Reason for holding a mortgage...or not

[cute fuzzy bunny]

The three primary reasons why you do or dont have a mortgage, and thank you very much for your participation. Your free hat is in the mail!

 

[LOL!]

If we have a big downturn, I wont have to pay a big mortgage bill every month

What's with that?  If we have a big downturn,  how are you going to pay your property taxes?  I'm gonna use the money I did not use to pay off my mortgage to make my monthly payment and to pay the property taxes

How many readers have a sub-5% fixed interest rate mortgage? You aren't paying extra on it are you?

 

[brewer12345]

You left one out: I have a mortgage because I otherwise did not have the money to buy a house.

 

[Yipee-Ki-O]

I don't have a mortgage but the reason why isn't among your list. I don't like to owe money. So I don't care whether or not it makes more sense financially to carry a mortgage on a house because I feel better being debt-free.

yko

 

[Sheryl]

Yeah, YKO's reason needs to be there to get a clear picture of people's reasoning. (IMHO).

To me it is a practical reason. Right now, while working and in higher tax bracket, I will keep the mort. for tax deduction.

The rate is 4.75, so I can earn about the same in safe investments, the tax break tips the balance toward keeping it.

If I had a 5.5 rate or higher I think I'd pay it off.

If the payments were high enough to be scary, (i.e. affecting withdrawal rate in down market, etc.) I'd pay it off, but they are only $428/mo. so it's relatively painless while still working.

Even after quitting, it adds less than $5,200 to the annual budget. I shouldn't be cutting it that close anyway.

I think the payoff decision is quite different for people with higher amounts, or higher rates.

 

[cute fuzzy bunny]

What's with that? If we have a big downturn, how are you going to pay your property taxes? I'm gonna use the money I did not use to pay off my mortgage to make my monthly payment and to pay the property taxes

How many readers have a sub-5% fixed interest rate mortgage? You aren't paying extra on it are you?

Easy answer. If my stocks drop 50%, I dont have to take 12-25K+ a year out of that depleted portfolio to pay a mortgage every month. And if they drop 90% I can earn enough money at the quick-e mart to buy food and pay the utilities.

 

[cute fuzzy bunny]

You left one out: I have a mortgage because I otherwise did not have the money to buy a house.

Added.

 

[cute fuzzy bunny]

I don't have a mortgage but the reason why isn't among your list. I don't like to owe money. So I don't care whether or not it makes more sense financially to carry a mortgage on a house because I feel better being debt-free.

yko

I captured that in one of the other polls, but good point.

 

[cute fuzzy bunny]

I think the payoff decision is quite different for people with higher amounts, or higher rates.

Thanks Sheryl - i'm trying to stay out of the payoff quagmire, just trying to find reasons why someone does or doesnt have it for profiling purposes.

 

[Sheryl]

Thanks Sheryl - i'm trying to stay out of the payoff quagmire, just trying to find reasons why someone does or doesnt have it for profiling purposes.

Well, yeah,  good luck with that. 
If you don't have one, either you rent or you paid it off. 

 

[LOL!]

...

If I had a 5.5 rate or higher I think I'd pay it off.

...

If prevailing CD rates were 6% would you still think that?

A reason I ask is that a couple years ago when prevailing CD rates were 3% and mortgage rates 4.5%, folks would say "Why pay 4.5% when you are earning 3%?" and look at where rates went.

Many folks believe that Bernanke et al will continue to raise rates, so CD rates will be going up.

You got to plan ahead.

 

[Sheryl]

If prevailing CD rates were 6% would you still think that? 

You got to plan ahead.

No, I wouldn't think that, and I agree with your point that you need to plan ahead. Again, its all about personal situation, and constantly reevaluating your position given current conditions and what your crystal ball says.

 

[cute fuzzy bunny]

Just looking for the reasons here, not a debate on whether they make sense.

Please.

 

[Nords]

We have a 5.375% 30-year mortgage with NFCU (now only available at 5.875%), and this week they raised their seven-year CD to 5.5%.

 

[Mr._johngalt]

We have no mortgage on our house in Illinois, nor on the Texas condo. The Number One reason, honestly, is to protect me from myself. I see "deals" everywhere and many many ways to
"invest" the money locked up in our homes. Psychologically, living with no mortgage is what works for me. My folks recently deeded
over their house to me and my brother. No mortgage there
either. Taking all three (3) properties, it's a lot of money........
close to half of our net worth.

JG

 

[audreyh1]

Yeah - I'm definitely one of those who paid off their mortgage, because they don't like holding any debt at all. It's more of a philosophical thing.

I don't even own a house anymore! I live in a motorhome. And I paid cash for it.

Audrey

 

[Outtahere]

This might sound strange but my first goal in life was to pay off the mortage. When my grandmother died I wanted to purchace her/my home ( I lived with her) unfortunately those were the days that banks wouldn't give mortgages to 25 yr old single women. I went thru hell trying to get a bank to loan me the money, eventually my dad had to talk to the president of the bank he dealt with for his construction business. They gave in and wrote the mortgage for me but he told my dad the board did it as an exception because they didn't want to lose his business. My how things have changed huh? Oh and the rate I had to take was 17.5% ..yep.. that was the going rate back then no matter who you were. This summer I'm having a small party to burn copies of the mortgage and the business loan.

My next goal is to retire, hopefully before I reach 55 but who knows, maybe sooner.

 

[kumquat]

I'm probably a minority here but being Canadian there are no tax advantages to having a mortgage... make that few. We can't deduct mortgage interest unless we borrow to invest. I seem to have enough investments relative to the value of our house that the risk of rising rates, falling RE values aren't wort it.

Besides, I like being debt free!

 

[LakeRat]

Outtahere,

I just have to ask. What year was it that you tried for a loan on your grandmothers house? Having had an experience trying to get a mortgage after a divorce at a young age, I want to know if it was just the times......

 

[Outtahere]

It was 1980, womens rights had come a long way but the stuffy old suits holding the money still had a strangle hold on things and discrimination against the female gender was still pretty rampant. I was there with my father when he went off on the bankers and he was the ONLY reason I got the mortgage and you can bet your butt I never let him down by being late or missing a payment.

 

[mathjak107]

Easy answer. If my stocks drop 50%, I dont have to take 12-25K+ a year out of that depleted portfolio to pay a mortgage every month. And if they drop 90% I can earn enough money at the quick-e mart to buy food and pay the utilities


my sentiments exactly...its easier to plan investments and maybe even go a little more aggressive with no debt ..to try to p/u the point or 2 spread between what you can earn on investments vs the mortgage rate at this point of our lives isnt worth it..i can probley do better not having debt and going say 60/40 stock instead of 50/50

 

[cute fuzzy bunny]

That risk adjustment is a piece I think a lot of people miss. And it can go either way...you can move to an 80/20 and take the risk because you arent tapping the portfolio as hard...or you could go to a 35/65 or 25/75 and be really conservative, and trade high terminal portfolio size for low current volatility...because you dont need to tap the portfolio as hard.

In fact, according to firecalc, a retiree with no mortgage and a 75/25 portfolio mix can retire earlier and with less money than someone with a mortgage and accordingly larger portfolio with a 50/50 portfolio.

The decision fits nicely in a fishbowl, but you're really shortchanging yourself if you dont take all the implications into account.

 

[donheff]

I just now signed onto this forum, so this is my first post. I am recently retired (56) and my wife will pull the plug in about 3 years. When she retires, my intent has been to pay off our two mortgages for peace of mind (an extra $30K expenses with declining tax advantages that I don't have to worry about in a downturn). But having spent two days reading forums and SWR sites I am wondering about ITIPS. Instead of paying off $450K in mortgages by cashing in mutual funds in taxable accounts, should I move the same amount into ITIPS in a 401K? I haven't done the calculations yet, but, after the tax breaks from the interest payments at least in the first ten years) wouldn't I be able to assure the mortgage payoff and diversify my portfolio at the same time?

Don

 

[accountingsucks]

I'm probably a minority here but being Canadian there are no tax advantages to having a mortgage... make that few. We can't deduct mortgage interest unless we borrow to invest. I seem to have enough investments relative to the value of our house that the risk of rising rates, falling RE values aren't wort it.

Besides, I like being debt free!

Bingo - it must be nice to get a tax deduction for interest in the states. I guess on the positive side of things real estate is much more affordable here in Canada versus most places in the States. The home that I purchased for 200,000 CDN a few years ago would have been in the 750,000 range in California.

 

[Sheryl]

But you're probably making up the difference paying for heat?