03 using 2022 dollars. Total paid for a $500k mortgage @ 2.25% fixed for 30 years? $500k. Free money.

 

[ExFlyBoy5]

We haven't had a mortgage in many years and the last two purchases were cash. Had we mortgaged our current home at the rate of 3.85% and instead invested in something like VTI, the portfolio value would be $56,000 *more* than the TOTAL we would pay on a 30 year mortgage (a return of 21.27% over that period and an overall increase of $353,000). Of course, there is no crystal ball to tell us what the market will do over in the future.

 

[daylatedollarshort]

So I feel there is a bit of a paradox here. On the one hand, I think it makes perfect sense to have a mortgage when you are building up your wealth, as the expected return of the stock market should be higher than that of the mortgage.


However, when you are going to retire, most of the literature suggests to have some percentage of bonds, perhaps 20-30%. Now, the interest on those bonds tends to be lower than the mortgage interest, especially when the taxes are figured in. So from that perspective, it seems to make sense to not have a mortgage when you are retired - why pay to be long and short a bond at the same time? I do understand you can do clever things with the bond/equity ratio during retirement, but it is not clear to me that that could outweigh the flat cost.

30 year mortgage rates are currently 3.5% fixed, 30 year TIPS 6.3% with the inflation factor (variable) and slight negative yield. The difference on a $300K loan is (6.3-3.5) X 300K = $8.4K per year. If inflation drops you can always pay off the loan. If it increases you can pocket even more money.

 

[jim584672]

I bought my place from an elderly lady who died. I was surprised she had a large mortgage on the place. The estate paid off the balance.

 

[Tom57]

I agree 100%

From the article, "Dave Ramsey is selling peace of mind, but the cost is too high."
Paid off our Homestead in 1988, Peace of mind is priceless to us.

I paid off my mortgage in 1990 and have been totally debt-free since. I retired in 2002.

 

[MissMolly]

I would hate to saddle my heirs (kids) with a big mortgage. Not only would they have to deal with settling the estate, which can take time, but they would be stuck with keeping up with big mortgage payments until things settle so they can sell the house.

 

[PatrickA5]

Back in 2001, all of my day-trading friends were taking out HELOCs and investing all of their home equity in the "can't lose" market. Worked fine until it didn't. Several got laid off and lost their houses.

While in general I think you "should" make a better return in the market by leveraging your house, I don't really care to go that far. I like the feeling of debt free.

 

[tulak]

I would hate to saddle my heirs (kids) with a big mortgage. Not only would they have to deal with settling the estate, which can take time, but they would be stuck with keeping up with big mortgage payments until things settle so they can sell the house.

This doesn’t make much sense. They will pay the mortgage from the estate, along with property taxes, utilities, insurance, etc. Once the property is sold any equity is received by the estate and will eventually go to the heirs. Since there’s a big mortgage, there should be a sizable amount of cash available to make payments from the estate.

In my case, I have a big mortgage and don’t worry about it being serviced until the house is sold. There’ll be plenty of cash and it’s just one more payment the executor has to deal with. The harder part is actually selling the property - cleaning it out, getting it ready for sale - not paying the bills.

And honestly, even if the kids have to work a bit, that’s fine with me. They’ll be well compensate by the time they’re done.

 

[MissMolly]

This doesn’t make much sense. They will pay the mortgage from the estate, along with property taxes, utilities, insurance, etc. Once the property is sold any equity is received by the estate and will eventually go to the heirs. Since there’s a big mortgage, there should be a sizable amount of cash available to make payments from the estate.

In my case, I have a big mortgage and don’t worry about it being serviced until the house is sold. There’ll be plenty of cash and it’s just one more payment the executor has to deal with. The harder part is actually selling the property - cleaning it out, getting it ready for sale - not paying the bills.

And honestly, even if the kids have to work a bit, that’s fine with me. They’ll be well compensate by the time they’re done.

It actually does make sense. A lot of sense. They don't automatically the next day get access to the estate funds. It takes time. In some cases, lots of time.

 

[corn18]

I’m not sure I will have much sympathy for them if they have to do a little work to get their millions. They should appreciate the extra million that is in there because I didn’t pay off a 2.25% mortgage. If they don’t, we’ll, tough noogies.

 

[RobbieB]

Yeah. You don't like realtor calls? Showings and fixings?

Ah, all that extra work we have to do for our million bucks. Poor babies.

 

[RetiredHappy]

If that is what you want to do, why don't you sell the house, rent a small apartment, and invest the money in the market?

But when one can live in the comfort of a nice big home and not in need of money, why sell it to live in a small apartment? It is definitely no way no how for us.

 

[brett]

Dying with a big mortgage is not an issue.

The issue is one's financial balance sheet.

Clearly buying money at two or three points and earning a conservative average of seven points (or much more) in the market is not the action of a financially irresponsible person.

It is about putting assets to work in the most effective way possible.

My BIL, in his late seventies, has been very successful in augmenting his retirement income by using a low interest HELOC to generate much better market returns on average over the past fifteen years. The point spread between HELOC and market has made a huge difference to his available retirement spend.

 

[MissMolly]

Really? Just because I have a different approach to this you think it is OK to be condescending and snotty in your responses? Just because we have different opinions doesn't make either one of them right or wrong. My feelings are right for me. And at NO TIME did I say anything about them having to clean up and sell the property. Of course they will have to do that. But it takes time. And in the meantime the mortgage company wants their money. The utility companies want their money. Try calling up Chase or Wells Fargo or BofA and extracting any sympathy from them for your situation and asking them to be patient. They won't care. They just want their money. If I choose to make things as easy as possible for my kids during a tough time, then good for me. You do you.

 

[jollystomper]

I would hate to saddle my heirs (kids) with a big mortgage. Not only would they have to deal with settling the estate, which can take time, but they would be stuck with keeping up with big mortgage payments until things settle so they can sell the house.

+1

I agree with this. My retirement philosophy is to make my financial life simpler. No mortgage is part of that plan. The only reason for me to take out a big mortgage at this point in my life would be either (a) greed or (0b our retirement plan blows and a mortgage loan against our home is a last resort. We do not need the money, We sleep well at night with the funds I already have.

My siblings and I inherited our parents home. It had no mortgage. We though we all got along, knew in advance what our share of the home would be, and all contributed to trying to move the process along, it still took us 3 years to sell the house and settle that part of the estate.

Only one of our kids lives close by. The rest are cross country or overseas. The distance is another reason to keep things simple.

To each their own. I choose simplicity over any further potential financial gains .

 

[steelyman]

To each their own. I choose simplicity over any further potential financial gains .

That’s a spiritual viewpoint (a good thing).

 

[JDARNELL]

I will be the beneficiary of a home that has about a 25% of the value left on the mortgage at 2.25%. I see that I can keep the mortgage if I choose. I suspect when the time comes I will have other things on my mind and will let things settle before I make any quick decisions.

 

[youbet]

+1

I agree with this. My retirement philosophy is to make my financial life simpler. No mortgage is part of that plan. The only reason for me to take out a big mortgage at this point in my life would be either (a) greed or (0b our retirement plan blows and a mortgage loan against our home is a last resort. We do not need the money, We sleep well at night with the funds I already have.

My siblings and I inherited our parents home. It had no mortgage. We though we all got along, knew in advance what our share of the home would be, and all contributed to trying to move the process along, it still took us 3 years to sell the house and settle that part of the estate.

Only one of our kids lives close by. The rest are cross country or overseas. The distance is another reason to keep things simple.

To each their own. I choose simplicity over any further potential financial gains .

And good for you jolly! But remember that some of us did not have our retirements fortified by an inheritance. Being efficient with and taking advantage of opportunities with our investments is the only way we have access to the extras your inheritance funds for you.

Sooooo……. Do what is right for you with your circumstances. Some of us need to fight a bit harder to enjoy the same things.

 

[street]

I'm not saying a mortgage in retirement is good or bad. I personally don't like paying the interest and doing that each month and years you really have no equity growth. To me it is like paying a financial adviser or paying fees.

Is it good or bad I don't know which is better I don't like paying fees or interest on purchases or market funds.

 

[youbet]

I'm not saying a mortgage in retirement is good or bad.

I don’t see the general concept of “borrowing “ as good or bad. It’s just another financial maneuver which may provide opportunities as interest rates vary over time.

Some folks see recent rates as an opportunity.

 

[street]

^ I agree am sure there is opportunities for burrowing when the markets are just right to do so.
I have always viewed burrowing/loans as paying more for what the item was or is worth. I also believe we are in the right times to take more advantage with burrowing than ever before with markets doing so well and interest rates low.

 

[Optionality]

This sounds like the “house is a bond” model. The way I see it, if one’s AA is the same with or without a mortgage, say 60/40, then the bonds comparison is not relevant. One just has more money in their house and less money in their portfolio. It’s only relevant if one’s portfolio allocation with a mortgage is 60/40 while one’s allocation with a paid off house is 75/25 or something meaningfully more aggressive.

I would indeed go meaningfully riskier with a paid off house, as I would consider holding a mortgage on a house with a value that can change a riskier/higher-leverage position. I do understand that it's not so easy for a bank to call in a mortgage if the house value drops under the value of the mortgage (unlike a stock account, where you would get a margin call). But then again, should you decide to move, it would become a problem.

 

[youbet]

It’s only a problem if you don’t have the money to pay the difference. I sure wouldn’t mortgage my house to invest the money if I was cutting it that close!

 

[Samsung4321]

He mentions Dave Ramsey at character 146.

https://www.marottaonmoney.com/should-i-pay-off-my-mortgage/

https://www.ramseysolutions.com/real-estate/the-truth-about-mortgages

'The ideal way to buy a house is the 100% down plan—pay cash for the whole house.'

That's what I did in 1990.

Since then:
. home capital appreciation 7% / y plus imputed rent 3% / y - no tax payable.
. ASX200 total return ~11% / y - returns taxable and mortgage payable partially offset by imputed rent.

Cash purchase best. Investing in home with mortgage and investing in shares compounds home value, mortgage rate and share value volatilities.

Example:

Buy home normalised to $1 with cash:
= ((1 + 7%) * (1 + 3%) * 1) - 1
= 10.2% / y

Buy home normalised to $1 with cash then withdraw 80% @ 4% to invest returning 11% taxed 30%:
= ((1 + 7%) * (1 + 3%) * 1) + (-(4% * (80% * 1))) + ((1 - 30%) * 11% * (80% * 1)) - 1
= 13.2% / y

 

[Teacher Terry]

When I was married we paid cash for a house. When we divorced a year ago I took a 85k mortgage with a interest rate of 2.75. I doubt I will live to pay it off. My kids thought it was a smart move. Everyone’s situation is different.