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Old 09-18-2020, 08:18 AM   #21
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Originally Posted by Scarab View Post
Assume you have $100,000 to either save (not invest) or pay off a mortgage for the same amount. Paying the mortgage does not necessarily keep you up at night.

So you have a couple choices available.

1. Put the money in a 1 yr CD, (currently earning .6 to .8 percent).

2. Pay off an existing mortgage balance (3 5/8%) of the same amount? (You're currently 15 years into the 30 year mortgage term)
Personally, I would pay off the mortgage as I always feel better not owing money to anyone. Being completely debt free is a wonder feeling.

However, if you're on the fence as to what to do, you could always save 50K and use the other 50K to pay off a good chunk of the mortgage.
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Old 09-18-2020, 08:47 AM   #22
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Because for "Most" retired folks it is the right thing to do. The best thing we ever did was put $4k a month back in our nest egg account. Stops paying high(er) interest in a low interest environment.
That's a hell of a mortgage payment. My mortgage was for $400K, and my PI was about $1800/month. If you're including taxes and insurance, that doesn't go away just because you get rid of the mortgage. You just pay them separately. If you actually had a $4K/month PI payment, you probably had a higher rate. When I had a jumbo mortgage I certainly did. But I don't think that's apples and apples with the OP's situation.

Having said that, I don't disagree that the OP would better off paying off the mortgage. But I'm still not sold that it's the right thing for "Most" retired folks. It all depends on the situation. If you've got cash sitting around that you would ordinarily put in a CD or whatever, sure, pay off (or down) the mortgage. But there are other options. Like waiting a bit until people start defaulting on their mortgages and buy a rental or two. That's what I did with my first mortgage back in 2010-ish. That's been and continues to be a much better investment than letting the cash languish or letting it sit uselessly in home equity. So, as usual, it depends.
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Old 09-18-2020, 09:48 AM   #23
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Quote:
Originally Posted by Scarab View Post
Assume you have $100,000 to either save (not invest) or pay off a mortgage for the same amount. Paying the mortgage does not necessarily keep you up at night.

So you have a couple choices available.

1. Put the money in a 1 yr CD, (currently earning .6 to .8 percent).

2. Pay off an existing mortgage balance (3 5/8%) of the same amount? (You're currently 15 years into the 30 year mortgage term)

Looking at historical S&P index fund performance, a low cost exchange fund may produce higher returns than the 3 5/8% mortgage, however putting this $100k might throw your allocation off too far for your comfort.

What would be a smarter move at this point in time?


Additional assumptions:
. . . 62 yrs old, preparing for retirement (between now and Jan 1)
. . . not in any hurry to take SS yet. . . you do not expect a need for this $100k in the next 12 to 24 months, or perhaps longer
. . . happy with current allocation of risk, so this money won't go into the market
You didn't mention your healthcare plan for the next 3 years. If I was in this situation and was planning on using the ACA and getting a subsidy, I'd designate $33k per year to use for living expenses (so it's not treated as income, getting you a larger subsidy). In the short term, I'd put it in CDs, maybe laddering them if the longer term rates were better.
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Old 09-18-2020, 10:00 AM   #24
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If having $100K "in your pocket" is what allows you to have your current equity allocation, and not having that much in your pocket will cause a negative shift in your sleep pattern, then that would argue for not paying it off. If there's any possibility there will be pressure to refill the cash bucket by selling equities after the cash bucket gets dumped into home equity, that would argue for not paying it off. But I like the idea of "paying it off and get a HELOC before retiring". This would prevent reducing equity percent to refill the cash bucket, and still allow sound sleep.

I do believe, though, that opinions vary on this topic
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Old 09-18-2020, 10:51 AM   #25
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Originally Posted by ShokWaveRider View Post
Because for "Most" retired folks it is the right thing to do. The best thing we ever did was put $4k a month back in our nest egg account. Stops paying high(er) interest in a low interest environment.
The question was really to mrfeh... and my point was that it is not particularly helpful to state something like "I'd pay off the mortgage in a heartbeat" without explaining why and I was curious as to his reasons why.

I'm not sure that I agree with you that for "most" retired folks it is the right thing to do... I think it is more situational than a blanket statement. I fully agree with your last sentence and that is why I paid off our mortgage in December 2019 and made a commensurate adjustment to our AA... effectively avoiding paying 3.375% vs giving up earning 1.7% earned on the cash used to payoff the mortgage (and that yield has since declined to 0.6%).

Since our mortgage payment was on autopay I've barely noticed that we don't make a mortgage payment anymore... it is just reflected in a lower monthly automatic withdrawal from our nestegg.

But there could be other situations where it isn't a good idea.... I think we benefited by not paying our mortgage off in 2012 when I retired as at that time even our fixed income allocation was yielding more than the 3.375% that we were paying, not to mention our total portfolio return.

As I've mentioned in other posts, I don't get the sense of euphoria that some posters do... to me having a mortgage or not is simply a financial decision... I'm not emotional about it at all.
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Old 09-18-2020, 11:27 AM   #26
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IMO the #1 reason to not pay off mortgage is to avoid being house rich and cash poor. Some early retirees may have much of their wealth tied up in 401K/tIRA accounts they can't yet access, so they need available cash to bridge the gap. And some older retirees may have large enough SS+pension benefits to pay monthly mortgages, but making a bulk pay-off could short them cash reserves.

Yes, there are HELOCs, but I don't think that's a good idea if you're pretty sure you'll need the money. Do your own research, because I don't have a HELOC. My impression, which may be wrong, is that HELOC rates are often variable. I don't know if fixed HELOC rates are higher than 1st mortgage rates. Right or wrong, make sure a HELOC doesn't result in a higher rate than your current mortgage. Do HELOCs also have a fee to open? If so, consider that.

If cash flow isn't an issue, do whatever you want. I'd probably pay off the mortgage, because it'd be hard to beat the rate with a iron clad guaranteed investment. Sure I could compare the mortgage rate with my overall expected investment returns, but I'm taking a little more risk there.

One other factor, I probably wouldn't take a large capital gain to sell off investments to pay off a mortgage. There are a lot of variables in that, so I'll just stick with "probably".

As far as celebrating paying off the mortgage...I wouldn't, because I agree it's just a financial decision and not an emotional one. But I'm not going to rain on anyone else's parade.
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Old 09-18-2020, 03:18 PM   #27
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Some early retirees may have much of their wealth tied up in 401K/tIRA accounts they can't yet access, so they need available cash to bridge the gap.
This was me. Paying off the mortgage would have triggered more taxable withdrawals or pulling from Roths (which I wanted to postpone, because we all know the first 100 years in a Roth are the hardest). Recently we (sadly) ran into quite a bit of after tax money. This should have triggered a reexamination of the mortgage payoff question, but it didn't. Or maybe a passing thought, and then I realized how close I was to being done with the mortgage 'naturally' (from cash influx to paying off as originally agreed was only 8 months).
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Old 09-22-2020, 06:18 AM   #28
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... I think it is more situational than a blanket statement. I fully agree with your last sentence and that is why I paid off our mortgage in December 2019 and made a commensurate adjustment to our AA... effectively avoiding paying 3.375% vs giving up earning 1.7% earned on the cash used to payoff the mortgage (and that yield has since declined to 0.6%).
This statement kind of sums things up in my mind.

While we'd have to sell the home to truly realize the benefit, I believe the value of the home will grow beyond the current 0.6% we can earn in savings for some period of time. This would also provide a "cost avoidance" number to consider, basically the interest expense avoided for the same period.

Any "savings" from this would go towards paying property taxes.
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Old 09-22-2020, 06:28 AM   #29
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I paid mine off, many disagree with me, I have no regrets.
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Old 09-22-2020, 07:01 AM   #30
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I admit to cognitive dissonance about my mortgage of 3.68%. I can see that the long term investment math argues for keeping and paying it long term. However, like most here, I got to FIRE by being goal-oriented and debt averse, so having a mortgage is a psychological irritant that doesnít quite fit the picture emotionally.

When I find myself thinking about it too much, I try to remind myself that the mortgage is a permissible use of government-incentivized leverage, a savvy use of arbitrage, and a corner of my portfolio in which inflation works for me rather than against me. Also, I remind myself that one day, one way or another, it will be gone, so I can relax and focus on other things.
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Old 09-22-2020, 07:19 AM   #31
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Scarab, if you will be buying ACA health insurance you may want to keep the $100,000 liquid to help pay for living expenses until you turn 65. It can help keep your income below the ACA premium tax credit limit.
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Old 09-22-2020, 07:37 AM   #32
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This statement kind of sums things up in my mind.

While we'd have to sell the home to truly realize the benefit, I believe the value of the home will grow beyond the current 0.6% we can earn in savings for some period of time. This would also provide a "cost avoidance" number to consider, basically the interest expense avoided for the same period.

Any "savings" from this would go towards paying property taxes.
You lost me here. House appreciation has nothing to do with the mortgage question, nor does it provide a "cost avoidance". The only thing you should compare to the interest expense avoided is the return rate lost on the money you paid your mortgage against.

It sounds like you really want to pay off the mortgage. Go ahead, but I'd consider the warnings some have given here about being house-rich and cash-poor.
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Old 09-23-2020, 01:56 AM   #33
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Pay off the mortgage and save the monthly payments.


+1.

And get a HELOC, if possible.
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Old 09-23-2020, 01:59 AM   #34
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Oddly, I recently had the same thoughts and made a 100K principle payment toward our mortgage at 2.625%. It felt like a good alternative to the CD's available, but I did also bought twice as much in no-penalty CD's at 1.3% in 5 separate accounts. We have enough at risk in equities, and doing some toward the mortgage seemed reasonable, but not to pay it all off, I wanted to keep some free cash for opportunities or bank of Dad loans. BTW I am approaching 66 which tempers my risk tolerance.


Where did you get 1.3% CDís?
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Old 09-23-2020, 05:52 AM   #35
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That's a no brainer. Pay off mortgage. I paid mine off in year 11 of a 30 year mortgage. Then I poured more monthly into mutual funds. FIRE'd 13 years later.
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Old 09-24-2020, 03:14 PM   #36
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Where did you get 1.3% CDís?
Marcus on line had offered no-penalty CD's at 1.3% for up to 9 months. Currently, their savings is at 0.6% and they offer no-penalty 7 month now at .75%. Since we have a lot of cash flow from installment sale of our business, I am once again faced with this same question on paying off, CD or taking high risk/Bank of Dad loans etc.

My thought remains that while we could pay it off, it is so nice to have liquidity if we want to buy another home, or refinance our kids mortgage to help them out.....or buy the big dip coming soon!
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Old 09-25-2020, 12:39 AM   #37
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Get a HELOC, pay 50k .. and you can still get your cash back w a revolving line of credit
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Old 09-25-2020, 03:48 PM   #38
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It depends on many factors -and it's more than just math.
1) Would paying off the mortgage leave you so cash poor that you would have difficulty handling an emergency?
2) Would paying off the house give you peace of mind? (it did me)
3) Would paying off the house simplify your monthly finances? (remember to have a fund for insurance/property tax)
4) If you died, what would be easier for your estate/heirs?
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Old 09-25-2020, 08:13 PM   #39
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Advice From Mr. Bank

Hi! My name is Mr. Bank. My recommendation would be to give me your cash and also pay me monthly for your mortgage. That way I have it all and when the stock market crashes, I will continue to have it all and leave you high and dry. Do exactly the same when you get another mortgage when the market recovers. 👍
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Old 09-25-2020, 08:17 PM   #40
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^^^ Strange. Very strange.

I guess if you don't have anything useful to contribute then you just post a bit of crap.
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