Talked to 2 Retired Neighbors .. They didn't pay off mortgage, but both have pensions

[Rambler]

It all comes down to personal comfort with risk. If you are comfortable that the money you owe makes more than it costs you, then it makes financial sense to keep the mortgage. Comfortable is the key word.

As for me, I have no pension, mainly after tax investments. They do “currently” make more than a house payment would cost me. But there have been times otherwise as well. I paid off my house in my mid 30s and the DW and I decided to never have a mortgage again on our main home. If we were to ever consider a vacation home, we might consider a mortgage, but not the main home. For us, its just a “comfort” thing.

 

[Koolau]

Right. Plus, what does having a pension have to do with it? Different people will have different amounts from different sources.

I wasn't taking my pension, and I kept my mortgage (until I sold the house this year). I'm planning on getting a mortgage again at these low rates.

-ERD50

Probably right about the wisdom of taking out a mortgage at this time (low rates - impending inflation) but I just don't want to go through that process again. I've made a lot of decisions (for instance NOT over-weighting equities) which have demonstrably cost me money. Having said that, I have "enough" and I am very comfortable with my decisions and prefer my situation as is. I envy folks who can ignore the "stress" of financial moves and just go for it. I'm not that person (usually). I'm sure it will work out for you.

 

[Teacher Terry]

When we retired 9 years ago we bought a house for cash. Fast forward to last winter we divorced and sold the house. I bought a condo and took out a 85k 30 year mortgage because the rate was 2.75%. Financially it made the most sense for me.

 

[Markola]

Every scenario I run shows I’d be worse off if I took a chunk of money earning 7% to pay off a mortgage costing 3.68%.

 

[Montecfo]

I could have paid off the mortgage decades ago. But I keep it because it is at 2.49 pct, and I expect my investments to make more over my time horizon. That and it's an inflation hedge.

And no pension here, retired with investments.

Now, in the old days it was different. I think my first mortgage was at 12 pct, second at 8 pct and there were some 7s and 6s as rates declined in the bond bull market. I made extra payments then, but not this century I don't think.

I know, burning the mortgage can be an important emotional milestone. But I burned the mortgage mentally decades ago, when I had enough in the bank to pay it off.

 

[ivinsfan]

When we retired 9 years ago we bought a house for cash. Fast forward to last winter we divorced and sold the house. I bought a condo and took out a 85k 30 year mortgage because the rate was 2.75%. Financially it made the most sense for me.

Your payment must be pretty tiny with those numbers, nothing to lose sleep over that's for sure...

 

[Koolau]

Your payment must be pretty tiny with those numbers, nothing to lose sleep over that's for sure...

Yes and Teacher Terry gets to pay back her mortgage in less valuable (inflated) dollars. What a great deal!

 

[Scuba]

I could have paid off the mortgage decades ago. But I keep it because it is at 2.49 pct, and I expect my investments to make more over my time horizon. That and it's an inflation hedge.

And no pension here, retired with investments.

Now, in the old days it was different. I think my first mortgage was at 12 pct, second at 8 pct and there were some 7s and 6s as rates declined in the bond bull market. I made extra payments then, but not this century I don't think.

I know, burning the mortgage can be an important emotional milestone. But I burned the mortgage mentally decades ago, when I had enough in the bank to pay it off.

Ditto. We have low rate mortgages on both of our properties and have no intention of ever paying them off early, if at all. We have no kids so if a mortgage is owed when we die, that’s fine with us. We could easily pay off both mortgages but I sleep better at night with maximum liquidity.

 

[street]

Every scenario I run shows I’d be worse off if I took a chunk of money earning 7% to pay off a mortgage costing 3.68%.

Yes, it isn't always a good thing to pay off debt. It the late 80's early 90's interest rates were high. I can't remember what mine was but I paid if off as soon as I could. I really dislike debt but not always a bad thing.

 

[Aerides]

OP you've been around here long enough to know that paying off a mortgage is one topic on which no one agrees.

I'm just amazed that two different neighbors divulged such personal financial details!

 

[pb4uski]

Since money is fungible, it really comes down to the details and has little to do with whether you have a pension or not. If you pay off the mortgage, you have less "other" assets. So it's what you are comfortable with AND the little things like mentioned above: (Repaying debt with inflated dollars is one potential reason to keep the mortgage and your growing non real estate assets.)

Always remember, YMMV.

+1 I had a 3.375% 15-year mortgage when I retired 10 years ago and it didn't bother me a bit. I had it on autopay and it was ~18% of our spend at the time, but since the 18% was budgeted, I hardly knew it was there.

I started my pension a few years later and even though my pension was about the same as our mortgage payments the notion of "Whew, it's nice that the mortgage payments are now covered" never dawned on me.

At the end of 2019 I decided to payoff the mortgage while simultaneously changing my target AA for cash from 5% to 0%... trading off some cash that at the time was yielding 1.7% in an online savings account (0.4% today) for the 3.375% mortgage and accepting less liquidity.

While it is "nice" to not have a mortgage or mortgage payment, I don't at all get the euphoria that some get by being "debt-free". I guess that when we had a mortgage knowing that I could pay it off at any time I wished with a few taps on a touchscreen was good enough for me.

I guess a lot of the decision comes down to how much one is bothered by having "debt".

 

[pb4uski]

Every scenario I run shows I’d be worse off if I took a chunk of money earning 7% to pay off a mortgage costing 3.68%.

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.

 

[Time2]

I tell people if your mortgage rate is low don't pay off your mortgage, I consider anything below 4% low. If you lose your job, you will be glad you have that money in an investment and not in your house. If you lose your job, the bank won't have much interest in loaning you money.
If retired, I still think you are better off financially with a low interest mortgage and investments that are growing more than you mortgage rate.
All that said, we bought our home 27 years ago and paid cash. We fully retired in 2018. Just recently I opened a margin account and borrowed against some mutual funds at 1.99%, then opened a heloc at 0.99% (for 6 months), using that to pay down my margin account. I used the proceeds to mortgage a house for my daughter and son in law at 4%. The house is a fixer upper and the mortgage is 4% 1st year and 6% the 2nd year. I hope they complete the remodeled and get a new mortgage within a year. If it goes 2 years, I would write a new mortgage. Not my plan though

 

[misanman]

Haven't had a mortgage in 20 years or so. And at this point I can't imagine getting one. We do have a $250K home equity line of credit. The interest rate isn't too bad now at 3% but it is not fixed so would only consider using it for short term financial flexibility.

 

[Dash man]

I hate having debt and paid off our mortgage eleven years ago, three years before retirement. I do have a small pension with no COLA, but it barely pays for the property taxes and insurance after income taxes.
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. I think a lot of people get complacent with the huge gains we’ve had these past years and take on more risk. I prefer no debt, especially for the roof over my head.

 

[FANOFJESUS]

I paid mine off. I figure if mortgage rates are higher than a CD why have a CD and a mortgage.

 

[Bamaman]

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.

 

[latexman]

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.

 

[rwdflynavy]

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!

 

[Koolau]

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!

 

[pacergal]

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.

 

[target2019]

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.

 

[daylatedollarshort]

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).

 

[brett]

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.

 

[flyingaway]

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.