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Old 03-03-2021, 05:05 PM   #21
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... current thoughts are to put them in Saving/CD getting ~1%, the income tax deduction will also recover some amount....
I don’t think you legally get a deduction on the mortgage if the cash out is not used for the real estate.

But, if making 5%+ on this money over 15 years is going to make a significant difference in your lifestyle, and that is very important to you, go for it.
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Old 03-03-2021, 05:50 PM   #22
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I thought we recently had a thread like this. I said NO on that one, and I'll say it again. NO!
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Old 03-03-2021, 06:50 PM   #23
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I don’t think you legally get a deduction on the mortgage if the cash out is not used for the real estate.
Interesting. If I'm reading the IRS publication on home mortgage interest deduction correctly, the mortgage has to be home acquisition debt: "Mortgage treated as used to buy, build, or substantially improve home."

If you paid cash for your home you can get a mortgage within 90 days and it will qualify. Otherwise, you have to substantially improve the home with the mortgage proceeds.

Something to keep in mind if you're in the market to buy a new home and are thinking of getting a mortgage or paying cash. I know in my case, I save a good amount of money by being able to deduct mortgage interest. I would be bummed if I wouldn't have this option if I had a mortgage.

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Just happy to not have a mortgage. And considering home value is 5% of NW, just not worth considering.
If your home is only worth 5% of NW, then carrying a mortgage would be trivial.

If you have a 500k house and you take out 20%, that's a 100k mortgage.

For a 15 year mortgage at 2.5%, you'll pay $667/month and a total mortgage cost of $120k. Using Firecalc's average, 100k in 15 years grows to $244k. Gain = 124k.

For a 30 year mortgage at 3.0%, you'll pay $422/month and a total mortgage cost of $152k. Using Firecalc's average, 100k in 30 years grows to $514k. Gain = 362k.

Not bad either way, but for the extra mortgage cost of $32k between a 30 vs 15 year, I'd go with the 30 year.
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Old 03-03-2021, 07:27 PM   #24
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I tolerate risk pretty well and I wouldn’t do this. Especially being so close to RE. My two cents.
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Old 03-03-2021, 09:25 PM   #25
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If your home is only worth 5% of NW, then carrying a mortgage would be trivial.

If you have a 500k house and you take out 20%, that's a 100k mortgage.

For a 15 year mortgage at 2.5%, you'll pay $667/month and a total mortgage cost of $120k. Using Firecalc's average, 100k in 15 years grows to $244k. Gain = 124k.

For a 30 year mortgage at 3.0%, you'll pay $422/month and a total mortgage cost of $152k. Using Firecalc's average, 100k in 30 years grows to $514k. Gain = 362k.

Not bad either way, but for the extra mortgage cost of $32k between a 30 vs 15 year, I'd go with the 30 year.
You are completely ignoring risk. Firecalc assumes future performance will mirror past performance.
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Old 03-03-2021, 10:45 PM   #26
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You are completely ignoring risk. Firecalc assumes future performance will mirror past performance.

Of course this isn’t zero risk. The OP knows that and I’m guessing that’s why he was asking for our opinions. But if done right, the risk is manageable.

As for using Firecalc averages, we use the best data that we have. I’m sure that OPs results will be different than the average, but just eyeballing those numbers I think something would have to go severely wrong economically to not come out ahead.

For me, I believe having a small amount of debt to be beneficial and I doubt I’ll ever be debt free. Especially if you can lock it in at historically low interest rates.
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Old 03-04-2021, 03:19 AM   #27
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With the current mortgage interest at a record low. I am thinking about cash-out 500K+ of our paid-off home at ~2.5% interest rate for 15 yr term.

The cash will be on hold for an opportunity to invest (either in the equity market, rental RE, or industrial building...) not sure which one will take a hit first, as I see both the stock market and RE where I live is at an all-time high.



We plan to semi-retire in the next 3 years and I may not qualify for this type of loan in the future when I am no longer employed. And my thinking is investment return should beat the 2.5% interest rate.



We currently have ~1.7M in pre-tax accounts stock/bond/cash. Over 2M in RE rentals net equity, and ~500K in cash saving accounts.



If the market or RE won't crash/correct in the next 3-5 years, I just simply paid off the mortgage again.



What do you think?



Thank you for your time.
I guess to me, the question would be "why?" Do you really need the potential gain (understanding that there could be a loss instead)? Does it just look too tempting? (If so, I'd avoid it - but that's me.) IOW it sounds like a gamble for the sake of the gamble - unless you really need the gain for something (let's say, maybe 2 years earlier FIRE - that might be worth a gamble - with the understanding that it might cost you a year or two.) This really is a YMMV situation that you should look at pros and cons and especially the "why."
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Old 03-04-2021, 06:32 AM   #28
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For me it would not be worth the risk here. But not because stocks are near highs. This is often the case and markets that hit all-time highs usually continue to hit all-time highs or for a while.

It is because of two things: equity valuation and risk.

Equity values are at a high by most valuation metrics. and you add risk to the equation by using leverage, which could be disastrous if housing values equity values or both go south.

It also links your investment horizon to your 10-year in that house. What if things change and you need to move for reasons not currently in view? you have to sell your investments at that time in order to pay off your note.

I'm not sure why you would want to expose yourself to this so close to retirement. It seems to me to be an unacceptable risk.

And this from someone who has a very small mortgage which I have continued for decades after I could easily have off.

Good.luck.
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Old 03-04-2021, 09:14 AM   #29
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Three years ago we took out a $160k HELOC to take care of expected bumpy university costs for our youngest daughter.

The HELOC required us to draw the entire amount for three months. We did and parked it in a Money Market to offset the loan interest. We paid off our HELOC balance at the end of the three month draw period.

A couple months later and apparently as a result of the mortgage meltdown experience in 2008, my finance pal and I both received nasty grams from the SEC saying it wasn’t wise to extract home equity for securities investment purposes.

Don’t know how the SEC connected the dots, but they did and now there’s a letter somewhere in my “permanent file”. Dang!

Just sharing my experience and 2 cents.
Thank you for sharing Vintage
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Old 03-04-2021, 09:16 AM   #30
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Interesting. If I'm reading the IRS publication on home mortgage interest deduction correctly, the mortgage has to be home acquisition debt: "Mortgage treated as used to buy, build, or substantially improve home."
Wow, very interesting indeed. I did not know that. Thanks much.
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