Retiring debt free!

[ERD50]

.. I recently saw an interesting article where the author backtested this for 10 year periods of time based on a view that the average mortgage life is less than 10 years. In 75% of the trials the investment results exceeded the mortgage interest. Since I plan to have my mortgage for a longer period, the probability of coming out ahead become higher than 75%, especially since I started during a period of low interest rates.

See The Retirement Cafe: Investing the Mortgage



I concede there is some risk, understand the risk and accept it. I'm in a position where if things start to go sideways I can always just write a check and pay of the mortgage which further increases my chance of gain/reduces my risk of loss.

Ahhh, data. How refreshing!

And, that does not even seem to account for the tax deductions at all (which are variable and often over-stated anyway - some people cannot fully deduct, and it must be compared to the standard deduction, not in total isolation).

I'd also love to see that model done for 20 and 30 year periods, probably a better time-frame for retirees consciously making this decision. And note that he shows the risk is lower when mortgage rates are below average levels.

-ERD50

 

[pb4uski]

Ahhh, data. How refreshing! ....

Sorry to confuse the situation with facts....

 

[Kimo]

As I said, there would be intelligent differences of opinion. I will add one thought that I am sure everyone who has paid off their mortgage will probably agree on........until you actually do it, you have no idea how it feels....
Aloha!

 

[pb4uski]

I actually have had my mortgage paid off at one point in time so I do know how it feels. No big deal IMO. $ in my taxable account that exceed my mortgage feels just as good, if not better because if the financial flexibility.

I'm fine with those who prefer to be debt free other than those who are debt free and fervently insist that it is "best".

 

[Kimo]

pb.....I do understand there will always be two sides to this story...and in your situation it sounds like all is well, good for you! Bottom line is we feel good about our decisions....

 

[LitGal]

Could not agree more!

Why be a slave to the lender? A RV isn't that important to us. If we are able to save up for it, fine. If not, it isn't the end of the world. Being this close to debt free-I am not about to go into debt again. That is $1300. per month I WON'T be paying. I get a bit crazy about this. I am a big Dave Ramsey fan. What he teaches is so right on.

We were out of debt by 1999, so saved the old "house payments" in our retirement accts. instead. This was one reason why we were able to RE.

 

[Bestwifeever]

Count me in with the group that disagrees with Kimo. I recently saw an interesting article where the author backtested this for 10 year periods of time based on a view that the average mortgage life is less than 10 years. In 75% of the trials the investment results exceeded the mortgage interest. Since I plan to have my mortgage for a longer period, the probability of coming out ahead become higher than 75%, especially since I started during a period of low interest rates.

See The Retirement Cafe: Investing the Mortgage



I concede there is some risk, understand the risk and accept it. I'm in a position where if things start to go sideways I can always just write a check and pay of the mortgage which further increases my chance of gain/reduces my risk of loss.

Interesting article. At the end of it, the author says,

This is not ground-breaking analysis. I present it for two reasons. First, many readers will not have read the previous studies and should be advised of the risks. And, second, this example builds the foundation for what I really want to talk about: the difference between implementing this strategy while you're still working and executing it after you retire.

In his next post, here:
The Retirement Cafe: Selling Stocks to Pay the Mortgage

The so-called conventional wisdom of not having a mortgage in retirement seems to be supported:

?..
Regardless, as I mentioned in Investing the Mortgage, this strategy increases the chances both before and after retirement that you will lose your home to foreclosure risk, which, in my opinion, trumps any other home financing risk.

I have another basic concern with this strategy after retirement. While it makes perfect sense to borrow a mortgage when we are young, expecting to pay it back with future job earnings, it is a riskier proposition to borrow a mortgage and expect to pay it back with future stock market earnings.

I often point out that our finances change significantly after we retire and we can't view them through the same set of guidelines as before. This is a prime example.

We are a lucky group here to be financially able to make the "pay off or carry a mortgage" choice.

 

[Kimo]

We are a lucky group here to be financially able to make the "pay off or carry a mortgage" choice

+1

 

[Kimo]

There is a great way to finalize this post....IMO.....

1. No one will be able to say anything to me that will change my mind about paying my mortgage off early.

2. There is nothing I nor anyone else can say to change the opposing opinion of someone else.

This is one of the large, important decisions that most people will ultimately make there own mind up depending on how they are wired.......

 

[pb4uski]

+1 except item 1 would be keeping my low interest mortgage

 

[Kimo]

Actually, you really help me make that point....I could have an interest free mortgage and I would still pay it off...I just don't want the debt. That is what I was attempting to find the proper way to define "wired"

 

[RetireAge50]

We funded Roth IRAs to the maximum every year in lieu of putting the same money to our mortgage.

This worked out very well for us as the return far outpaced the mortgage interest. Also we now have flexibility in retirement with a big pot of tax free money.

The 3.35% rate is low enough that I am indifferent as to whether I pay it off or not. Probably will delay the gratification of paying it off until I retire.

 

[Kimo]

My decision is helped by the fact I can live comfortably with my investment income, rental income and annuity income combined, all with less risk than having a larger portion of my total investment money in the market.

I also have two fall back positions in an unforeseen emergency, sell the Hawaii house and net after commissions and selling expenses 1 million dollars as well as the fact I am eligible but not taking SS at my current age (62)

If I had a mortgage I would need more income, therefore I would need more money in the market thereby taking on more risk that I currently am.

 

[samclem]

. . .until you actually do it, you have no idea how it feels....
Aloha!

I've had a paid off mortgage, know how it feels (meh). I am now happy to have a low-interest mortgage and only wish I'd gone for a 30 year loan instead of 15.

As far as the risk of "losing the house", unless the owner lives somewhere that charges him/her no property taxes, the home will always be at risk of being "lost" as long as it is standing. (And--where do these "lost houses" go? I'd check under the sofa first, that's where all my other lost stuff ends up!)

Anyway, if a person understands the math, the historical record, and the risks and still wants to pay off the mortgage because it makes them feel better for some reason, they should go ahead and do it.

 

[Kimo]

Anyway, if a person understands the math, the historical record, and the risks and still wants to pay off the mortgage because it makes them feel better for some reason, they should go ahead and do it.

+1

 

[dnorton50]

I have found several that are fairly reasonable, but I just don't want to use my emergency fund money to get it. If it's meant to be, it will happen. It won't be the end of the world if I can't get one.

 

[Dash man]

Should the U.S. Fall into a deflationary economy similar to what Japan has seen for the past 24 years or so, those who have paid off their mortgage will be in much better shape than those who carry debt. The past 5 years the Fed has been fighting to keep us out of a deflationary economy with low interest rates and quantitative easing. Only time will tell if they've been successful. But I'm more concerned about the future than looking at historical 10 year periods where economic conditions were much different than they are today. Looking only at historical data breeds complacency, especially when not including economic and geopolitical conditions in the evaluation. Fortunately for us we're able to pay off the mortgage and still have funds to invest along with a cash cushion. If we do fall into a deflationary economy, we'll be better off than most. Those with debt to pay and a stock market cut in half may find themselves in a world of hurt.