Just Took a Mortgage

[RockLife]

We have been debt free for about a decade, I'm 60, DW is 55 and we RE'd 4 years ago.

We took a mortgage and bought a house yesterday. We'd sold our previous one about 4 years ago and traveled the Caribbean for 3+ years while renting. The portfolio continued to grow during the travels as we kept spending in check.

So here we were with the opportunity to buy our dream home, but I didn't like what it would do to my tax situation. I'd have to take taxable income on the money, and possibly push us over the ACA cliff. And pull big $s from the portfolio that's been paying for our retirement.

Then I saw the interest rates and the solution was simple. At 2.875% this is practically free money. Why would I ever pay off this mortgage? Well, there are certainly reasons, but I've never been so happy to be in debt before.

Comments?

 

[donheff]

Makes sense to me if the total outflow is a wash or close. Rent or pay mortgage? Why not pay a mortgage, get your dream house, and potentially leverage the growth on the total value of the house. All while keeping your withdrawal rate the same.

 

[tmm99]

That's a very good interest rate.

By the way, how did you get your mortgage approved as a retiree?

 

[RockLife]

That's a very good interest rate.

By the way, how did you get your mortgage approved as a retiree?

Great question. First of all, age cannot be used against you by law, as I understand it. You could be 90 and get a 30 year mortgage. But the key is qualifying on the numbers.

There are two ways to qualify, the first being the "normal" way: "How much income and debt do you have?". They have their formulas and come up with amounts they will qualify you for.

The second way is "asset based", which is what we did. We don't have income (except what we pay ourselves from our portfolio) but we do have assets. At my asset level, I easily qualified for $50K more than what we actually spent and the thing closed very quickly, in 3 weeks instead of 6 weeks which was the original estimate.

BTW, my interest rate isn't super special, it's actually the exact same rate my 30 year old son got on a house in Austin 2 weeks ago. It's practically free money, certainly the lowest I've seen in my adult lifetime.

 

[Buckeye]

That's a very good interest rate.

By the way, how did you get your mortgage approved as a retiree?

When we bought our house 5 years ago, all we had to show was we had monthly income adequate to qualify for the mortgage we were looking to get. I set it up at Schwab where they would transfer us $XXXX every month.

I couldn't believe how simple it was, but it took me a couple of years to find a loan guy (the best loan guy in the world!) who had the answer to how to qualify for a loan with lots of assets but no regular income. Just create regular income!
It was so simple I thought he was kidding. Nope!

We set up a monthly transfer from an IRA that would qualify us for a loan in the range we were looking. We weren't collecting any pensions or SS at the time so the IRA withdrawal had to cover it. I think we had only taken 3 periodic withdrawals before we found a house and were approved for our mortgage. I stopped the periodic withdrawal a month after we closed on the loan. Viola!

We did a VA loan and he closed the deal in 5 weeks.

 

[RunningBum]

Congrats, RockLife. Great use of a mortgage to manage income.

 

[RockLife]

When we bought our house 5 years ago, all we had to show was we had monthly income adequate to qualify for the mortgage we were looking to get. I set it up at Schwab where they would transfer us $XXXX every month.

I couldn't believe how simple it was, but it took me a couple of years to find a loan guy (the best loan guy in the world!) who had the answer to how to qualify for a loan with lots of assets but no regular income. Just create regular income!
It was so simple I thought he was kidding. Nope!

We set up a monthly transfer from an IRA that would qualify us for a loan in the range we were looking. We weren't collecting any pensions or SS at the time so the IRA withdrawal had to cover it. I think we had only taken 3 periodic withdrawals before we found a house and were approved for our mortgage. I stopped the periodic withdrawal a month after we closed on the loan. Viola!

We did a VA loan and he closed the deal in 5 weeks.

Excellent! Our loan guy mentioned this option but then he just steered us to the asset-based option. Glad it went so well for you!

RL

 

[jazz4cash]

Congratulations. I think your perspective on mortgage debt is healthy and suits your situation. Mine is similar. I think you may have buried the lead if you took a true asset depletion loan. We’ve had a few o P.O. St’s and thread on asset depletion loans but thy usually get buried by suggestions to create income via distributions. Please confirm and provide details. I am waiting almost 90 days for my refi to close but income shouldn’t be a problem, I think it’s just volume of loans causing the delay.

 

[RockLife]

Congratulations. I think your perspective on mortgage debt is healthy and suits your situation. Mine is similar. I think you may have buried the lead if you took a true asset depletion loan. We’ve had a few o P.O. St’s and thread on asset depletion loans but thy usually get buried by suggestions to create income via distributions. Please confirm and provide details. I am waiting almost 90 days for my refi to close but income shouldn’t be a problem, I think it’s just volume of loans causing the delay.

Hi Jazz, I'm not sure exactly what you're asking but I guess this falls under the term "asset depletion loans". It's a deceiving name because no assets are depleted - it's just that they are used to create a current income stream on paper.

If you are under 59 1/2, retirement accounts are worth 70% in the formula, and cash accounts are 100%. But since I am over 59 1/2 (barely) all assets are counted at 100%. I believe they took the amount, divided by 360 (months) and came up with an income number. In my case, that number qualified for more than I needed so we moved along easily.

I wonder if Refi's are bumped down the list vs. new purchases because there is no urgency vs. people buying and selling houses, moving, etc.

 

[tmm99]

Thank you for your detailed explanation. There was another thread discussing something similar but your explanation made things clearer for me.

Hi Jazz, I'm not sure exactly what you're asking but I guess this falls under the term "asset depletion loans". It's a deceiving name because no assets are depleted - it's just that they are used to create a current income stream on paper.

If you are under 59 1/2, retirement accounts are worth 70% in the formula, and cash accounts are 100%. But since I am over 59 1/2 (barely) all assets are counted at 100%. I believe they took the amount, divided by 360 (months) and came up with an income number. In my case, that number qualified for more than I needed so we moved along easily.

I wonder if Refi's are bumped down the list vs. new purchases because there is no urgency vs. people buying and selling houses, moving, etc.

 

[jazz4cash]

Thank you for your detailed explanation. There was another thread discussing something similar but your explanation made things clearer for me.

Yes. It was very clear and precisely described the point I’ve tried to make whenever the topic comes up. You are not actually required to deplete anything or create the income distributions. It’s a hypothetical calculation. Thanks Rocklife

 

[sengsational]

Getting a fixed low interest loan now is probably a pretty good bet. There aren't too many ways a regular person can get on the other side of the inflation/interest rate thing except for a mortgage.

 

[Green Papaya]

Our situation is similar. Retired less than a year, kids are out of the house but locations are all over. COVID has restricted our ability to travel (just like everyone else).

We intend to sell the house then travel and live like nomads for 1 or 2 years when the pandemic is no more, before buying a new house to settle down. Thanks for sharing your experience on mortgage qualification as a retiree.

 

[HI Bill]

At 2.875% this is practically free money. Why would I ever pay off this mortgage?...Comments?

We are about in the same boat. We just put 49% down on a property, and with a 2.675% loan, are planning to just make the minimum payments. We'll be gaining about $1K/month in equity, not including potential appreciation, and with the sale proceeds from the old place in a bond fund, should about break even on the interest paid vs. earnings. I ran the numbers, but saw no real reason to pay off the place early, although I might be tempted to in a decade, just to be done with the lender and impounds. Congrats!

 

[RockLife]

HI Bill, you seem to have it going on, and that interest rate, now i'm jealous!

 

[Markola]

HI Bill, you seem to have it going on, and that interest rate, now i'm jealous!

+1. Congrats, RockLife. This string is a real-life education of various work-arounds to get mortgages post-FIRE. Is there any reason to think that a refinance would be more or less difficult to secure post-FIRE than a new mortgage, or the same? I could imagine doing that someday as a way to cut our payment in half.