Talked to 2 Retired Neighbors .. They didn't pay off mortgage, but both have pensions
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Late to the discussion, but isn’t the catch here though that the rates aren’t fixed? With some of the recent articles in wsj etc on living on margin loans, we looked into this, but the non fixed rate aspect concerned me. Also the hassle of moving money. Will have to look at the discussion on bogleheads and see where else people are negotiating these rates.
I also use HELOC to make money in the stock market. If there is a 15% market correction in the S&P500 tomorrow, I am the kind of guy who would borrow $250,000 from my HELOC off my rental properties at 2-1/2% per year which is about 0.2% per month. If the S&P500 then recovers after 1 month, I will make $37,500 and pay back the HELOC and my interest cost is only $500 so my net profit is $37,000.
I do not borrow off my principle home. This is because if my gamble goes wrong, I may have to sell my house and move. However, if the HELOC is against one of my rental properties, I may have to sell that rental property so the tenant will have to move or rent from the new owner. My original point is that owning properties free and clear does NOT tie up your money.
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DH has a pension. We paid off our mortgage a long time ago. The rates were much higher then.
When we got the mortgage, I was handed an amortization sheet. I studied it, and saw by making additional payments early on, we would save a great deal in interest expense. The total to be paid to the bank, w/o additional payments, was multitudes of the original loan. So after funding my 401k; I made extra payments on the principal.
Conversely, I am not an investment maven; and had no knowledge of investments, asset allocations or otherwise, at the time we purchased the house. It seems that a number of posts include the assumption that the mortgagors will invest the funds not used to pay off the mortgage, wisely and profitably. Obviously, a number of forum members here have.
Antidotally, I have been aware of certain persons have (based upon information they have themselves provided) used that available money to buy extra toys (fancy cars, vacations, etc.) rather than to invest in the market.
As far as a sense of accomplishment or "euphoria" that's a personal thing - and the value of such can only be assessed by the particular person involved.
YMMV.
When we got the mortgage, I was handed an amortization sheet. I studied it, and saw by making additional payments early on, we would save a great deal in interest expense. The total to be paid to the bank, w/o additional payments, was multitudes of the original loan. So after funding my 401k; I made extra payments on the principal.
Conversely, I am not an investment maven; and had no knowledge of investments, asset allocations or otherwise, at the time we purchased the house. It seems that a number of posts include the assumption that the mortgagors will invest the funds not used to pay off the mortgage, wisely and profitably. Obviously, a number of forum members here have.
Antidotally, I have been aware of certain persons have (based upon information they have themselves provided) used that available money to buy extra toys (fancy cars, vacations, etc.) rather than to invest in the market.
As far as a sense of accomplishment or "euphoria" that's a personal thing - and the value of such can only be assessed by the particular person involved.
YMMV.
I understand your point that there are borrowing options but paid off is a binary state. It is either paid off and your money is tied up to remain paid off.
Or
It is borrowed against and it is no longer paid off.
People who want a paid off home do not borrow against it.
That is their choice. But they are missing out on investment opportunities to increase their net worth.
Most people buy a starter home and sell their starter home to buy a bigger home. However, what I did is keep my starter home and rent it out. Eventually the tenant pays for the mortgage on the starter home and you end up with two houses that is free and clear instead of one.
I then have used the equity in the rental house to buy a third house and later invest in the stock market so my family is pretty well off. My daughter is going to college and I brought her a townhouse with 100% cash so she will never have to pay rent or a mortgage in her life. She is renting out two of her three bedrooms to two college students so she can invest her rental income in the stock market. Since she is still in her 20’s, her future look pretty good. A little sacrifice at the beginning generally pays off big time years later. Knowing how to use a HELOC for investment opportunities can dramatically improve your standard of living for yourself and your children. Like I stated…that is their choice on whether or not to use a HELOC for investment opportunities.
I am fully in the camp of investing rather than paying off your home. So much so that I have bought (with loans) rental property for investment but never a home to live in.
HCOL areas typically have ‘cheap’ rent compared to the cost of the building. Roughly 0.30% of the purchase price/month where I am.
Our out of state rentals operate at approx 1% of price/month so it does not make investment sense to tie up money in a personal home or even waste a good mortgage on a personal home compared to a rental.
But that is because I am coming from the money freedom and less security point of view
I fully respect that others want the security of a paid off home as a priority and accept less money freedom to achieve the goal.
HCOL areas typically have ‘cheap’ rent compared to the cost of the building. Roughly 0.30% of the purchase price/month where I am.
Our out of state rentals operate at approx 1% of price/month so it does not make investment sense to tie up money in a personal home or even waste a good mortgage on a personal home compared to a rental.
But that is because I am coming from the money freedom and less security point of view
I fully respect that others want the security of a paid off home as a priority and accept less money freedom to achieve the goal.
Markola
Thinks s/he gets paid by the post
I haven’t borrowed against the house to buy equities, and probably wouldn’t, but we have used HELOCS and cash-out refinances to good effect many times to fix up our residences, make them more enjoyable and drive up their market values.
REWahoo
Give me a museum and I'll fill it. (Picasso) Give
Crickets...
RetiredAt55.5
Full time employment: Posting here.
That’s me. I am retired and have a six figure pension and little in my 403b. My pension more than covers my expenses. I never worried about having a mortgage in retirement. I moved from California to Texas and I pay less in expenses plus no state income tax. I bought a new home in Texas with a 15 year 2.5% interest rate. It’s been great!
Because my pension covers all expenses, my wife’s 401k will be our inflation protector. For some, a pension can withstand a mortgage, it just depends on your specific situation.
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I’d be finding something fun to do with it like going to rodeos, traveling, and other fun stuff. Oh wait, I’m doing that already so I’d probably just keep it in the bank.
WhenIsItTime
Recycles dryer sheets
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Thou doth protest too much. Even with your explanation above I still don't know what trading mortgages is... what you wrote make no sense at all and ERD50 was just seeking clarification.... not criticising.
Though now after reading ERD50's post I think I have an idea what you are talking about... but I had no idea from what you wrote.
So yes, please go pound sand to your heart's content.
Nice of you to speak up here. You still have some spunk!
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
With over 30,000 posts, speaking up has never been an issue.
dheb
Recycles dryer sheets
Maybe a better question than "why would we pay 3% for a mortgage" is "why have your money in cash paying 0.5%"? My annual returns have averaged over 10%, going back to the 90s.
whenicandave
Confused about dryer sheets
Depends where you are in the mortgage. If you are well into it the interest has already been paid at beginning and now you are just paying principal.
Paid off our house in 2007 and retired last December at 61.5
Emotional financial decisions should not be made in my opinion. That's how people end up house or car poor. Always live within your means.
Paid off our house in 2007 and retired last December at 61.5
Emotional financial decisions should not be made in my opinion. That's how people end up house or car poor. Always live within your means.
Have you consider VCMDX as your inflation protector? VCMDX is commodity based, highly leveraged, that uses derivatives. I have over $200K invested in VCMDX because government is printing money like heck...which I believe is inflationary. The 1 yr returns are 48% so I am a happy camper. VCMDX is based on speculation that inflation will continue....so I will be ready to sell in a heartbeat if inflation starts to level off. May be better than depending on your wife's 401K as a hedge against inflation. Just a thought.
Sirka
Recycles dryer sheets
Well, I got out of California munis and didn't renew CDs; because interest rates were going up. Oops that didn't work out. So here I am stuck with very low interest rate.
It is going to work out when we have a correction [emoji38]
It is going to work out when we have a correction [emoji38]
Sirka
Recycles dryer sheets
BTW long term returns are great [emoji106]
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
What was your return in 2008? 2002?
I agree with your strategy of making additional payments to pay off your mortgage as soon as possible. Paying a mortgage payment is like putting money into a “forced saving account”. This is because part of that mortgage payment is equity. I also agree that some people buy toys with their extra money and ended up worst off than people who pays a monthly mortgage payment and use their extra money to invest. This is why carrying a mortgage into retirement can be a good thing because it also forces people to live below their means. Without paying a mortgage payment after the house is free and clear, it is human nature to spend the extra money on something else. Unfortunately that something else may not have a return of investment.
The euphoria of paying off your house can be a mirage if people are not careful. My own euphoria is increasing my net worth which may involve increase my debt while also increasing my assets at the same time. I also believe inflation may be coming and inflation actually helps people with debts because their debts tend to be fixed while the value of their assets tend to rise with inflation depending on what type of assets you own. Unfortunately stock and bonds do not rise with inflation as much as hard real estate properties.
Where does the escrow fit into this equation? I have $80,000 left on a 2.75% mortgage. Payment is $1050 of that $450 is escrow for taxes and HOA so if mortgage is paid off I still owe $5000 a year, plus I need to handle all the payments and paperwork.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
^^^ Absolutely. Getting online and ordering a check for property taxes once a year and scheculintg my 4 HOA payments for the year is a HUGE hassle... costs me about 5 minutes of my life each year... outrageous. I wish I had never paid off my mortgage! The escrow company is your friend. 
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I haven’t had an escrow in over 20 years. My experience is that mortgage companies are very indifferent about escrow accounts these days. I remember jumping through hoops and having to pay a fee to waive escrow years ago. Lately all I have to do is ask. Maybe it comes with being a longtime homeowner. I know many folks think it is a convenience for the mortgage company to pay T and I, but I feel just the opposite. I hate the thought of money accumulating in an escrow account at 0% to pay my ginormous property tax bill. I can self escrow and at least earn 0.5%.
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