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View Poll Results: Should I pay off my mortgage?
Yes 23 74.19%
No 8 25.81%
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Looking to FIRE at 50
Old 06-08-2019, 07:23 AM   #1
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Looking to FIRE at 50

Hi everyone,

I've been lurking this forum for a few months, just trying to learn from all of you. I finally decided to start posting and taking more active role myself. I wanted to introduce myself and immediately ask you guys for advice.

I'm a 46-year-old male looking to FIRE in about four years from now. I'm married with two kids who are about to enter college. My wife doesn't work, and I'm the only one generating income for us. My NW is approximately $2.6 million (~$500k in 401k, ~$160k in cash, ~$300k in RE, ~$40k in Stocks and Cryptos, and $1.6 million in Private Equity investment). I'm mostly debt free except for $240k mortgage for our primary home. And this is where I have my dilemma right now.

I can take out some of my Private Equity investment money (which is doing well) and simply pay off the $240k mortgage which would set me completely debt free. I'm at 3.75% interest rate on my mortgage and I still have 5 years before my rate will adjust (it's a 10 year ARM mortgage), so I don't have to pay it off. But at this point in my life, I feel like the mental feeling of not having any debt is something that would give me tremendous peace of mind. It will also allow me to help pay for my kids' college (I use my cash savings to do that plus using my cash flow from my current income). So the question is, should I pay off my mortgage or not?

I'm curious to hear what others think about this situation.

Thanks, and it's lovely to meet you all!

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Old 06-08-2019, 08:55 AM   #2
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Welcome to our wonderful forum. I voted yes.
My guess would be that the majority of folks on this forum have no debt in retirement, although certainly not all.
I am in the "no debt" category for as you mentioned mental piece of mind, even if investment returns can beat your 3.75% mortgage rate.

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Old 06-08-2019, 09:29 AM   #3
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Not enough info. It's generally considered a wash.

Personally, I'd have just as much peace of mind in having the funds available to pay off my mortgage as I would paying it off. If you feel differently, fine, that's an edge to paying it off.

What's the tax hit in cashing out some of that private equity investment? I wouldn't want to be in a very high tax rate just to pay my mortgage off.

But what is the plan for that private equity investment? Are you going to be in just as high of a tax rate later, or while you be able to spread it out between 50 and 70? And maybe it's wise to start taking some of that off the table anyway, to better diversify. You've got over 1/2 your NW in a single investment. That's risky. I'd definitely be looking to diversify. But that might favor moving that money into other investments rather than your house.

Are you going to have any cash flow issues before you can get to your IRA? It would appear not, but I've seen here where people inexplicably want to leave them cash short just to pay off the mortgage early, when a mortgage could be providing tremendous leverage until they can tap an IRA.
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Old 06-08-2019, 10:32 AM   #4
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Personally the peace of mind being debt free is worth the lost opportunity cost to me. I voted pay it off.
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Old 06-08-2019, 10:45 AM   #5
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If the private equity investment went south, you would be in a lot of trouble. I would take some of that off the table, but I would diversify into investments likely to pay me a higher rate of return than paying off the mortgage would.

Lots of people have debt in retirement. I have a fixed 3.125 percent mortgage on my house plus a few remaining rental mortgages. Took out an 0.9 percent car loan, which I could write a check to pay off but why? It's the amount of debt and your ability to pay it if the going gets tough that should be the basis of deleveraging decisions.
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Old 06-09-2019, 11:00 AM   #6
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Originally Posted by Another Reader View Post
If the private equity investment went south, you would be in a lot of trouble. I would take some of that off the table, but I would diversify into investments likely to pay me a higher rate of return than paying off the mortgage would.


I would be far more concerned about the concentration of risk in the PE fund than about a mortgage that is <15% of your NW.

Since you are wealthy enough to be playing that game, you are obviously aware of the risks. If you are an insider at the firm, you may not have much choice. If that is the case, I hope your bosses/partners would understand the desire to diversify your assets.

My cautions aside, congratulations on creating the situation where this decision is even in play
Stay at home slacker dad since 2015
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Old 06-09-2019, 11:21 AM   #7
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If you've been lurking here long enough, you'll see plenty of threads on "should I pay off my mortgage."

It's one of our more-polarizing topics, and is rarely one-size-fits most. Factors for you to consider include:
Actual dollars over the lifetime of the loan
Reasonably expected dollars if invested elsewhere
Taxable gains if selling to pay off
Tax deductions if mortgage is no longer a factor
Personal value of zero debt vs. carried mortgage

Like others mention, your bigger impact to risk of ER is the large PE position.
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Old 06-09-2019, 05:27 PM   #8
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Looking to FIRE at 50

mortgage free he last 20 years allows me to take more risk on my investments. My logic is assuming everything went south I would still have a roof over my head.
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Old 06-09-2019, 06:42 PM   #9
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I voted yes. I timed it so we'd have our mortgage paid off when our kid was starting college, with the thought that we would try to not leave the kid with any debt hanging over them after they graduate. I figured we could probably afford it on our income without withdrawing any money from investments, and if we can't, we might have the kid take a loan and pay it off for them.

Sure, in the long run you could probably make more on that money than the interest rate, but what if there's a recession just as the kid starts college? That's a definite expense with a known time frame, and you shouldn't invest money that you know you'll need in the short term.
-Looking to FIRE in the mid-2020s, which would be our mid-50s.
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Old 06-09-2019, 06:56 PM   #10
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I voted to pay off the mortgage. Maybe not all at once, but in chunks, to manage taxes on the distributions, prior to the ARM adjustment kicking in. I look at it as lessening your risk in retirement...the private equity fund may lose a lot of value, but if your house has no loan, at least that's a permanently reduced cost. If worst came to worst, you could always take out a HELOC or later, a reverse mortgage (I know, most here don't support these for various legitimate reasons, but there are, IMHO, legitimate reasons and cases where they make sense).
Balance in everything.
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Old 06-09-2019, 07:12 PM   #11
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We were in a similar situation — a (relatively large) private equity portfolio/exposure, and a large mortgage that was a burden on our cash flows. After the Trump tax change, we decided that it was not worthwhile keeping the mortgage. Instead of cashing out our liquid portfolio, we waited for a large distribution from our PE portfolio to extinguish the mortgage. We are now debt free.

I do not know the type or nature of your PE portfolio. Does it have a somewhat liquid secondary market? Do you have some control over the governance or operations? How diversified is it? Judging from how flexible it is for you to pull $ from your PE investments, we may have a completely different type of PE. Regardless, over the last month or so, our (very passive) PE portfolio has lost significant amount of value, with some investments being virtually wiped out. We are not happy, but such is the nature of the beast. Because of that, we had never included market value of our PE portfolio in our net worth or FIREcal. Not very scientific of course, but we would rather err on the cautious side. If I were you, I would worry more about diversifying your PE portfolio than paying off the mortgage, especially your mortgage is really not that big compared to your investments.

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