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Old 09-08-2017, 11:15 AM   #41
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Interesting thread, I have grappled with this same question for a long time. My adviser of course tells me it makes no sense to pay off the mortgage financially, I understand the math completely. I have hung on to the notion that no mortgage helps the cash flow a lot and there is the emotional aspect that I like, debt free. I think I have decided in the last couple months that I will RE at 57 in just under a year. I have a 2 year old, 30 year mortgage for about $250K. I always looked at the elimination of the mortgage as basically covering healthcare premiums, a trade off, and something key to making RE work for me. If I keep the mortgage cash flow is higher and therefore my AGI because almost all my money is tax deferred. I will be able to avoid any early distribution penalties though. Someone made the point that with a couple mouse clicks that I can pay it off. I never thought of it in that context really. It makes living with the mortgage easier I guess, psychologically. I also like the point made that the house is simply and asset that is leveraged to make better returns elsewhere, not that I would borrow for that reason either. If I did use retirement funds to pay it off I would do it over a few years to spread out the income.

One more twist in my deal, I have a 1/5 ARM so in a few years it will change. I did that planning, at the time, to pay it off before it reset, probably with retirement money in increments, and for the better interest rate. So, chunk it off in 3 years as planned, let it adjust and see where that goes, or refi to a fixed rate?
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Old 09-08-2017, 12:17 PM   #42
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Old 09-08-2017, 01:00 PM   #43
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I have read (I think) on some other threads that people forego "owning" for renting in retirement, taking the proceeds from the home sale as part of retirement portfolio. I don't see the difference with this and going in to retirement with a mortgage balance.
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Old 09-14-2017, 09:05 AM   #44
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I totally disagree with this unless you actually adjust your AA to reflect the payoff of the mortgage.

For example, let's say you have $1 million of investments that are 60/40 and a $200k mortgage. You redeem investments and payoff the mortgage... if you now have $800k of investments that are 60/40 then comparing your fixed income return to your mortgage interest rate in making the payoff decision is incorrect... it should be your overall investment rate of return.

OTOH, if after paying off the mortgage you then have $800k that is now 75/25 then I agree with what you posted.
Yes, this is exactly what I was thinking. The previous assumption was basically all funds in bonds, clearly not smart. It is a totally different equation if the source of the payoff is after tax, pre tax or tax free. Even somewhat conservative investments beat inflation handily. If the source is after tax, for people that invest per his site, it makes little sense to paynit off. If guaranteed income from pensions & SS easily cover you living and discretionary expenses, then there is no "increased cash flow", rather it becomes a cut and dry investment decision. Those are far more relevant decision factors.

Renting vs having a mortgage are totally different decision points, either based on market and location or absolute cost. Rarely do they go hand in hand. The net cost of renting what I want (which is available) vs purchase of the same property with a mortgage isn't even close; the mortgage is far cheaper, not even including the equity build or appreciation. In our market here, rarely does renting make sense except for short term, if you can afford the down payment and have good credit.
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Old 09-14-2017, 09:21 AM   #45
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Paying off early gives you a guaranteed 3.625% return minus the tax benefits. Can you get a higher return guaranteed any where else?
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Old 09-14-2017, 09:37 AM   #46
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Whether or not to carry a mortgage in retirement is, of course, an individual decision.......
When I was planning my retirement, I felt that in my case it made more sense to not have a mortgage. So, I paid it off several years before retiring. Aside from the financial aspects, I love not having a mortgage to pay.
This is where I agree with pb4uski completely. Did you have a mortgage most of your life before retirement? When a job loss coupled with the mortgage could have been a disaster? Where you on pins and needles with that situation? That is what I don't understand. Either you can afford to own the home or not. I've had a mortgage or two most of my adult life. I dont worry anout it, ever. I monitor rates and when they drop, I refinance. I've refinanced at least 8 times in my life. Minimize unnecessary costs. In retirement, where there is no possibility of "job loss", and wealth accumulation should feasibly allow puchase of the home outright, a mortgage should be of even less concern. If you have to struggle to be retired and make your mortgage payment you are either living above your means or shouldn't be retired. I don't see the point in tying up $100s of 1000s of dollars in a at best, not easily almost inaccessible investment that at best makes 2.7%., based on my current 3% loan. Guaranteed? No, but that's a weak argument, as in the last 20 years I've easily beat that by 3 -30% per year.
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Old 09-14-2017, 10:05 AM   #47
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Interesting thread, I have grappled with this same question for a long time. My adviser of course tells me it makes no sense to pay off the mortgage financially, I understand the math completely. .....
Your advisor unless paid by the hour, makes more money if you have a mortgage. If his fee is 1% (which is not the highest I've seen) then he makes an extra $2,500 per year from you keeping your $250K in investments.

So you should include that in your calculations of the savings of paying off the mortgage.
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Old 09-14-2017, 10:11 AM   #48
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Interest expense on a $237K mortgage at 3.625 a year is $8,591. Investment income on $237K at 3.625 a year is $8,591. Before taxes, it is a wash. Personally, I would not sleep much better at night paying off a mortgage if the financial impact was zero.

I'd look at the impact of taxes, expected future investment returns and asset protection potential of having a mortgage. In some states the money might be safer in the retirement accounts and in other states the house. It depends where you live.
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Old 09-14-2017, 10:16 AM   #49
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Would it be a bad idea to dip into my retirement to pay off the mortgage?
Emotionally, I don't like having a lot of debt.
Financially, I don't see that it makes sense to pay off your mortgage. You have a great rate, and presumably a tax situation that makes keeping a mortgage a favorable decision under today's tax laws. And presumably your retirement funds are invested in vehicles that are returning more than you are paying for your mortgage.

But you don't have to make that decision now.

Why don't you wait until you have been retired for a while and see how you feel emotionally then?

You'll certainly have the funds to pay off the mortgage later if you still feel the need for some reason.

Once you pay off the mortgage, it's much harder to change your mind.
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Old 09-14-2017, 10:29 AM   #50
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Paying off early gives you a guaranteed 3.625% return minus the tax benefits. Can you get a higher return guaranteed any where else?
Do you invest all of your funds in instruments with guaranteed returns? If not, why not?
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Old 09-14-2017, 10:39 AM   #51
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Interest expense on a $237K mortgage at 3.625 a year is $8,591. Investment income on $237K at 3.625 a year is $8,591. Before taxes, it is a wash. Personally, I would not sleep much better at night paying off a mortgage if the financial impact was zero......
That's only for the first year. Every year the investment grows and earns more interest, while the interest cost on the mortgage drops and becomes home equity principal. If you pay cash for a house the investment only earns appreciation, which the mortgaged house also earns. Each year you pay the house with progressively inflated dollars, while the investment grows to match and exceed inflation. This is a very old and tired argument. The reasons to pay off a house when rates are so low are entirely emotional. There is no financial incentive. I'm not discounting the validity of the emotion. It has a fixed cost to it that many find acceptable.
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Old 09-14-2017, 10:54 AM   #52
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For the OP, I among the reasons I would not do it is the tax hit one will take on withdrawing additional money from retirement accounts. so to pay off $100K you will actually have to withdraw $115-$125k based on the tax bracket one is in (just a rough guesstimate on my part I did not analyze the tax hit to the final jot or tittle ).

In my case I will be going into retirement with a mortgage, but with a low interest rate and enough in cash to pay it off, I will see how year 1 of retirement goes before I make any changes. I will be more concerned about our health expenses than our mortgage expense.
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Old 09-14-2017, 11:39 AM   #53
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That's only for the first year. Every year the investment grows and earns more interest, while the interest cost on the mortgage drops and becomes home equity principal. If you pay cash for a house the investment only earns appreciation, which the mortgaged house also earns. Each year you pay the house with progressively inflated dollars, while the investment grows to match and exceed inflation. This is a very old and tired argument. The reasons to pay off a house when rates are so low are entirely emotional. There is no financial incentive. I'm not discounting the validity of the emotion. It has a fixed cost to it that many find acceptable.
I was not trying to make a comprehensive analysis in my post - just pointing out that paying off a mortgage often reduces income by close to the same amount. There are often posts here about how can anyone go into retirement with a mortgage without looking at the offsetting decrease in investment income.
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Old 09-14-2017, 12:47 PM   #54
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Paying off early gives you a guaranteed 3.625% return minus the tax benefits. Can you get a higher return guaranteed any where else?
Do you invest all of your funds in instruments with guaranteed returns? If not, why not?
Thank you, joeea.

This argument about "guaranteed returns" always seems hollow to me. Yes, it's true to a point, but is it relevant? I don't think so.

Why do my returns need to be guaranteed? Just because I can look at the mortgage pay off that way, doesn't make it relevant to my investment decision.

30 year Treasuries are ~ 2.8%, as guaranteed as you can get. You can't get that guarantee in the market, so is all your money in 30 year Treasuries? If not, the statement just doesn't hold. And I wouldn't do 100% 30 year treasuries anyhow.

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Old 09-14-2017, 02:08 PM   #55
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I was not trying to make a comprehensive analysis in my post - just pointing out that paying off a mortgage often reduces income by close to the same amount. There are often posts here about how can anyone go into retirement with a mortgage without looking at the offsetting decrease in investment income.
I was agreeing with you, and in fact pointing out that it is trade off, and for investors above a certian income, usually smarter to carry a mortgage. If one is living on $50k/yr, then a $1200 P&I is a heck of a higher burden than the same P&I on $100k/yr. Either of those incomes could easily have a mortgage in that range. As mentioned, the taxes, maintenance and insurance never go away, so it becomes a total cost against income equation.

As for the OP, I obviously agree with the posters that said there is no sound financial reason to reduce pretax retirement savings just to have no mortgage, IF the payment is easily handled with your expected income. At least at this time, with current mortgage rates.
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Old 09-15-2017, 05:55 AM   #56
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With interest rates on our mortgage below what we can earn in interest on reasonably good quality bonds or dividends from an index funds, we decided to not to pay off our mortgage when I FIREd - we had seven years left on it.

Another motivation was that the interest rate on the mortgage is below the local rate of inflation - keeping the mortgage acts as a partial inflation hedge.

Current plan is to remortgage for additional investment when the current mortgage is repaid - assuming the economics make sense.

If I or DW lost any sleep over it, I'd have no problems accelerating payments.
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Old 09-15-2017, 06:25 AM   #57
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Do you invest all of your funds in instruments with guaranteed returns? If not, why not?
Of course not, and the balance of the mortgage is not ALL of his portfolio.
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Old 09-15-2017, 02:14 PM   #58
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I was agreeing with you, and in fact pointing out that it is trade off, and for investors above a certian income, usually smarter to carry a mortgage. If one is living on $50k/yr, then a $1200 P&I is a heck of a higher burden than the same P&I on $100k/yr. Either of those incomes could easily have a mortgage in that range. As mentioned, the taxes, maintenance and insurance never go away, so it becomes a total cost against income equation.

As for the OP, I obviously agree with the posters that said there is no sound financial reason to reduce pretax retirement savings just to have no mortgage, IF the payment is easily handled with your expected income. At least at this time, with current mortgage rates.
this is similar to our situation. Our P&I is 1200 on a 420K house at 3.5% a year. 29 years left on the mortgage. We have an pre retirement income of 180k and expect a post retirement income of 120k(hopefully by mid 2018) . It makes absolutely no sense to pay off our mortgage now. But I do agree if our expected income would only be 50k, I would be very tempted to pay it off first but also to delay retirement a few years so we could pay it off out of income instead of savings.
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Old 09-15-2017, 05:55 PM   #59
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We will probably buy a new house in retirement and carry a small mortgage on it, $150K or less.

I'm not at all concerned about it.
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Old 09-16-2017, 09:01 AM   #60
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Thank you, joeea.

This argument about "guaranteed returns" always seems hollow to me. Yes, it's true to a point, but is it relevant? I don't think so.

Why do my returns need to be guaranteed? Just because I can look at the mortgage pay off that way, doesn't make it relevant to my investment decision.
I agree that it doesn't make sense to isolate money used to pay off a mortgage this way.

If you feel compelled to compare a mortgage payoff only to a guaranteed vehicle, then you seem to be implying that this particular money must be guaranteed for some reason.

But unless you have an unusual asset allocation, I doubt that you would take other money you came by (from salary, or from an inheritance perhaps) and invest it solely in guaranteed-return vehicles.

Money is fungible. There's nothing special about money that is spent to pay off a mortgage versus all the other money you have.
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