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Old 09-28-2021, 07:01 AM   #41
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I paid mine off. I figure if mortgage rates are higher than a CD why have a CD and a mortgage.
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Old 09-28-2021, 07:15 AM   #42
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It was observed that no one at my MegaCorp worked until real retirement age. They periodically "cleaned house"--as they did in 2008 for anyone over 55.

I always thought the retirement Ace in the Hole was having a home paid for. And we prepared for retirement by scaling down to a slightly smaller but still substantial enough house 5 years before that time. Paying off the small mortgage was especially satisfying.

It has been very nice not having to worry about where the cash is coming from to make a house payment as our take home income is slightly less than when we were working. But not having a mortgage has allowed me to not make any Rollover IRA withdrawals until RMD's at age 72. And the Fidelity accounts are substantially higher now than when I retired in 2008.

When I retired, I retired from many things. I seldom talk on the telephone, for example. And I don't choose to prepare budgets and work in any home office for days on end. Not having that house payment allows me not to have to watch my business so closely. It allows me to just keep life simple.
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Old 09-28-2021, 07:41 AM   #43
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DW and I are closing on a 2BR/2BA condo in Bradenton, FL this Friday. We are happy to share the risk (hurricanes, marine environment, negligent HOA, etc.) with a mortgage company at 3% interest for 30 years. It's not always a pure financial decision.
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Old 09-28-2021, 08:01 AM   #44
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Retired 3 years ago at 49 and bought a house. I've got a military pension and VA disability payment that covers our expenses. I've refinanced twice and locked in 2.25% for 30 years. I won't pay a dime extra on principle at that rate!
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Old 09-28-2021, 08:34 AM   #45
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OP you've been around here long enough to know that paying off a mortgage is one topic on which no one agrees.
At least on this one, we agree to disagree. Very civil discussion!
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Old 09-28-2021, 08:39 AM   #46
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We actually refinanced after retirement from a 30 year to a 15 year with lower interest. So saving money two ways--monthly and investments earns (generally) more than the mortgage interest. :-)

it's all good.
Everyone makes the financial decision that is right and works for them.
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Old 09-28-2021, 08:57 AM   #47
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Is it common among people with pensions - that they're not too worried about paying off their house upon retirement, especially now that interest rates are low?
I think one or two cases doesn't make something common, or not. For example, around me there are couples with 2 pensions. I can imagine that a reasonable approach is to use one to continue to pay for mortgage loan and other debt. This preserves "the stash." But my anecdote(s) may not reflect what is common among people with pensions.

We have a pension and paid off the mortgage a long time ago. I recall it was a huge load off our minds, as we were just starting to pay for college. Others disagree, and that's fine with me. You have to follow your own plan and remain flexible.
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Old 09-28-2021, 09:12 AM   #48
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The only true expense with a mortgage is the interest. The principal payment doesn't change your net worth. With mortgage rates between 2 - 3%, and these days median home prices in the U.S. under $400K, a $200K average mortgage balance is going to cost around 2.5% X $200K = $5K a year, assuming no income on the invested difference. So it is not a huge amount, and even less net cost if you have the money invested in I-Bonds or TIPS returning at least the inflation rate, which is around 4%. Then you'd make a little money on the difference, 4% -2.5% = 1.5% X $200K = $3K.


$3K is about the same as how much Checkbook.org says a household can save a year by changing where they grocery shop in my area (same food basket, just lower prices at some stores vs. others). I do both the mortgage and shop at the lower priced grocery stores, plus a lot more. All those little arbitrages and expense savings add up over a 40 year retirement ($6K a year ($3K mortgage arbitrage and $3K grocery savings) X 40 years = $240K).
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Old 09-28-2021, 09:17 AM   #49
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Seems like a simple equation to me. The after tax positive difference between paying off a mortgage or investing the funds in the market.

My BIL has used HELOC loans for 10 plus years to invest in the market. Ever since he is retired. He is up anywhere for 2-12 years each year. Paid for a new roof, several vacations, dental implants, etc. etc.
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Old 09-28-2021, 09:54 AM   #50
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When you compare your mortgage interest with your investment returns, you should compare it with the bond part of the returns. Unless you are heavy in stocks and intend to invest the un-payed mortgage part in stocks, I do not think the comparison is fair. For the lenders, the mortgage is a low risk investment, probably similar to bonds. For most people in retirement, they should not be heavy in stocks.
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Old 09-28-2021, 10:33 AM   #51
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I would not pay attention to my neighbours when it came to financial advice or personal financial practices.

Why would we care??
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Old 09-28-2021, 10:41 AM   #52
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Originally Posted by daylatedollarshort View Post
The only true expenses with a mortgage is the interest. The principal payment doesn't change your net worth. With mortgage rates between 2 - 3%, and these days median home prices in the U.S. under $400K, a $200K average mortgage balance is going to cost around 2.5% X $200K = $5K a year, assuming no income on the invested difference. So it is not a huge amount, and even less net cost if you have the money invested in I-Bonds or TIPS returning at least the inflation rate, which is around 4%. Then you'd make a little money on the difference, 4% -2.5% = 1.5% X $200K = $3K.


$3K is about the same as how much Checkbook.org says a household can save a year by changing where they grocery shop in my area (same food basket, just lower prices at some stores vs. others). I do both the mortgage and shop at the lower priced grocery stores, plus a lot more. All those little arbitrages and expenses savings add up over a 40 year retirement ($6K a year ($3K mortgage arbitrage and $3K grocery savings) X 40 years = $240K).
Well summarized Daylate! And don't forget about the tax deduction from Uncle Sam on the mortgage interest as well. Yes, it is a personal decision that everyone will make based on their comfort level and individual circumstances.
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Old 09-28-2021, 10:46 AM   #53
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I'm a mortgage lender so we see a lot of retirees that have mortgages and quite a few that take cash out on a home they own free since rates are so low. A recent survey of retirees showed that 37.6% between ages 65-74 still had mortgages, and 27.7% of retirees 75 and over had mortgages. When the stock market has been on a roll, as in the last 10+ year, and mortgage rates are at or close to all time lows, it's hard to justify removing a large amount that may have been earning 8-10% or more per year to pay off something that costs around 3.00%. It's a personal choice and not something that is bad or good across the board as each persons situation is different.
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Old 09-28-2021, 11:29 AM   #54
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When you compare your mortgage interest with your investment returns, you should compare it with the bond part of the returns. Unless you are heavy in stocks and intend to invest the un-payed mortgage part in stocks, I do not think the comparison is fair. For the lenders, the mortgage is a low risk investment, probably similar to bonds. For most people in retirement, they should not be heavy in stocks.


Says who? We have a 50/50 allocation to stocks and bonds and we have a mortgage. If we sold enough of our portfolio to pay the mortgage balance, we’d still want a 50/50 allocation.
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Old 09-28-2021, 11:35 AM   #55
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Depends what the pension is also. Some people have a 5k-7k a month pension on this forum. If I had that I could have a mortgage and $0 saved for retirement. Everything would still be fine.
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Old 09-28-2021, 11:56 AM   #56
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I think this is common unless you simultaneously change your AA so the mortgage is effectively paid from your cash or fixed income components. I recall reading somewhere that the yield on the 10-year Treasury is a good estimate of bond returns. So let's say that the 10-year Treasury is 1.5% and you have a mortgage with a 3% interest rate and your AA is 60/40 and your mortgage is 10% of your nestegg.

If you pay off your mortgage and simultaneously change your AA to 67/33 then you would likely come out ahead. Of course, YMMV.
Yep. Many financial advisors consider a mortgage as a negative bond. If you have bonds or cash savings in your asset allocation earning less than 1.5%, does it really make sense to keep paying a 3% mortgage?

That said, it's difficult to rebalance without sufficient bonds in the portfolio. For this and other reasons like managing ACA subsidy, we did not pay off our 2.75% mortgage.

We actually increased our 3% HELOC limit to take advantage of increased home equity. I consider this a very large emergency fund.
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Old 09-28-2021, 12:01 PM   #57
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... My thinking at the time I paid off the mortgage was if the markets took a prolonged dip, a long bear market, I’d be forced to sell my assets at a lower price to pay the mortgage. A huge increase in my SORR. ...
Do that SORR calculation again, but consider it with a typically on-the-conservative-side 60/40AA and a sub 3.5% WR.

It would be a long, long time before you ever had to sell any stocks in a down market. A 60/40 AA will kick of ~ 2.X% divs, so you only need to draw down around 1.X%. Hmmm, almost 40 years (over-simplified, but close enough to make the point) of annual expenses in bonds. Even if it's half that after considering the portfolio dwindles as you draw, and less total $ is in bond, so lower total divs, that's still a really, really long bear market.

IOW, that's just not a real concern, let alone a "huge" one.



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When you compare your mortgage interest with your investment returns, you should compare it with the bond part of the returns. Unless you are heavy in stocks and intend to invest the un-payed mortgage part in stocks, I do not think the comparison is fair. For the lenders, the mortgage is a low risk investment, probably similar to bonds. For most people in retirement, they should not be heavy in stocks.
Says who? We have a 50/50 allocation to stocks and bonds and we have a mortgage. If we sold enough of our portfolio to pay the mortgage balance, we’d still want a 50/50 allocation.
The studies show that an allocation of ~ 40/60 to ~ 90/10 has provided the best margin of safety for a portfolio in retirement. And 95/5 is safer than 20/80.

So what is your basis for saying retired people "should not be heavy in stocks."?

I have not changed my allocation due to a mortgage or not. I see that ~ 70/30 is in the 'sweet spot' historically, so that's about what I aim for.

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Old 09-28-2021, 12:07 PM   #58
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... But not having a mortgage has allowed me to not make any Rollover IRA withdrawals until RMD's at age 72. ....
Wait a minute. Where did the money come from to pay off the mortgage?

People seem to act as if the mortgage payoff money was "found money". It came from your portfolio, and your portfolio can pay the mortgage as well.

And having to pay in a lump could mean considerable cap gains tax.


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When I retired, I retired from many things. I seldom talk on the telephone, for example. And I don't choose to prepare budgets and work in any home office for days on end. Not having that house payment allows me not to have to watch my business so closely. It allows me to just keep life simple.
To each their own, but having a mortgage on auto-pay is pretty simple. OK, I have to make sure I have the extra cash flow, but I'm already doing that for my regular bills, it's a change in amount, not a change in the level of effort.

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Old 09-28-2021, 12:23 PM   #59
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I guess a lot of the decision comes down to how much one is bothered by having "debt".

It wasn't that the debt bothered me. Paying off my house made no difference on my ability to retire one way or the other. My loan was 2.75% 15 year and I had 5 years left to pay. It was $2700 a month

It was more the feeling of accomplishment like you ran a 5K and made it to the finish line. It is the accomplishment of it rather than bothered by the debt.

I know it doesn't make sense to everyone and everyone is in a different scenario and has different things that motivate them

Some people would also call me crazy to buy an 80K Land Cruiser, throw $25K of modifications on it and then go out and offroad it in the rocks, but it works for me
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A Psychological Trick
Old 09-28-2021, 12:32 PM   #60
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A Psychological Trick

DW and I coordinated it so that the mortgage would be paid off upon the retirement of the second of us.

The reason was not necessarily economic in nature, but more of a psychological trick.

With the W2 income coming to an end and replaced by a much smaller company pension for now, the vanishing mortgage payment would tend to "smooth" the cash flow during this transition.

It worked out quite well for us.

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