Paying off the mortgage early grows in popularity

[REWahoo]

OK, maybe 'paying down the mortgage' is more accurate...

Americans are paying down their mortgages. According to Freddie Mac, a record 50% of all refinancings in the fourth quarter of 2010 resulted in smaller loans than the previous mortgage. These are "cash-in" refinancings, the opposite of the cash-out refis of the late, lamented housing boom. Until the collapse of housing, cash-in refis never really exceeded 20%, but, since 2009, they have consistently been higher.

Why?

...some of this comes from necessity. With reduced home values, refi applicants often need to put in equity to meet loan-to-value requirements. But the bigger factor is thrift. The millions of boomers headed for retirement want to conserve their wealth, and paying down the mortgage can be a good way to do that.

Paying Down the Mortgage - Barrons.com

I thought this quote from a related article was an interesting observation:

America's baby boomers, the largest and richest generation in history, are entering a new phase of their lives. With retirement approaching fast, the boomers are adopting the fiscal habits their parents were known for. (We all eventually become our parents, it just took the boomers a little longer than past generations.)

 

[Marita40]

I'm in the "can't wait to pay off the mortgage" camp. Just refinanced and have about three years left--counting down the months!

 

[LOL!]

I'm not sure that following the herd is the right thing to do here. Mortgage interest rates are at an all time low. If there was ever a better time to have mortgage, I don't know when it was. Folks should be out there maximizing their borrowing, then waiting for interest rates to go up while sitting on a nice sub-4% mortgage.

 

[W2R]

At last, people are starting to see things my way. Next I expect everyone will be ditching their credit cards, too.

 

[Midpack]

That last OP quote sounds like good news for the long run (though maybe not for the short run).

We paid off our 30 year mortgage in about 16 years, if was exhilarating. We were fortunate...

America's baby boomers, the largest and richest generation in history, are entering a new phase of their lives. With retirement approaching fast, the boomers are adopting the fiscal habits their parents were known for. (We all eventually become our parents, it just took the boomers a little longer than past generations.)

 

[treypar]

I have two months left. It will be a great day when the mortgage is gone.

 

[REWahoo]

At last, people are starting to see things my way. Next I expect everyone will be ditching their credit cards, too.

They'll do that right after they give up indoor plumbing...

 

[freetodream]

Paying of our mortgage was one of the very best financial decisions I've ever made. I don't care if it goes against what the experts say- debt free is debt free!

 

[W2R]

They'll do that right after they give up indoor plumbing...

You still have that?

Paying of our mortgage was one of the very best financial decisions I've ever made. I don't care if it goes against what the experts say- debt free is debt free!

That's how I feel too, but I think we may be in the minority here.

 

[cocobird]

One consideration before completely paying off the mortgage is whether you think you'll need to borrow again or whether your credit score is used for other purposes. If you pay off a mortgage or other large installment debt, then it may affect your ability to borrow later. Although the pay-off shows on the credit history, the more time passes, the less consideration is given by the creditor because it does not represent your current financial condition or reliability.

We've paid our interest only mortgage down to $72 and now make minimal reductions. The balance is so small, the floating interest rate is easily handled. Yet we've ensured that the mortgage looks great (balance compared to original loan), show ongoing current payment activity, and continues to be reflected in our credit reports.

 

[pb4uski]

I'm not sure that following the herd is the right thing to do here. Mortgage interest rates are at an all time low. If there was ever a better time to have mortgage, I don't know when it was. Folks should be out there maximizing their borrowing, then waiting for interest rates to go up while sitting on a nice sub-4% mortgage.

LOL, we certainly seem to be in the minority. I just refi'd in January for 15 years at 3.375%. If my incremental investments generate more than 3.375% on average over the next 15 years, then I figure that I am ahead. If i can't do that then the mortgage will be the least of my worries. I get the peace of of mind others get by being mortgage free by knowing that I could pay it off with a few clicks of a mouse anytime I want.

 

[REWahoo]

One consideration before completely paying off the mortgage is whether you think you'll need to borrow again or whether your credit score is used for other purposes. If you pay off a mortgage or other large installment debt, then it may affect your ability to borrow later.

Set up a HELOC to hedge your bets...

 

[scrabbler1]

My original mortgage on my co-op apartment back in 1989 was nearly 11% on a 5-year ARM. Interest rates fell quickly and I did a refi in 1992 to 6% on a 1-year ARM, saving me $200 a month.

By 1997, the interest rate has crept up to around 8% but once I realized that the lost tax savings from paying off the mortgage due to being able to switch to the standard deduction on my state return was nil, I paid of big chunks of the mortgage in 1997, finishing it off in 1998, just 9 years after I first got the loan.

With my salary rising a lot in the mid-1990s (I was still working FT), one biweekly paycheck now easily covered all my monthly expenses with room to spare, enabling me to replenish the accounts used to pay off the mortgage. That and the booming stock market got me back to where I was pretty fast.

I saw paying off the mortgage (becoming debt-free) as a big step toward being able to ER because having such greatly reduced expenses made it easy to switch to working PT starting in 2001, 3 years later.

 

[Nords]

OK, maybe 'paying down the mortgage' is more accurate...
Why?

Well, this might make a really boring article for the media, but maybe the reason refis are cash-in now is because the lender charges more for a cash-out... including an appraisal and a higher interest rate. I remember this issue in at least two of our recent refis. We made sure to set the refi amount low enough that the new balance was less than the old by $1000 or so. With one of them the delays made that problematic.

But I'd rather read articles about the New American [-]Cheap[/-] Frugality movement.

I think we Boomers became our parents when we had to start trusting anyone over thirty. Especially when we were over 30.

Hey, should we start a "dead equity" thread to balance out the debate?

 

[Bikerdude]

I'm not sure that following the herd is the right thing to do here. Mortgage interest rates are at an all time low. If there was ever a better time to have mortgage, I don't know when it was. Folks should be out there maximizing their borrowing, then waiting for interest rates to go up while sitting on a nice sub-4% mortgage.

+1..

 

[ERD50]

Set up a HELOC to hedge your bets...

A thread a while back took the shine off that apple. HELOCs were getting frozen, right when people needed them the most.

Paying of our mortgage was one of the very best financial decisions I've ever made. I don't care if it goes against what the experts say- debt free is debt free!

I think the experts would agree that 'debt free is debt free'! Little debate there

But if that was one of the very best financial decisions you've ever made, I feel sorry for you. I hope you are selling yourself short with that comment.

That's how I feel too, but I think we may be in the minority here.

LOL, we certainly seem to be in the minority.

Persecution complex? Funny that people on either side of the issue feel they are in the minority. But we are all above average too, so it's OK.

-ERD50

 

[racy]

Investing in paying off my mortgage is 5.25% guaranteed return (ok, a bit less with the tax deduction). Looks better to me than alot of other choices lately. 23 months to go!

 

[REWahoo]

A thread a while back took the shine off that apple. HELOCs were getting frozen, right when people needed them the most.

Mine wasn't - but then that may have been due to the fact my mortgage was paid off.

 

[HpRyder]

I refi'd about 3 yrs ago at 4.5% for 30 yrs. Its the cheapest money I've gotten in years. I'm not paying it off as long as it's subsidized and I'm making 20% in equities with it.

 

[W2R]

That's how I feel too, but I think we may be in the minority here.

LOL, we certainly seem to be in the minority.

Persecution complex? Funny that people on either side of the issue feel they are in the minority. But we are all above average too, so it's OK.

Interesting! Apparently pb4uski is right. I did a search, and found out that according to this bankrate article, most retirees in fact do NOT have mortages and so presumably do not want them.

About 25 percent of those of any age who considered themselves retired had a mortgage.

 

[Wendy]

I just started posting here but I've been reading the "mortgage pay-off?" threads on er.org for years. The one big lesson I took away from all the discussion and debate is that the decision isn't automatic, but rather depends on your individual situation. You don't *have* to pay off your mortgage when you retire, just like you don't *have* to work until age 65 or beyond. That's been helpful to keep in mind as I'm polishing our ER plan.

 

[Mulligan]

I bought my house new about 8 years ago. I pay a couple hundred extra a month. I imagine I will get it paid off just in time to free up money to pay for new siding, new shingles, new garage door, etc etc. So the payments will probably never end.

 

[misty57]

LOL, we certainly seem to be in the minority. I just refi'd in January for 15 years at 3.375%. If my incremental investments generate more than 3.375% on average over the next 15 years, then I figure that I am ahead. If i can't do that then the mortgage will be the least of my worries. I get the peace of of mind others get by being mortgage free by knowing that I could pay it off with a few clicks of a mouse anytime I want.

We were in the pay-off camp when interest rates were historically high in the 80s and even after they dropped as low as 9%. We paid off the mortgage on our first home in 12 years and on our second home in 2.5 years; but we're in absolutely no hurry to pay this one off. We are extremely fortunate that we could pay it off if we wanted to; we simply choose not to.

 

[chris2008]

If we pay off the mortgage we can save the interest.
These days people realize that, even though the interest rate may be low, it is a guaranteed return of investment.
Some years ago people believed that they could make better profit if they paid interest on the mortgage and invested their own money elsewhere.
It is just a change of perspective, sometimes learned the hard way.

 

[RetireBy90]

I refi'd about 3 yrs ago at 4.5% for 30 yrs. Its the cheapest money I've gotten in years. I'm not paying it off as long as it's subsidized and I'm making 20% in equities with it.

Same here, I did a refi at 4.5 and plan to ride it for full 30 years, but I'm not getting a 20% return. If you can get the historical 6-8% return from your portfolio, and da man is kicking in 30% of your interest expenses. Some I know that have retired can't itemize any more without a mortgage, so that % of tax savings would go up. So...in my simple mind it is a 3% mortgage, with my portfolio due to return 6-8%, it is a free 3-5%.

However, I understand the logic of less bills/debts in RE. If you sleep better knowing you don't have a mortgage, drive on. That income stream to pay the mortgage has gotta be solid as steel.