|
|
Should I pay off my mortgage?
10-13-2018, 12:06 PM
|
#1
|
Recycles dryer sheets
Join Date: Nov 2004
Posts: 150
|
Should I pay off my mortgage?
Hi All,
I am going back and forth over whether I should pay off my mortgage. Here are the factors that are involved.
First, I am 71 years of age and live Washington state. I have about $68,000 remaining on my home loan at 4.5% interest. The house sold for $247,000 5 years ago, and I put 75% down. I have a bank account about $95,000, and investments of $210,000 with TIAA (CREF stocks, bonds and TIAA real estate). My pension with social security comes to about $6000/month before taxes. That income increases anywhere from 1 to 2% a year. I can comfortably live on $65,000 a year at the moment. I'm single.
If I were to pay off my mortgage, my bank account would drop to about $25,000, but I'd save $242 that I pay on interest. If I ever needed more money in an emergency, I suppose I could use the house to get that loan, but I just don't see that happening.
I plan on selling the hose in the next 2 or three years and move to a townnhouse with less yard work
I really welcome feedback. Paying the mortgage of $645/month (including property tax and interest) is not difficult, but am I better off paying it off?
Thank you very much.
Rob
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
10-13-2018, 12:08 PM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 50,021
|
Quote:
Originally Posted by Rob
Hi All,
I am going back and forth over whether I should pay off my mortgage.
|
You came to the right place for some additional back and forth on this topic.
__________________
Numbers is hard
|
|
|
10-13-2018, 12:11 PM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
|
I wouldn’t, your savings will be too low after the payoff especially if you plan to move in 2 years.
|
|
|
10-13-2018, 12:22 PM
|
#4
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,227
|
If you have any notion that you'll buy the townhouse before closing on the sale of your current house, you probably don't want to short yourself the cash. Otherwise it probably doesn't matter too much unless you like more cash on hand for emergencies.
I paid off a balloon loan once a few month before selling and it got a little too interesting for me to get the proof that I'd paid off the loan and had the deed in my name, but for two years you should be ok.
|
|
|
10-13-2018, 12:30 PM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,362
|
Oh no... not again!
Actually in OP's situation, I might. I presume that the bank account is earning much less than 4.5% so he would be ahead by more than $2k a year.... he can then divert the amount that he is currently paying for mortgage payments to rebuilding his cash, but even at $25k he has 4 months + of expenses.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
10-13-2018, 12:39 PM
|
#6
|
Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: Bernalillo, NM
Posts: 2,717
|
Were you able to itemize your taxes last year?
The new tax law changes everything. I used to say no no no to paying off a mortgage because it cuts into your funds needed for emergency or large expenses. Plus the old mortgage interest deduction. But the new tax plan eliminated the itemization of mortgage interest for many people. That has changed the math.
Between mortgage interest and charitable deductions I used to be able to itemize and come out ahead. Not any more. The new higher standard deduction wipes all that out.
__________________
"We live the lives we lead because of the thoughts we think" ...Michael O’Neill
"We can cannot compel others to do our will" ....Norman Goldman
"There never is shortage of the gullible to accept the illogical"...Anonymous
|
|
|
10-13-2018, 12:40 PM
|
#7
|
Recycles dryer sheets
Join Date: May 2014
Posts: 412
|
Sounds like over the 2-3 years until you sell the house you will have paid about $6-9k in interest. But it is only about 4% of your income, so is not a big hit all in all. I would probably not pay it down, but debt can be a bothersome thing, and you will come out ahead by paying it off. But there is no compelling argument that I see to pay it, or not pay it off.
|
|
|
10-13-2018, 12:49 PM
|
#8
|
Thinks s/he gets paid by the post
Join Date: Nov 2011
Posts: 3,900
|
4.5% - 3% inflation = 1.5% effective loan rate, that's cheap money, why take on more risk that will come by paying it off?
|
|
|
10-13-2018, 12:59 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2007
Posts: 9,958
|
Maybe W2R will come along and tell you how nice and how there is much less stress when switching houses if you have extra money to work with.
Hold on to the 100K and keep all your options open, so you can move from one house to another with the least amount of hassle.
|
|
|
10-13-2018, 01:09 PM
|
#10
|
gone traveling
Join Date: Mar 2015
Posts: 3,508
|
Quote:
Originally Posted by Rob
If I were to pay off my mortgage, my bank account would drop to about $25,000, but I'd save $242 that I pay on interest. If I ever needed more money in an emergency, I suppose I could use the house to get that loan, but I just don't see that happening.
I plan on selling the hose in the next 2 or three years and move to a townnhouse with less yard work
|
Nobody sees an emergency coming.
You will be selling in 2-3 years anyway. When you sell it won't matter if you have a mortgage or not.
Just keep the mortgage for the next few years.
|
|
|
10-13-2018, 01:28 PM
|
#11
|
Moderator
Join Date: Nov 2015
Posts: 13,915
|
Normally I'm in the "pay it off" camp, but since you plan to move in the near future, I'd keep that cash on hand for flexibility, and have it in a no penalty CD to offset a good chunk of that interest cost.
|
|
|
10-13-2018, 01:57 PM
|
#12
|
Thinks s/he gets paid by the post
Join Date: Jul 2012
Location: Texas
Posts: 3,024
|
Quote:
Originally Posted by pb4uski
...Actually in OP's situation, I might. I presume that the bank account is earning much less than 4.5% so he would be ahead by more than $2k a year.... he can then divert the amount that he is currently paying for mortgage payments to rebuilding his cash, but even at $25k he has 4 months + of expenses.
|
I agree with this. Unless OP is going to invest the $68K (different question), the correct analysis is to compare the 4.5% mortgage rate against whatever the $68K is earning in the bank... probably very little.
I'd payoff the mortgage. Then use your $7K/yr excess cashflow, plus the $8K/yr you were paying on the mortgage, to rebuild the $68K. It should take a little over 4 years. You'll save about $13K interest over that same period. The $15K/yr new savings plus the remaining $25K should provide adequate liquidity for emergencies or if you decide to buy the townhouse prior to selling your current house.
__________________
Retired at 52 in July 2013. On to better things...
AA: 85/15 WR: 2.7% SI: 2 pensions, SS later
|
|
|
10-13-2018, 02:21 PM
|
#13
|
Thinks s/he gets paid by the post
Join Date: Jan 2013
Location: SoCal, Lausanne
Posts: 4,408
|
Quote:
Originally Posted by Rob
Hi All,
I am going back and forth over whether I should pay off my mortgage. Here are the factors that are involved.
First, I am 71 years of age and live Washington state. I have about $68,000 remaining on my home loan at 4.5% interest. The house sold for $247,000 5 years ago, and I put 75% down. I have a bank account about $95,000, and investments of $210,000 with TIAA (CREF stocks, bonds and TIAA real estate). My pension with social security comes to about $6000/month before taxes. That income increases anywhere from 1 to 2% a year. I can comfortably live on $65,000 a year at the moment. I'm single.
If I were to pay off my mortgage, my bank account would drop to about $25,000, but I'd save $242 that I pay on interest. If I ever needed more money in an emergency, I suppose I could use the house to get that loan, but I just don't see that happening.
I plan on selling the hose in the next 2 or three years and move to a townnhouse with less yard work
I really welcome feedback. Paying the mortgage of $645/month (including property tax and interest) is not difficult, but am I better off paying it off?
Thank you very much.
Rob
|
If that's your only debt, I would pay it off and bank the $645 per month. If you don't feel comfortable doing that, pay down half your principal and reduce your interest expense.
We paid our home off in less than 10 years by making extra principal payments. We are glad we did that.
|
|
|
10-13-2018, 04:15 PM
|
#14
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2009
Posts: 5,308
|
Since you plan to move soon, I would hold on to the cash now and just wait to deal with this when you move.
|
|
|
10-13-2018, 04:19 PM
|
#15
|
Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
|
Think of it this way, you will have it pay off in 2 years, why go through the hassle now, plus you have to figure where to store your house deed. My sister paid off 2 houses already, judging by what she told me where she stores them. I’m getting a little nervous. Not worth the headache.
|
|
|
10-13-2018, 04:34 PM
|
#16
|
Recycles dryer sheets
Join Date: Nov 2004
Posts: 150
|
Thank you very much for your responses. I am a little more secure in not paying off the house now, selling it within 2 years, downsizing to a smaller house, and then using the money on the sale of this house to buy another house.
Thanks again.
|
|
|
10-13-2018, 04:46 PM
|
#17
|
Full time employment: Posting here.
Join Date: Jun 2018
Location: Brisbane
Posts: 855
|
Quote:
Originally Posted by Rob
Thank you very much for your responses. I am a little more secure in not paying off the house now, selling it within 2 years, downsizing to a smaller house, and then using the money on the sale of this house to buy another house.
Thanks again.
|
how about moving sooner ( repaying the mortgage ) and downsizing leaving you close to cash positive in the process .
just a thought
good luck
__________________
i hold the Australian listed versions of AU ( Anglo Ashanti ) , BHP , and JHG .
You must learn from the mistakes of others. You can't possibly live long enough to make them all yourself.
Samuel Levenson
|
|
|
10-13-2018, 04:54 PM
|
#18
|
Thinks s/he gets paid by the post
Join Date: Jan 2013
Location: SoCal, Lausanne
Posts: 4,408
|
|
|
|
10-13-2018, 04:56 PM
|
#19
|
Thinks s/he gets paid by the post
Join Date: Mar 2014
Location: Southern Cal
Posts: 4,032
|
Susie also said you need at least $5million to retire, didn’t we have a thread on that.
|
|
|
10-13-2018, 05:23 PM
|
#20
|
Full time employment: Posting here.
Join Date: Jun 2018
Location: Brisbane
Posts: 855
|
i dislike having a mortgage period ..
BUT the OP already has the mortgage and some plans for the mid-term future .
which makes my normal inclinations ( pay off the mortgage quickly ) not so useful to the OP .
moving ( downsizing ) in 2 years may involve certain circumstances ( needing to stay in the area/house for another 2 years for example )
the Fed has clearly telegraphed at least one more interest rate hike ( i would guess at least 3 more including December )
__________________
i hold the Australian listed versions of AU ( Anglo Ashanti ) , BHP , and JHG .
You must learn from the mistakes of others. You can't possibly live long enough to make them all yourself.
Samuel Levenson
|
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|