My impression of the mortgage-approval process is that they're interested in cash flow: interest, dividends, pensions. Assets don't cut it. Debts can kill it. So $1M in the bank and other debt of $250K means only that you need a lot of income from that $1M to be able to show ample cash flow after servicing the $250K debt.I haven't looked into this yet, and I'm not (yet) a PenFed member, but this conversation is making me think about refinancing again. I'm curious though. We are retired, with no pension, no real income other than dividends and interest. We have plenty of money as far being able to pay off the mortgage at any time. But I'm wondering if we're going to be able to qualify again, in these new days of actually doing means testing. If I can get a 4.375% loan that's .5% better than what I currently have. About $120/month. It's real money, but I'd hate to have to jump through too many hoops (sorry Sarah ).
One reason not to have a mortgage would be if you have a substantial assets earning less than your mortgage cost. It doesn't make much sense to pay for the liquidity privilege of a 5% mortgage when you have an equivalent amount of money earning 2.5% in a CD. That type of liquidity can be more easily obtained with a HELOC.
I hate dead equity too. I don't have an answer, unless it's the peace of mind that helps you sleep at night. In my case it occasionally wakes me up wondering how I can turn it into a dividend stream. Again a HELOC helps soften the sting.I'm trying to figure out at what point and level a mortgage is worth it to us. I'm carrying one because our house is pretty expensive even now, and having it 100% paid off is leaving a good chunk of money in non-liquid form.
You can play around with these NFCU question-answer calculators:Also, having the mortgage deduction has helped keep us down in the 15% tax bracket last year, and probably for the next few years too, which will help with the Roth conversions.
So what I want to do is figure out how much the mortgage is costing us vs. how much it is saving us, and how much mortage is the sweet spot. I know I need to compare how much we get as a deduction vs. how much we are paying in interest, and I think I also need to consider how much we would be paying into the 25% bracket if we didn't have the deduction. I guess I also have to subtract out how much we are making in interest on the amount of the mortgage (negligible). Has anyone ever worked all this out, or (please, God) know of a site or calculator that will walk me through it?
Navy Federal: Online Financial Calculators
They can also display a payment-by-payment listing of how much you'll pay in principal & interest, so that you'd be able to see when the itemized interest deduction drops below the tax return's standard deduction. But before that happens, perhaps you'd just boost your charitable donations a bit more to get back into itemizing and to stay in the 15% bracket.
Our refi decision boils down to payback. How much would it cost to do the refi, including points & closing costs? How long would it take to pay it back through reduced payments? I ignore the opportunity cost of the refi money and the itemized-deduction tax aspects. If the refi has an eight-year payback then it's probably not a good deal (especially if you're moving before then). If the payback is only a year or two then it's worth the effort. If the payback is 3-4 years then you have to decide whether rates can't possibly get any lower (e.g., whether you'll be doing another refi in a couple years) or whether it's worth waiting a while.
We've already refi'd our home five times in the 10 years since we've bought it, most recently to 4.5%. The last refi's payback was ~32 months, and it has another 14 months to run. We've been stalking a local bank's 4% 30-year fixed mortgage. Since we're still in payback time on the last refi, and since this new rate has some fairly stiff points costs, it's not a screaming bargain right now. But I'm tempted.
A couple weeks ago it was at two points. Last week it was at 1.75 points. This week it's at 1.5 points. I have high hopes for the next couple of weeks.