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Old 06-29-2021, 09:32 PM   #61
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OK, you are just repeating yourself and you are not responding to the questions.

This is not a conversation, it's just you telling us how proud you are of yourself.

Over and out.

-ERD50
I'd like to congratulate you. It used to take you a lot more than 5 iterations of an argument before you would give up and let it go. You're making progress. Some people just can't see beyond their own point and it becomes the proverbial wrestling a pig in mud situation.
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Old 06-29-2021, 09:55 PM   #62
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I'd like to congratulate you. It used to take you a lot more than 5 iterations of an argument before you would give up and let it go. You're making progress. Some people just can't see beyond their own point and it becomes the proverbial wrestling a pig in mud situation.


But maybe you are counting the chickens too soon? I sometimes get weak, and come back after I say I'm done.

But no, I'm not getting better, just so much more to do to get our new home set up as I want it, less time for computer gazing.

-ERD50
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Old 06-29-2021, 10:26 PM   #63
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I used to be in the camp of take the mortgage, put the rest in the market. But I'm moving back towards pay it off early, for a reason I haven't seen anyone say yet: the rationale is that my AA is high (90/10). And the 10 is mostly in 401k where it seems backwards (since I can't get it out for a long time, I should tolerate more volatility in there). Since I can't really move the AA without tons of taxes, I've been accumulating in cash and bonds instead. But bonds are returning around zero (or slightly below zero) and a lot of people think they'll stay that way for a while. So in that case, it seems best to put the emergency fund in cash, and once that's seems good enough, put the rest into the mortgage. It seems like the cost is that I have less available if there's a downturn, but since I'm still working I figure I can weather that. So the real cost is that it encourages OMY.

Not sure if it makes sense to anyone else, but that's what I used to convince myself. That and the wife would be happier with both less debt and OMY!
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Old 06-30-2021, 04:54 AM   #64
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+1

What I chose to do was pay off the mortgage, because I felt that was simpler and also because I am a worrywart, and this helps me to not stay awake at night worrying about "what if"s.

But you should do what appeals to you the most!
My mortgage was not as large as yours, but we paid it off many years ago. It really did change my life, not having that large payment every month.
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Old 06-30-2021, 05:28 AM   #65
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My mortgage was not as large as yours, but we paid it off many years ago. It really did change my life, not having that large payment every month.
+1, it is a great feeling to be mortgage free! Many years ago when I wrote out the check to pay it off, my mailbox in the next few months became full of banks wanting me to take out loans. No thanks! Slaves to debt is what fuels our economy and many cannot retire because of it.
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Old 06-30-2021, 05:52 AM   #66
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I personally went with the mortgage, locked in 2.875%, I am much younger and the mortgage to me was a way to hedge inflation and avoid a tax impact as it wasn't liquid.

I had also ran it through FireCalc and paying off the mortgage resulted in 4 additional failure scenarios (even without accounting for tax impact) which was a bit surprising but convinced me not to go that path. You may want to try that exercise, if they both result in 100% success then I would probably just pay it off so that it was one less thing to worry about.
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Old 06-30-2021, 06:07 AM   #67
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What's happened after every extended downturn?
30 years later, the NIKKEI is still 25% off it's high. Given the limited number of data points, one might not want to limit history to the US market.
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One can look at historical data and determine how often stocks would have beat a particular mortgage rate over a particular number of years, and how often one would come out behind. I think that we all do this with our investments and projecting retirement income with tools like Firecalc already.
I'll ask again, in bold to help you see it, since you seem to be focusing on the more common case:

Jumping to the other side of this, what's the best analytical approach? Maximize your money in the most common case, or giving yourself the best chance to survive a serious extended downturn?
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The idea/discussion of "how to handle a serious extended downturn" is also fraught with assumptions. One can argue that no mortgage is better, but one can also argue that having a mortgage and having an equivalent amount of cash and/or liquid investments will be better.
Maybe. Maybe not. Your statement I was replying to was
Quote:
A diversified portfolio of an equivalent amount to the mortgage balance will earn more than the interest cost of the mortgage, correct? Then we agree on taking the analytical approach.
Conveniently changing a diversified portfolio to holding cash isn't grounds for smugly declaring agreement with your view.

A better argument for holding a mortgage in bad times is that runaway inflation might be a more realistic threat to retiree finances. Holding a low interest rate mortgage should be better for that case.

This is another argument I don't have much of a stake in because I've made my decision, and it's not going to change. I paid cash for the house I had built 20 years ago because I didn't want to deal with a construction loan and then a mortgage. I financed it by exercising employee stock options at just a couple points off what is still the all time high for the stock, and it still isn't anywhere close to that. In fact, had I held on to the stock options I would have seen their value plunge with the dotcom bubble burst and been forced to exercise at probably 75% lower since the options would have expired well before any recovery. A pretty unique case, and I should have diversified no matter what, but it's almost certainly what would have happened to me.

Feel free to have the last word.
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Old 06-30-2021, 11:48 AM   #68
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At 3.5%, Id pay cash. At a more realistic 2.5x-2.7x, Id pick the payment I wanted and use a term and principal amount to fit the payment. At these rates I dont care if I never pay the mortgage off. If my mortgage payment is 1/3 of my SS benefit Id be very comfortable with that. Id set up a CD or MYGA ladder of at least 5 yrs worth of payments and put the rest in equities.
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Old 06-30-2021, 04:28 PM   #69
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With nearly 70 messages, to summarize the responses:
1. Go ahead and pay off your mortgage
2. Go ahead and keep your mortgage, invest the funds and pocket a hopeful spread (arbitrage)

Do what makes you happy - no right or wrong answer, actual results won't be known until 10-30 years down the road.
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Old 06-30-2021, 05:14 PM   #70
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The stock market has been on a tear for 12 years so anyone with the benefit of hindsight will say that your money was better off invested in the market for the past 12 years. However, I don't have a crystal ball, so the answer for ME at age 50 when I was faced with an extra pile in cash late last year from a better than normal year at work was to pay the mortgage off early.

For those who say it is better to invest that money, you might be right (you absolutely would have been correct for the time period of 2009 - 2021), but I sleep fine with the decision I made for my family.

While I might not have a 65 foot yacht or a Lambo (or whatever the cool kids are driving these days), my boring safe approach, while robbing me of the bragging rights that my high flying friends who invest using OPM have, has put me on a sound financial footing. I have a solid 7-figures invested in equities, a paid for house, a paid for beach house, additional amounts invested in safer non-stock investments, plus a couple years worth of cash stashed in an emergency fund.

Your Mileage May Vary, so the answer is to decide what works best for your personality and risk tolerance.
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Old 06-30-2021, 05:40 PM   #71
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Like most things, this ? requires full context and regardless ends up a personal choice.

Many folks say keep the mortgage and invest the funds. Putting the funds in a CD is a terrible idea as the rate is lower than the mortgage rate and will be for years. By definition, you shouldnt lose at arbitrage.

The other missing piece is total asset balance and portion of AA in cash or these days even bonds. If you lower the mortgage and invest the funds in stocks, but carry a large cash position or bonds are you really leveraging the rates? If you pay mortgage off, arguably you can lower your cash (bond?) positions of AA since lower cash outflow requirements.

I made the personal decision to pay of my mortgages. Love being debt free. Totally agree that is a personal choice Im fortunate to make. I am comfortable keeping AA 85%+ stocks.
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Old 06-30-2021, 07:32 PM   #72
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From what I've seen it matters if housing costs is a large part of expenses going into retirement.

Buried a relative a couple of years ago who was retired but not by choice.

By the time I got ahold of their finances shortly before their terminal diagnosis they had a mortgage & HELOC payment (including taxes & insurance) of $1,200/month.

Versus SS income only of $1,800/month and only 5 figures (what was left from an inheritance from a parent) in a taxable brokerage account...they had already liquidated any retirement accounts prior to receiving the inheritance.

They didn't live but a few months more given their aggressive cancer...thank G_d for Hospice!

Even with the mortgage & HELOC balances I was able to get around half of what their home sold for to their beneficiaries.
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Old 06-30-2021, 08:18 PM   #73
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From what I've seen it matters if housing costs is a large part of expenses going into retirement.

Buried a relative a couple of years ago who was retired but not by choice.

By the time I got ahold of their finances shortly before their terminal diagnosis they had a mortgage & HELOC payment (including taxes & insurance) of $1,200/month.

Versus SS income only of $1,800/month and only 5 figures (what was left from an inheritance from a parent) in a taxable brokerage account...they had already liquidated any retirement accounts prior to receiving the inheritance.

They didn't live but a few months more given their aggressive cancer...thank G_d for Hospice!

Even with the mortgage & HELOC balances I was able to get around half of what their home sold for to their beneficiaries.
Seems like they didn't have enough money to have the option to pay off the mortgage. In fact the mortgage and HELOC provided the leverage for them to pay other living expenses, right? When you are cash strapped then keeping a mortgage is really the only option. Maybe that's what you meant.

Some people run into this if they ER in their 50s and have limited funds in taxable. They need to get to 59.5 so they can tap retirement accounts. While some may think it's best to pay off their mortgage to reduce their monthly expenses, it's really better to keep the mortgage to keep more of their taxable money available for other expenses.
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Old 07-04-2021, 07:17 AM   #74
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I just prefer to keep my life simple in retirement, and that includes not having to worry about cash flow day to day.

My biggest expenses are insurance on cars and homeowners and a Amazon charge card that my wife loves using. I also pay my daughter's healthcare insurance.

We would have to dip into our IRA Rollover to make any house payment, and I'm trying to put that off until RMD's at age 72.

But we're fortunate to have our main house and a fish camp on the river that are paid for.
I am really leaning this way too. I am finding the financing costs, interest, insurance, etc. for a 12 month build time in addition to losing a cash discount price is adding up to ~$28,000.
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Old 07-04-2021, 07:39 AM   #75
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I wanted to give you all an update. Since this money is separate from money set aside for retirement living expenses and I am basically just transferring equity from 2 homes into one at the end of the day, I am leaning toward paying off the house and not having to bet on what the market might bring. We will have quite a comfortable budget with the funds left and I am fine with that, as long as I don't go into those funds for the house.

My first quote from the bank for financing this house that is 12 months out on build time includes appraisal fees (2) construction inspections, construction management fee, title insurance fee of $3,000 alone!, origination fee $4000, and yea, I can buy the loan down to 3.65% for $5745. Total cost from the bank $16,957 and this lender works with the manufacturer on a regular basis, so knows the routine.

Also found out there is a $7,500 cash discount from the manufacturer. Now we're up to $24,457 in costs.

My first basement quote is going to come in around $100,000 for a 2100 sq. ft home. Twice the amount of what I was thinking. That is just concrete hole plumbed for a bathroom and a small walkout. Of course the price of concrete is through the roof right now, just like lumber was.

Sitting this inning out until Spring would allow me to sell my house, move and go in with all cash, hoping falling concrete prices and lumber will start being reflected in the pricing. I am not sure I can see paying $24,457 in extra costs to buy into what is hopefully the top of the market, finance, move, sell and then come in and pay off the loan in another year. What I am finding is between the costs of financing the home and now the price of concrete, is going to push me into those retirement funds, and that is the part I am not willing to budge on.
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Old 07-04-2021, 07:44 AM   #76
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With nearly 70 messages, to summarize the responses:
1. Go ahead and pay off your mortgage
2. Go ahead and keep your mortgage, invest the funds and pocket a hopeful spread (arbitrage)

Do what makes you happy - no right or wrong answer, actual results won't be known until 10-30 years down the road.
You are funny! Sometimes it isn't all about the money, it is what you are most comfortable with. I have figured, refigured and refigured several ways of putting some down and investing the rest, and I don' t come out far enough ahead, for length of time between the cost of the mortgage and the cost of financing to really make it worthwhile. This is not my retirement money so I will do what lets me sleep at night.

If I were younger, yes, I would probably invest the money because it would have a longer period of time to grow, but at the end of the day, I won't be worried about it next year either.
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Old 07-04-2021, 08:03 AM   #77
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[...] just so much more to do to get our new home set up as I want it, less time for computer gazing.
-ERD50
I haven't been reading as many threads as I once did. Somehow I missed that you bought a NEW HOME!!!!! Are you still living in the same area, or did you move to another state? Do you love your new home as much as I love my Dream Home?

Enjoy! I am happy for you and wish you the best in your new home!
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Old 07-05-2021, 01:19 PM   #78
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You are funny! Sometimes it isn't all about the money, it is what you are most comfortable with. I have figured, refigured and refigured several ways of putting some down and investing the rest, and I don' t come out far enough ahead, for length of time between the cost of the mortgage and the cost of financing to really make it worthwhile. This is not my retirement money so I will do what lets me sleep at night.

If I were younger, yes, I would probably invest the money because it would have a longer period of time to grow, but at the end of the day, I won't be worried about it next year either.
That is where I was the end of last year

Logically, keep the money invested will provide a greater financial picture

Emotionally, I saw it as a way to be one step closer to being free of debt and moving towards retirement

I could still retire if I had not paid off the mortgage. It was a 15 year with 5 years left. It would have been paid off at 65 and the 2.75% interest would have been fine and I would have made more with the investments over the past year.

Sometimes you have to do what feels right. It felt more important to me to be free of debt as I moved into this next phase than the investment reduction I took to make it happen

It would have been just as right to not pay it off and some probably think I did the wrong thing. BUT, that feeling of paying off the house that I plan on living in for the foreseeable future is "Priceless" Maybe not smart, but I wouldn't change what I did.
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Old 07-05-2021, 07:24 PM   #79
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[...] just so much more to do to get our new home set up as I want it, less time for computer gazing.
-ERD50
I haven't been reading as many threads as I once did. Somehow I missed that you bought a NEW HOME!!!!! Are you still living in the same area, or did you move to another state? Do you love your new home as much as I love my Dream Home?

Enjoy! I am happy for you and wish you the best in your new home!
Thanks. Yes, we are very happy, and (if this makes sense) happy that we are happy! I guess what I mean is, even if you think you've found the right place, there could be any number of things that might make you turn sour on it and regret it (there was a thread about all the things to look for in a new area, but so many are unpredictable). I kept thinking there was at least a reasonable chance that would happen, and we'd have buyer's remorse. So far so good!

I would have liked to have moved out of IL and its crooked government and bad financial outlook (but to a similar 4 season climate I hate heat/humidity!), but the kids and grandkids are here, so we will stay. They had ended up in the SW 'burbs of Chicago, we were in the NW 'burbs/rural. The kids/grandkids are now all 15 to 25 minute easy, casual drive, so it's much easier to just see each other at the drop of a hat. From our previous home, it was ~ 1:15, sometimes hectic expressway drive, not something we looked forward to. DD was pretty instrumental in searching out homes, as she wanted another available baby-sitter, and that works for us too!

Big change for us, from one acre, large-ish 2 story, 4 large bedroom home with family room, living room, dining room, a large room for my music and computer/electronics hobbies, and a full, large unfinished basement (my workshop and tons of space for hobby collections), to a smaller combined family-living room, smaller 3 bedrooms, finished basement with smaller area for workshop/storage and 1/4 acre.

So there is a lot of adapting to do, but it's going well. The large finished basement (with high ceilings and lots of lighting, so it feels 'nice') just means we have to rethink how we arrange things. DW has one bedroom as her craft room (smaller than what she had, but some stuff is stored in the basement, so it works), I'm barely started on arranging my music room in the 3rd bedroom, but some of that will be set up in the finished part of the basement, so it should all work out.

I won't go as far as calling it our "dream home', but we are liking it. When we were searching, I kept telling DW "We can afford more $ than this if we have to, why are you only showing me places below this certain price range? Let's expand our search." But she was right, spending more just gets you a BIGGER house, not necessarily a better quality house. There are exceptions, and of course nicer appointed homes go for more, but unless you find the rare perfect match (and we had a fairly specific set of "must haves"), the price range matches the size, with roughly similar quality.

About a month after the move, DW said a friend asked if we missed our old place. We both agreed, not really! Although there was a lot we liked (and I hope the new owners are happy!), it has been pretty much a "been there, done that". So we had the big house, big yard, lots of space for the kids and entertaining, great place to raise the kids, etc. Now we have moved on.

Moving is also brings a sort of "cut the cord" attitude for lifestyle changes. I had decided to get a lawn service from the get go. I cut the one acre lawn for 29 years, and I was done. Of course, I could have hired someone at the old place, but I had the mower, it was just inertia. So this was a clean slate, I decided if I don't buy a mower, I won't get into that trap. It's nice to see the lawn professionally maintained, everything edged every time, I was a bit too lazy to do it as nice as they do.

We also got lucky with the sale. I has a long long list of things to update to get it ready to sell, but there was a very anxious buyer for something in that neighborhood, and he was an "as is" buyer. He begged us for a showing before we were ready, and we were hesitant, but everything I pointed out that I planned to update he said, "that's fine I'll take it". Saved me a ton of work/grief.

So yes, we are happy to be happy! Thanks for asking.

Oh, back on topic. I do plan to get a mortgage. We went in on "cash" with a Line of Credit against my brokerage account as collateral. Going cash gave us an advantage with the sellers, and made the closing simpler. Interest rate on the LOC is ~ 2.9%, but not fixed. I will check, but I've heard that no one will touch a mortgage application with 6 months of the sale, I guess they want to see things settle out? But yes, I want to lock in these historic low rates.

-ERD50
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Old 07-06-2021, 08:41 AM   #80
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I paid off my mortgage 20 years ago while I was working. The way I looked at it, it was like having an investment that paid back at the mortgage interest rate I would have had that was tax-free income. In other words if the mortgage interest rate was 4% and I invested the money I had that could pay the mortgage off at the same interest rate, I would have to pay income tax on the invested funds. So actually I would need to earn 4% * (1 + tax rate) to break even. Plus, I would be taking risk with the invested money that I'm not taking by paying off the insurance.
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