Dying With a Huge Mortgage

[sengsational]

I'm not sure if I'm posting this because it's funny, or if I'm looking for w*rk. Not like this hasn't been

Without another refinance, I will be 90 years old when my current mortgage is paid off. However, in reality, I will probably die with a mortgage.

Ok, personally and honestly, I no longer have a mortgage. But I respect and admire this guy, who's constantly getting the "cheap money" (as my BIL used to call it) and putting it in his investment bucket to compound.

It's a short read, only 3 minutes, if that. He mentions Dave Ramsey at character 146. No nonsense position. Not that everyone will agree, and as our Hawaiian (<Wow, I spelled that with a red squiggle) friend is fond of saying...YMMV.

https://www.marottaonmoney.com/should-i-pay-off-my-mortgage/

 

[captain3d]

Pineapple on pizza and keep the mortgage as long as possible.

 

[sengsational]

I'm glad you brought up food. Most ER threads end up there anyway. And it will divert attention from the OP. Good move cap!

 

[corn18]

That's my plan. I am 56 and have a $500k 30 year 2.25% fixed rate mortgage. I'll be 85 when it is paid off. Rich, broke or dead says I have a 65% chance of being dead by then. I don't even need to make any money on the $500k. Inflation alone will make this free money. Although we have made $120k since we invested the mortgage money vs paying cash for the house.

 

[Bigdawg]

I'm glad you brought up food. Most ER threads end up there anyway. And it will divert attention from the OP. Good move cap!

I get all that but, when should I take SS??

 

[plex]

Nothing wrong with it per se, because he likely took the cash out at all time low rates and even then invested it, and he even did that into a particularly good bull market. But, he likely won't see the benefit of taking cheap leverage for his investments and he has to consider, if doing it for his heirs/wife? that they will be able to exit the position at the appropriate time. A particularly bad timing for settling the estate would be if his home value drops and it is the middle of a recession too.

 

[Franklin]

!

I liked this article as it sorta goes against the group think. I have investible funds just north if $10MM and still carry a mortgage. The house is not in my mental NW nor is the fixed rate loan. But, I still mentally debate when to take SS

 

[daylatedollarshort]

Witty article! Thanks for posting. With rates rising now we're pretty happy we refinanced last year when mortgage rates bottomed out.

 

[Magus]

Great article and very accurate. The only real risk for this behavior would be another deflationary great depression, but given our central bank today thats highly unlikely (could end up with a depression, just not likely massively deflationary)

 

[Markola]

“Over the past 30 years, the S&P 500 composite total return has gone up over twenty times in value. As Dave Ramsey suggests, I may have paid an additional $68,000 in interest, but having that money invested in the markets over the same time period could have earned over $3.4 million in stock market returns. Being “debt-free” comes at a high opportunity cost.”

Zactly…

 

[homestead]

From the article, "Dave Ramsey is selling peace of mind, but the cost is too high."
Paid off our Homestead in 1988, Peace of mind is priceless to us.

 

[Sunset]

Thank goodness the fellow is an investment guy.... a bit of a self serving article, even if it's true.
I wonder who he would recommend a person invest with

 

[old medic]

I get all that but, when should I take SS??

I would suggest the third Thursday after the 4th Tuesday...

But the dying with a huge mortgage worked for us...
We bought the place for $6500 at auction

 

[Andre1969]

This is the reason why I'm not really in any hurry to pay off my mortgage. Actually, I was just thinking about this, earlier in the morning, because I've refinanced twice, in a short period of time, as interest rates dropped.

First mortgage was taken out in September of 2018, when I bought the house. $472,000 for 30 years at 4.75%. That was bad timing, as that was right about where mortgage rates peaked. In April of 2019, I refinanced to 3.875%. Another 30 year, and back to $472K. It was only paid down to around $468K, so I rolled the closing costs in.

I thanked the mortgage guy, and told him, jokingly, to hit me up again if rates fell below 3%. We both laughed. But the, come late summer of 2020, damn if I didn't get that phone call! 2.875%. By this time, I had the mortgage paid down to around $461K. They wrote the new loan for $468K, but closing costs weren't really $7K, because I remember getting a pretty big check back.

Anyway, now I have the mortgage down to around $455,500, and the final payment is set for October 2050, when I'll be 80. If I had kept the original mortgage, they principal would be down to around $448K, so I figure I'm only about $7500 behind in that respect. But at this point, it's also saving me about $520 per month in the principal+interest payment. Well, okay, probably more like $375, once you figure out the smaller tax writeoff from the lower interest payment.

The idea of being mortgage free does sound like a good idea, from a warm-fuzzies perspective. But I'm not about to blow $455K to pay off a 2 7/8 percent loan!

 

[Optionality]

So I feel there is a bit of a paradox here. On the one hand, I think it makes perfect sense to have a mortgage when you are building up your wealth, as the expected return of the stock market should be higher than that of the mortgage.


However, when you are going to retire, most of the literature suggests to have some percentage of bonds, perhaps 20-30%. Now, the interest on those bonds tends to be lower than the mortgage interest, especially when the taxes are figured in. So from that perspective, it seems to make sense to not have a mortgage when you are retired - why pay to be long and short a bond at the same time? I do understand you can do clever things with the bond/equity ratio during retirement, but it is not clear to me that that could outweigh the flat cost.

 

[NW-Bound]

If a bank would remortgage my paid-for homes, I would have a 7-figure cash loot to invest.

But, but, but, I already have a 7-figure cash AA, with which to write put options to make money.

On a 2nd thought, making 10% on puts with the mortgage money would not be a bad deal either.

Hmm... Is there such a problem as having too much money? What's the drawback?

 

[corn18]

So I feel there is a bit of a paradox here. On the one hand, I think it makes perfect sense to have a mortgage when you are building up your wealth, as the expected return of the stock market should be higher than that of the mortgage.


However, when you are going to retire, most of the literature suggests to have some percentage of bonds, perhaps 20-30%. Now, the interest on those bonds tends to be lower than the mortgage interest, especially when the taxes are figured in. So from that perspective, it seems to make sense to not have a mortgage when you are retired - why pay to be long and short a bond at the same time? I do understand you can do clever things with the bond/equity ratio during retirement, but it is not clear to me that that could outweigh the flat cost.

You don’t need to make more on bonds than the interest rate of the mortgage. Inflation makes the mortgage 0% real rate. Free money. Take the mortgage money and buy a Ferrari.

 

[Markola]

So I feel there is a bit of a paradox here. On the one hand, I think it makes perfect sense to have a mortgage when you are building up your wealth, as the expected return of the stock market should be higher than that of the mortgage.


However, when you are going to retire, most of the literature suggests to have some percentage of bonds, perhaps 20-30%. Now, the interest on those bonds tends to be lower than the mortgage interest, especially when the taxes are figured in. So from that perspective, it seems to make sense to not have a mortgage when you are retired - why pay to be long and short a bond at the same time? I do understand you can do clever things with the bond/equity ratio during retirement, but it is not clear to me that that could outweigh the flat cost.

This sounds like the “house is a bond” model. The way I see it, if one’s AA is the same with or without a mortgage, say 60/40, then the bonds comparison is not relevant. One just has more money in their house and less money in their portfolio. It’s only relevant if one’s portfolio allocation with a mortgage is 60/40 while one’s allocation with a paid off house is 75/25 or something meaningfully more aggressive.

 

[Magus]

So I feel there is a bit of a paradox here. On the one hand, I think it makes perfect sense to have a mortgage when you are building up your wealth, as the expected return of the stock market should be higher than that of the mortgage.


However, when you are going to retire, most of the literature suggests to have some percentage of bonds, perhaps 20-30%. Now, the interest on those bonds tends to be lower than the mortgage interest, especially when the taxes are figured in. So from that perspective, it seems to make sense to not have a mortgage when you are retired - why pay to be long and short a bond at the same time? I do understand you can do clever things with the bond/equity ratio during retirement, but it is not clear to me that that could outweigh the flat cost.

Agreed. This is what I did with my parents bond allocation 18 months ago was to pay off their mortgage...they weren't getting any interest deduction anyway since standard was way higher for them. My mom is a risk adverse person so this was a double win for them. Property tax and insurance for them are about $170 a month combined so they are very happy currently.

 

[street]

If a bank would remortgage my paid-for homes, I would have a 7-figure cash loot to invest.

But, but, but, I already have a 7-figure cash AA, with which to write put options to make money.

On a 2nd thought, making 10% on puts with the mortgage money would not be a bad deal either.

Hmm... Is there such a problem as having too much money? What's the drawback?

I like the idea of making money on a mortgage and thought of doing the same thing with paid off home or property. I would be just put up for collateral.

It does sound like too much work for me. The less I have to deal with business dealings at my age is the way I would go. Not sure I want more and more just means more thinks to take care of.

 

[sengsational]

Thank goodness the fellow is an investment guy.... a bit of a self serving article, even if it's true.
I wonder who he would recommend a person invest with

He's a fee-only fiduciary kind of guy, but might have an AUM pricing model, which would support your bias claim. I'm not a customer, but I've been reading his stuff for decades. His dad did lectures on a cruise, that's how I discovered him.

 

[Out of Steam]

We have a modest mortgage (<$200K) in our early 60s, using some of the equity in our former house to finance our relocation.

At an interest rate under 3%, it's not clear that we should pay it off any faster than required. Though I can see advantages in making prepayments from retirement savings to close it out before we are subject to RMDs.

 

[Lakedog]

A friend and I have discussed this topic a few times over the years. We are both single with no dependents. In our situations, I really don't see any downside to having a huge mortgage at death.

I do not currently have a mortgage since I was competing with others for my current home (bought less than a year ago). If a cash purchase were not necessary, I would have certainly obtained a mortgage with the low rates available. My friend always plans to have a mortgage -- at 65 years old, he also recently bought a house (with a large 30-year mortgage).

 

[flyingaway]

If that is what you want to do, why don't you sell the house, rent a small apartment, and invest the money in the market?

 

[pacergal]

We have a recently refinanced 15 yr mortgage <3%, don't see a reason to pay off early. The budget easily covers the payment, and I still sleep well at night. The mortgage amount is well below value, so if something happened, selling would pay mortgage and kids would get a bundle.
Even in the housing crash, our home maintained good value, thankfully.