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

[Perryinva]

Wow..2% mortgage?!?! Are they that low now? My 2.75 was done in Feb 2021, from a 3.5 in mid 2019. (Which itself was a refi from 4.25 in Oct 2018!). I thought they were drifting up again, but .75 is usually my “worth the whole aggravation thing”. Both refis dropped my payments a total of about $775/mo, & greatly increased the principal pay down rate. (Well , duh!). Last one was with Wells Fargo, and never again with them. This by far the lowest rate I have ever paid, on the largest amount ever borrowed for a mortgage.


But I see where, if you don’t invest in equity return with that money, it is far harder to justify a mortgage. My cash is only earning 1.25% now, and that is earmarked for Roth conversions. Last year, it was at 2.5%, and 2% when I refied.

 

[Magus]

Wow..2% mortgage?!?! Are they that low now? My 2.75 was done in Feb 2021, from a 3.5 in mid 2019. (Which itself was a refi from 4.25 in Oct 2018!). I thought they were drifting up again, but .75 is usually my “worth the whole aggravation thing”. Both refis dropped my payments a total of about $775/mo, & greatly increased the principal pay down rate. (Well , duh!). Last one was with Wells Fargo, and never again with them. This by far the lowest rate I have ever paid, on the largest amount ver borrowed for a mortgage.

Third Federal has 1.99% 5/1 Smart Rate ARMs currently in NC and I think any state they do mortgages in (smart rate arms can relock for 60 more months at going rates for $295 at any time), 15% down minimum to get no PMI (vs 20% elsewhere).

 

[Andre1969]

I was going through a bunch of junk mail the other day, and had come across a mortgage offer for 2.25%. I'm already at 2.875%, and this drop would have saved me about $185/mo, if I wanted to punch it back out to another 30 year. But, I've already refinanced twice.

First mortgage was 4.75%, and the Principal+Interest was around $2465/mo.
Refinance #1 (early 2019) was 3.875%, and the P+I was around $2222/mo.
Refinance #2 (September 2020) was 2.875%, and P+I was around $1942.
2.25% would take me down to around $1754/mo.

I forget how old that piece of junk mail was, though. I had been letting it pile up a bit.

Maybe I'd better start paying attention to those mortgage offers again! Although, I have a feeling rates are up a bit by now. And even at 2.25%, it's not like saving ~$188/mo is enough to make or break me.

 

[youbet]

Bottom line: our approach is not for everyone, but I think it made great sense for us

Your approach is paying off a (relatively speaking) high interest loan. Why is that not for everyone?

 

[ERD50]

.... Something else that might be missing from this conversation is home value/potential mortgage value as a % of investable assets. Folks with home value as low % of net worth might find the arbitrage not worth chasing.

A $ is a $.

I think the question is whether the expected range of $ savings is worth chasing, and how much work is the "chase"?

Multi-millionaires will rationally try to save a few $ (even pennies) on a small purchase, if there is little work/risk involved. Why not? Why pay more, even if it is a small relative amount? It all adds up.

-ERD50

 

[thatguy]

We bought a house the same year I retired in 2001. The adjustable rate mortgage was at 5% for 7 years. Since it started adjusting it has been around 3% for several years, but creeped up to 4%, peaked at 5.25% one year. Just before 3 rate increases, I paid down the balance a little so the payment wouldn't increase. Now it's back at 2.625%. i expect next year to be the same. I feel that spending money to pay down the balance a little has worked out better than paying the cost of a refi.
The mortgage payment is 13% of our after tax income from our pensions & my social security.
The balance is down to $70k and we have more than enough cash to pay it off if we decide to.

 

[cyber888]

We bought a house the same year I retired in 2001. The adjustable rate mortgage was at 5% for 7 years. Since it started adjusting it has been around 3% for several years, but creeped up to 4%, peaked at 5.25% one year. Just before 3 rate increases, I paid down the balance a little so the payment wouldn't increase. Now it's back at 2.625%. i expect next year to be the same. I feel that spending money to pay down the balance a little has worked out better than paying the cost of a refi.
The mortgage payment is 13% of our after tax income from our pensions & my social security.
The balance is down to $70k and we have more than enough cash to pay it off if we decide to.

Good job, man. I'm not retired yet, but planning to next year. I have $72K in my Heloc at 2.24% now (variable rate based on prime -1.01%), and I hope to get it down to $50K-$55K if I push thru with retirement next year. The minimum payment is like $279/month and hope to get it down to $250/month. I paid $0 to close on the HELOC.

 

[cyber888]

Nice, that you don't have a mortgage .. yeah, I heard about people doing reverse mortgages. I suppose she's happy with her house.

We are in our 60’s and haven’t had a mortgage since 2004. It feels great. We have no pensions either. And our cars were purchased with cash- 2013 and 2016 ( that one bought used).

On the other hand I have a friend in her 70’s. Never married and no kids. She bought her current house with a reverse mortgage for purchase, which I had never heard of. She put a big down payment down, after selling her former home, then the bank took care of the rest. She dies, the bank gets the house and she doesn’t care.

 

[Koolau]

A $ is a $.

I think the question is whether the expected range of $ savings is worth chasing, and how much work is the "chase"?

Multi-millionaires will rationally try to save a few $ (even pennies) on a small purchase, if there is little work/risk involved. Why not? Why pay more, even if it is a small relative amount? It all adds up.

-ERD50

I think some folks find it enjoyable to play the game (and especially to win - whatever that means.) Within reason, I'll try to enhance my savings but I don't go for that last few cents because it requires more w*rk - and I'm retired! I would never criticize anyone else for maximization - it's just not my thing. Otherwise, I'd probably be richer. But, of course, I have enough so I'll spend more time relaxing that playing the game. YMMV

 

[WhenIsItTime]

A $ is a $.



I think the question is whether the expected range of $ savings is worth chasing, and how much work is the "chase"?



Multi-millionaires will rationally try to save a few $ (even pennies) on a small purchase, if there is little work/risk involved. Why not? Why pay more, even if it is a small relative amount? It all adds up.



-ERD50

Insert picture of time > money. I’m in that camp. Furthermore, I hate loans and owing somebody. I really embrace the FI in FIRE.

As a business, leverage is necessary to fulfill growth expectations. I supported that for 24+ years. As an individual, I prefer no loan payments and a stronger stock % in my AA, since I don’t need as much cash in medium term to make payments or to weather a crash.

I see this as two viewpoints. Certainly not trying to sway your opinion. Give or take AA, I agree S&P 500 historically has beat current mortgage rates. I think folks need to be careful about trading their mortgage money. That is a third option I hazard to say we agree is not wise.

 

[pb4uski]

Debt should not scare anyone who has many times more in their investments/bank accounts than the amount owed.

+1 Just knowing that I could pay off any debt that I had at any time that I wanted with a few clicks was enough to make me very comfortable carrying a mortgage. That said, I did pay it off early for other reasons and think it was a good decision, but I never got the euphoria that many posters claim from being "debt-free".

 

[ERD50]

Insert picture of time > money. ....

I believe I covered that in my post: "I think the question is whether the expected range of $ savings is worth chasing, and how much work is the "chase"?" . If it isn't worth the time/effort to you to apply for a mortgage, don't do it. Simple.

... Furthermore, I hate loans and owing somebody. I really embrace the FI in FIRE. ....

Holding a reasonable sized low rate fixed mortgage isn't taking anyone from FI to not-FI.

As pb4uski just posted:

... Just knowing that I could pay off any debt that I had at any time that I wanted with a few clicks was enough to make me very comfortable carrying a mortgage. ...

It isn't rational to "hate loans", it's not a reason to not hold a mortgage into retirement. If you don't want to, up to you.

... I think folks need to be careful about trading their mortgage money. That is a third option I hazard to say we agree is not wise.

Not sure what you mean. "Trading" your mortgage money for what?

-ERD50

 

[Rocky mtn high]

Nothing wrong with having a mortgage. I didn’t want to have the fixed cost each month as I don’t have a fixed monthly income yet.

 

[daylatedollarshort]

Some strategic debt doesn't bother me, as long as our total net worth is in good shape. When we were both on ACA plans, and the maximum income limits were lower, we had a HELOC and would use the Discover balance transfers at 3% to free up cash as needed so we wouldn't go over the ACA income (actually MAGI) cliff. Not going over the ACA cliff shaved $24K a year off our ACA premiums. That extra after tax $24K, less the much smaller Discover and HELOC interest, helped me sleep better at night.

 

[WhenIsItTime]

I believe I covered that in my post: "I think the question is whether the expected range of $ savings is worth chasing, and how much work is the "chase"?" . If it isn't worth the time/effort to you to apply for a mortgage, don't do it. Simple.







Holding a reasonable sized low rate fixed mortgage isn't taking anyone from FI to not-FI.



As pb4uski just posted:





It isn't rational to "hate loans", it's not a reason to not hold a mortgage into retirement. If you don't want to, up to you.









Not sure what you mean. "Trading" your mortgage money for what?



-ERD50

“Trading” = buying and selling stocks for short term profit. You are so adamant to communicate your binary views you even argue me on “trading”.

I’m going to go pound sand.

 

[ERD50]

“Trading” = buying and selling stocks for short term profit. You are so adamant to communicate your binary views you even argue me on “trading”.

I’m going to go pound sand.

I wasn't arguing, I was looking for clarification. "Trading" could be looked at several ways, like "trading" the 'security' of the paid off mortgage against the 'risk' of the market. In almost every post I've made on the subject, I've talked about the 20 and 30 year rolling returns in the market - "short term trading" in that sense never entered into it. So yes, it was not clear to me, it's not where my mind was at.

So with that clarification, I agree with you. I wouldn't want to day trade or use any other short term approach with that money, or any other money for that matter (money is fungible).

Also not sure what you mean by "binary view". I said "If it isn't worth the time/effort to you to apply for a mortgage, don't do it. " I'm leaving it open. Well, OK, I guess you either have a mortgage or you don't - that's binary. But I somehow don't think that's what you mean?

-ERD50

 

[youbet]

I did pay it off early for other reasons and think it was a good decision, but I never got the euphoria that many posters claim from being "debt-free".

+1

We're eye-to-eye here. I paid off a mortgage (many years ago) when the balance was low just to have one less thing on my investment tracking sheet. It certainly brought on no euphoria. I mentioned it to DW later that day and it didn't get a rise out of her either.

I'll guess that many of those that experience an emotional high from paying off a mortgage derive it from the fact they took the mortgage and held it through years when they could not have easily paid it off. That feeling that the mortgage has control of their lives persists even when the loan later represents a tiny percentage of their net worth. Eliminating the mortgage frees them from the historically based feeling of lack of control.

I'm always happy for folks who can achieve the ability to "sleep well at night' or achieve "peace of mind" by eliminating a loan from their balance sheets. But it just doesn't apply to me personally.

What did give both DW and I an emotional high was taking out a mortgage. We married young and were living in a one bedroom walk-up in Chicago. This was before we started the family and we were both working. We saved like crazy and in two years got together enough to put one-third down on a house in the suburbs. Hard work, frugal living and a cooperative bank = out of the flat in the city and into our own home on a large lot. We loved it and were thankful to have that mortgage which made it possible. It would have taken us years longer to have saved enough to pay cash for the house.

 

[pb4uski]

....I think folks need to be careful about trading their mortgage money. ...

“Trading” = buying and selling stocks for short term profit. You are so adamant to communicate your binary views you even argue me on “trading”.

I’m going to go pound sand.

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.

 

[captain3d]

I have concluded people feel...

Paid off house = more security but less freedom (money is tied up)

Keep the mortgage = more freedom (money available for many choices) less security (outside forces have influence on home)

Rent = Max freedom, least security

 

[2177V]

I have concluded people feel...

Paid off house = more security but less freedom (money is tied up)

Keep the mortgage = more freedom (money available for many choices) less security (outside forces have influence on home)

Rent = Max freedom, least security

I kindly disagree with "Paid off house = more security but less freedom (money is tied up)"

Reason: If you take out a HELOC or Home Equity Line of Credit from a bank with no bank fees, you can then borrow against your house by simply writing a check. This means money is NOT tied up and the bank will generally give you a HELOC up to 80% of the value of the house.

The interest you pay on a HELOC is about 1/2% to 1% more than a 30 year mortgage but if you do NOT borrow, you pay ZERO monthly payment. You get both security of a paid off mortgage and freedom to borrow money against your house anytime you want.

I have done this numerous time against the multiple properties that I own to buy houses with 100% cash. When you buy a house with 100% cash, I can generally bid $20,000 to $30,000 less than another buyer who has to apply for a mortgage. This is because I can close escrow in a week or two with 100% cash while the other buyer need a month or two and the other buyer may not have his loan approved by the bank which represents a risk to the seller.

 

[captain3d]

If you take out a HELOC

Do you consider a house to be paid off if you have borrowed money against it? For me a Heloc clearly moves you into the second category of NOT paid off home = More freedom.

 

[Timeisprecious]

I think some folks find it enjoyable to play the game (and especially to win - whatever that means.) Within reason, I'll try to enhance my savings but I don't go for that last few cents because it requires more w*rk - and I'm retired! I would never criticize anyone else for maximization - it's just not my thing. Otherwise, I'd probably be richer. But, of course, I have enough so I'll spend more time relaxing that playing the game. YMMV

+1

 

[2177V]

Do you consider a house to be paid off if you have borrowed money against it? For me a Heloc clearly moves you into the second category of NOT paid off home = More freedom.

You missed my point that if you do NOT borrow from the HELOC, you pay no monthly payments and the house is free and clear. Only if you borrow money against the HELOC, then the house is considered not paid off as you suggested. However, a line of credit is different from a mortgage in your credit ratings. Once you demonstrate that the mortgage is paid off and the house is free and clear, your credit ratings goes way up because you have demonstrated financial responsibilities and you have capable resources. If you then take out a HELOC, your credit rating does not go down as much.

You also missed my main point that a house that is free and clear does NOT tie up your money in your original post. I do not want to argue with you since these are fine points which we are splitting hairs. All I can say is that I have used HELOCs to borrow money when investment opportunities arises and made much more money if I did not have a HELOC and I only have a regular mortgage.

This is how some rich folks increase their net worth by using their collateral in such a way that they profit from their investments. As an example: If the HELOC interest rate is 2.5% a year and there is an investment opportunity of making 10% a year with relatively low risk, then people tend use their HELOC to make 7.5% a year. This is how some rich folks get richer.

 

[captain3d]

You missed my point that if you do NOT borrow from the HELOC, you pay no monthly payments and the house is free and clear. Only if you borrow money against the HELOC, then the house is considered not paid off as you suggested. However, a line of credit is different from a mortgage in your credit ratings. Once you demonstrate that the mortgage is paid off and the house is free and clear, your credit ratings goes way up because you have demonstrated financial responsibilities and you have capable resources. If you then take out a HELOC, your credit rating does not go down as much.



You also missed my main point that a house that is free and clear does NOT tie up your money in your original post. I do not want to argue with you since these are fine points which we are splitting hairs. All I can say is that I have used HELOCs to borrow money when investment opportunities arises and made much more money if I did not have a HELOC and I only have a regular mortgage.



This is how some rich folks increase their net worth by using their collateral in such a way that they profit from their investments. As an example: If the HELOC interest rate is 2.5% a year and there is an investment opportunity of making 10% a year with relatively low risk, then people tend use their HELOC to make 7.5% a year. This is how some rich folks get richer.

I fully understand. If you do not use the Heloc you are in the first group. If you do use the heloc you are in the second.

But you are free to switch as long as the bank does not close the heloc the way they did in the last housing melt down.

 

[2177V]

I fully understand. If you do not use the Heloc you are in the first group. If you do use the heloc you are in the second.

But you are free to switch as long as the bank does not close the heloc the way they did in the last housing melt down.

Yep…during last housing melt down, I was buying properties like crazy when home values fell 50% using my HELOCs on my numerous properties that I own. However, Bank of America got wise and they did freeze one of my HELOCs so there was one house that I could not buy. They eventually restored my HELOCs after adjusting the value of my properties. It does happen but not very often and a 50% return is rare. Nowadays Most of my real estate returns are in the 10 to 15% range while paying 2-1/2 to 3% interest rates on my HELOC.