Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-28-2018, 05:26 PM   #21
gone traveling
 
Join Date: Mar 2015
Posts: 3,508
Quote:
Originally Posted by Cpadave View Post
I am leaning towards paying it off, while DW is more hesitant because she is more conservative and is always big on dry powder and financial flexibility.
Happy wife, happy life.
joeea is offline   Reply With Quote
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!

Old 01-28-2018, 05:39 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 12,027
Quote:
Originally Posted by Cpadave View Post
....However, the interest expense of almost $25k/yr is still quite high. The mortgage payment is a significant portion of our annual cash flow needs.

I find it hard to stomach the fact that our fixed income portfolio is generating less than the mortgage rate on the after-tax basis. only half of our interest expense gets the tax deduction, while the yield from the bond portfolio that we use to fund the mortgage payments is fully taxed as ordinary income. I am leaning towards paying it off, while DW is more hesitant because she is more conservative and is always big on dry powder and financial flexibility.
Certainly pay some of it off, since you can't deduct more than the limit allowed now.
Especially since your bonds after paying tax, are earning less than the non-deductible interest of part of the mortgage.
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 01-28-2018, 05:49 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 5,072
I personally don't like loans and pay them off as soon as I can. I had a loan for my house which I built myself one about 2 years. I then just paid it off and then I could put more in stocks and savings. That was 34 years ago I paid off my house and for me it made more sense.

The deciding factor would be interest of loan and nothing says you can't make double or triple payments if you would like.
street is offline   Reply With Quote
Old 01-28-2018, 06:12 PM   #24
Recycles dryer sheets
 
Join Date: Nov 2017
Posts: 136
Thank you all for your thoughts and suggestions. Very helpful indeed. I talked it over with DW. We agreed to stop plowing money into the market for a while and instead apply all excess cash flows to extinguish our mortgage.
Cpadave is offline   Reply With Quote
Old 01-28-2018, 06:48 PM   #25
Recycles dryer sheets
 
Join Date: Apr 2012
Location: Seattle
Posts: 479
I looked at the Finance elements when was deciding to payoff or not. I was getting to a point of not being to itemize within a few yrs which was also a factor. I owed 115k with six years to go. Took it out of a lower yield bond fund to pay it off (4% 15 yr loan).

The deciding factor for me was the "piece on mind" of owning the place outright. You don't see that factored into many formulas of course but for me was liberating as they say to be debt free. YMWV!!
__________________
57 now ER'd at 55 (Megacorp 31 yrs). Still figuring out *retirement*. Company pension and 70/30 asset mix. New to the ER game....
supernova72 is offline   Reply With Quote
Old 01-28-2018, 07:03 PM   #26
Moderator Emeritus
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 45,264
Quote:
Originally Posted by Cpadave View Post
Thank you all for your thoughts and suggestions. Very helpful indeed. I talked it over with DW. We agreed to stop plowing money into the market for a while and instead apply all excess cash flows to extinguish our mortgage.
So glad she is seeing things your way! That's terrific.
__________________
Happily retired since 2009, at age 61.
W2R is offline   Reply With Quote
Old 01-28-2018, 08:10 PM   #27
Thinks s/he gets paid by the post
Finance Dave's Avatar
 
Join Date: Mar 2007
Posts: 1,602
Quote:
Originally Posted by Scuba View Post
DH & I have not paid off our mortgage and don’t intend to pay it off early. We have a 30 year fixed loan at 3.375%. The opportunity cost to pay it off is too high as we’ve been earning much more than that on our investments. And the monthly payment is a small part of our monthly outflow.
But using that logic, why then wouldn't you go out and borrow as much as you can against the mortgage (via a HELOC or 2nd mortgage) and invest that in the market?

IMO this ignores the potential for a market downturn and introduces risk.
__________________
"Live every day as if it were your last, and one day you'll be right" - unknown
Finance Dave is offline   Reply With Quote
Old 01-28-2018, 08:24 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: No fixed abode
Posts: 8,421
Quote:
Originally Posted by Cpadave View Post
Thank you all for your thoughts and suggestions. Very helpful indeed. I talked it over with DW. We agreed to stop plowing money into the market for a while and instead apply all excess cash flows to extinguish our mortgage.
My only issue is (and your wife seems to agree) that by moving the money into equity in your home you lose financial flexibility. Since the after tax investments are earning pretty close to the after tax interest payments, it's nearly a wash. So to me keeping that much money out of being locked up as home equity would be the deciding factor, and worth whatever small amount you might be paying. You'll still have it paid off in 10 years when you are considering downsizing.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 01-28-2018, 09:00 PM   #29
Thinks s/he gets paid by the post
USGrant1962's Avatar
 
Join Date: Dec 2016
Location: DC area
Posts: 1,819
The deciding factor for me was the financial flexibility generated by paying it off. Not having a mandatory draw on your portfolio of $10(s) of thousands per year provides huge flexibility in managing AGI/MAGI/ACA/American Opportunity Tax Credit/0% LTCG/etc and your tax bracket.

But this only works well if paying off your mortgage is not a large fraction of your taxable assets.
__________________
FI and Semi-ER March 24, 2017
Consulting to stay engaged

"All models are wrong, some are useful." - George Box
There is always a well-known solution to every human problem: neat, plausible, and wrong.” - H.L. Mencken
USGrant1962 is offline   Reply With Quote
Old 01-29-2018, 04:25 AM   #30
Recycles dryer sheets
 
Join Date: Jul 2015
Posts: 338
Quote:
Originally Posted by Cpadave View Post
We will be entitled to 11K of additional deduction if we itemized vs standard.
Why/how is that? I have not followed it to closely (yet), but how are your itemized deductions affected here?
clobber is offline   Reply With Quote
Old 01-29-2018, 06:49 AM   #31
Thinks s/he gets paid by the post
Badger's Avatar
 
Join Date: Nov 2008
Posts: 2,092
I like the idea of owning my own home free and clear. When I was a little through half the 30 year mortgage and could no longer benefit from using the interest for itemizing and had to start taking standard deduction I started making an extra principle payment each month equal to the regular monthly payments. Got it paid off in about 5-6 years and saved a little money in the process. It might not have been the best move. I would not know being a bear of little brain. But I also continued to take the same amount of money from both payments and added them to my retirement accounts. Now we are sitting pretty with no house payments. And since we get Tricare for Life and Medicare we have no medical bills either. It helped to have a plan years ago.
Badger is offline   Reply With Quote
Old 01-29-2018, 07:25 AM   #32
Thinks s/he gets paid by the post
 
Join Date: Dec 2015
Posts: 2,228
I have been faced with this decision twice, in the last 15 years. However, both times it was a considerable smaller number. The first time the interest rate was variable, hovering around 5%. I paid it off because I wanted to be debt free. Then, about 4 years later I decided to plow about 125K into transforming my old "fish camp" style (read "about to fall into the water) lake cottage into a place we'd eventually call home, and it was such a PITA to get a mortgage.
Just by sheer dumb luck we decided to this when we could get a 15 year fixed at 2.75%., and I was still earning a nice income, so it wasn't all that much interest, after the tax break. By the time I retired the balance was around 100K, and the market was doing nicely, but mostly, I didn't want to take 100K of my after-tax money and lose the flexibility it allowed me.

However, 650K at 3.625%, with a reduction in the tax break, I think I'd like to get at least a large portion of that cleaned up. While you are doing that, you may get a feel for what interest rates are doing. At some point along the way the landscape may change, and 3.6% may be a bargain.
HadEnuff is offline   Reply With Quote
Old 01-29-2018, 07:43 AM   #33
gone traveling
 
Join Date: Mar 2015
Posts: 3,508
Quote:
Originally Posted by Cpadave View Post
Thank you all for your thoughts and suggestions. Very helpful indeed. I talked it over with DW. We agreed to stop plowing money into the market for a while and instead apply all excess cash flows to extinguish our mortgage.
So instead of paying 3.625% interest on the mortgage you are forgoing $650K worth of investments at your 60/40 asset allocation?

We all do what we have to do in order to sleep at night. Good that you both agree to a solution.
joeea is offline   Reply With Quote
Old 01-29-2018, 07:48 AM   #34
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Location: Crownsville
Posts: 2,771
The decision of whether to pay off a mortgage or not is a hard call, and I have a feeling there really is no right or wrong answer.

I went through a somewhat similar thing back over the summer of 2016. In my case, I owed about $140K, on a 10-year fixed at 4.99%. I wanted to refinance, but the mortgage company tried to make me jump through a bunch of hoops and I refused (mainly making some expensive repairs that I thought were not needed, and would exceed the benefit of the refinance).

I was a bit afraid to pull $140K out of the market all at once to pay it off, though. The monthly payment was $1847, but what I tried to do, was every month the value of my investible assets hit a new $10K threshold, I'd make a $10K payment on the mortgage. If it ended up being an up month, but not a new $10K threshold, I'd pay $3K. And in a down month, I'd pay $2K.

Well, the market took off in late 2016, and then I received a rather sizable inheritance in 2017, so I ended up making my final mortgage payment last week.

I think if I had a large mortgage, at a fairly low rate, and a lot of the payment was interest that I could write off, I might keep the mortgage. But in my case, the rate was a bit high (4.99%) and being a 10-year, it was mostly principal, so not much to write off. Also, being such a short term, the payment was high, and it was hurting my ability to get other financing. Lenders were just looking at my income and expenses, and not taking my net worth into account.
Andre1969 is offline   Reply With Quote
Old 01-29-2018, 07:52 AM   #35
Thinks s/he gets paid by the post
 
Join Date: Jun 2003
Location: Florida's First Coast
Posts: 4,974
We are in the Paid Off Camp. Paid ours off in the mid 90's. It was worth it as the increase in home price was tax free (Below the Threshhold). This allowed us to have more After Tax money for retirement.
__________________
"Never Argue With a Fool, Onlookers May Not Be Able To Tell the Difference." - Mark Twain
ShokWaveRider is offline   Reply With Quote
Old 01-29-2018, 08:35 AM   #36
Thinks s/he gets paid by the post
Cobra9777's Avatar
 
Join Date: Jul 2012
Location: Texas
Posts: 2,382
We paid off the mortgage when I retired 5 years ago. We were only 9 years into a 30 year mortgage. But we had made large additional principal payments for several years when I received my annual bonus. So the payoff was fairly small as a percentage of NW. But the payments were still quite large as a percentage of annual spend. That was not something I wanted to deal with early in retirement at 52.

We considered refinancing to a very low rate (around 3.25% at the time) with another 30 year loan. I ran the numbers in FIRECalc and it looked pretty favorable, although the benefit was rather negligible in the grand scheme of things, and certainly not without *some* risk. Plus we were looking at several $K of closing costs that seemed like a complete waste at that point. So paying it off was just the simpler solution for us.
__________________
Retired at 52 in July 2013. On to better things...
AA: 55% stock, 15% real estate, 27% bonds, 3% cash
WR: 2.7% SI: 2 pensions, some rental income, SS later
Cobra9777 is offline   Reply With Quote
Old 01-29-2018, 09:49 AM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 12,027
Quote:
Originally Posted by Cpadave View Post
Thank you all for your thoughts and suggestions. Very helpful indeed. I talked it over with DW. We agreed to stop plowing money into the market for a while and instead apply all excess cash flows to extinguish our mortgage.
Glad to see you both agree on a financial plan.

I personally would do this, I've not had a mortgage for a long time.
Based on history, if the market tanks 30% - 50% , I would be tempted to stop the aggressive paying off of mortgage, buy broad stock etf's for a couple of years, and go back to paying off the mortgage if or when the market recovered.

Yes, at times I have been a DMT (dirty market timer).
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 01-29-2018, 11:14 AM   #38
Recycles dryer sheets
Happyras's Avatar
 
Join Date: Jun 2015
Location: Redmond
Posts: 489
I enjoyed this discussion, so here is my two cents;
If the mortgage rate is >4%, and itemizing the interest is not an option due to the new standard deduction, I would definitely pay off the mortgage, most but not all, from the bond side of my investments.

In 2016, I restructured our debt to avoid drawing pre-tax investments. Since HELOC is no longer deductible, I have essentially paid off that 4% debt this month, but I refi'd our Home at 2.625% on a 10/1 at that time in Dec 2016. We have low interest, low payments and the 10/1 adjusts after I am forced to take RMD's which I will use to pay it off at that time. Since we can now barely itemize, I am walking the same line but recognize the flexibility in keeping the debt as long as our pre-tax bond allocation keeps up with a higher return (> marginal tax rate difference). For us that would be a yield of 3.25%. We have to hope for gradual interest rate change, or our duration risk is greater than our equity risk.

We have no other debt on rental or commercial properties, primarily due to the higher rates to borrow. That was our focus pre-FIRE.
Happyras is offline   Reply With Quote
Old 01-29-2018, 11:19 AM   #39
Recycles dryer sheets
 
Join Date: Nov 2017
Posts: 136
Yes, “peace of mind” is definitely one of the factors in our decision to pay off the mortgage. What bugs me more is the negative interest spread. On the other hand though, our fixed income portfolio is a bunch of individual bonds that we bought over time, laddered in maturity, and initially intended to hold to maturity. To sell $650k of bonds would not only upset the AA balance, it would also generate friction cost in bid/ask spread, not to mention a little bit of capital loss due to the recent rate uptick. so we decided to meet somewhere in the middle. Instead of liquidiating some of the bonds, we would just use future distributions from our “externally managed” portfolio (outside of our 60/40 framework) to pay down the mortgage. Obviously this carries a lot more uncertainty in terms of time frame, but it is the least amount of work, and gives us more time to see how the equity market and rates evolve from here.
Cpadave is offline   Reply With Quote
Old 04-26-2018, 08:14 AM   #40
Recycles dryer sheets
 
Join Date: Jul 2016
Location: North East
Posts: 192
If you are a middle to upper middle income American, then paying off your mortgage could definitely be extremely advantageous to you. If your working income levels are in the six digit category, not so sure.

Since we are middle income, we pay a lot of attention to the 49.95% and 40.7% marginal tax rates that we all face as we enter the 22% Federal Bracket during retirement.

Here is an example that I created for one of our single friends:




She is a widow with a mortgage payment of about $1,500 a month. $300 of that goes for taxes and insurance which she will have to continue to pay even without the mortgage and $1,000 a month goes toward principal and interest.

She is currently getting survivor benefits and will switch to her own at age 70. Her final benefit level should be about $36,000 and she said she could live very comfortably on $5,000 a month, $6,000 a month if she still has her mortgage.

The chart shows a red tick mark for the taxable income required without the mortgage and a blue one if she still has the mortgage.

Her current income levels on survivor benefits puts her well over “The Hump” marginal taxes so she is back in the standard 22% Tax Bracket.

Her choices are to pay off her mortgage with IRA / 401K withdrawals at 22% and maybe 24% or keep the mortgage and pay huge Hump taxes after she is 70.

Looking at the income and tax levels above the graph, keeping the mortgage would require her to withdraw an extra $18,777 each year to get the required $12,000 after tax needed for her mortgage PI payment. The tax increase for those extra IRA withdrawals would be $6,777 which is an overall marginal rate of 36.1%.

Bottom line, is it better to pay the IRS 22% or 24% now, or give them 36.1% later.

She is near the end of her mortgage, so the possible interest deductions would not mean a lot.

These percentages are all different for everyone based on your Social Security benefit level and the standard of living that you are used to.
Sandy & Shirley is offline   Reply With Quote
Reply

Tags
mortgage


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Pay off or not to pay off? brownred FIRE and Money 16 03-13-2017 05:28 PM
Just paid off the mortgage. Putting the pay off the mortgage question to rest. FUEGO FIRE and Money 65 06-08-2015 05:08 PM
Should I pay off my mortgage early? novaman Young Dreamers 15 07-28-2009 07:20 PM
What would you do - pay off student loan or pay down mortgage? bank5 FIRE and Money 27 07-27-2009 05:30 PM
(FAQ archive) Should I pay off the mortgage or invest the money? Nords Early Retirement FAQs 0 10-15-2007 03:05 PM

» Quick Links

 
All times are GMT -6. The time now is 01:56 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.