Pay off house?

[youbet]

You know, I can see presenting one’s reasons in good faith for making a decision when someone like the OP is considering his or her own decision. I can’t see ridiculing people who present those reasons, especially considering that decision was made and acted on long ago and obviously works for DH and me. But maybe that’s just me. So I’ll stop.

Happy holidays.

Oh, don't be sensitive....... I was just being a bit sarcastic and I apologize. There are lots of good reasons for borrowing money and for not borrowing money. And I agree that reducing cash flow needs would be a reason to not have a loan, such as a real estate mortgage, that requires periodic payments. I just never thought of having to actually sell equities in a down market to make a payment because I had nothing else to sell such as fixed investments or common bank instruments or whatever from a diversified portfolio. But it could happen I suppose.

Your strategy works for your DH and you, and that's what counts!

 

[ERD50]

You seem to be forgetting that 100% of the people that were foreclosed on by banks had a mortgage. The OP is talking about buying individual stocks, is the success rate also 100% on all individual stocks over a 30 year period?



That same success rate of having a paid off home is 100% for any time frame, not 5,10,20 or 30 year period, the return may be less but it's guaranteed.



The OP can invest the money he's saving in rent/mortgage payments.

This sort of weak, convoluted response is what makes me feel I'm very right.

What the heck does "100% of the people that were foreclosed on by banks had a mortgage" have to do with anything? It's meaningless tautology.

People with paid for homes have lost them if they could not maintain them, afford insurance, or pay their property tax or utilities. So? What does your 'guarantee' get you?

We are talking about a decision where people have plenty of resources to pay off the mortgage, not someone who can't afford to do either. This isn't like buying a lottery ticket, history says the low rate mortgage holder has extremely fantastic odds of coming out ahead. And extremely low odds of going bad in any significant way. Even the 10 year rolling returns have only seen a few sub 4% return periods, and the very few negative periods were less than ~ 2% negative. The risk, though not zero, is pretty tame.

You are free to pass up on the historically good deal. I don't care. But I hate to see it misrepresented for other people to read.

-ERD50

 

[SmallCityDave]

This sort of weak, convoluted response is what makes me feel I'm very right.

What the heck does "100% of the people that were foreclosed on by banks had a mortgage" have to do with anything? It's meaningless tautology.

People with paid for homes have lost them if they could not maintain them, afford insurance, or pay their property tax or utilities. So? What does your 'guarantee' get you?

We are talking about a decision where people have plenty of resources to pay off the mortgage, not someone who can't afford to do either. This isn't like buying a lottery ticket, history says the low rate mortgage holder has extremely fantastic odds of coming out ahead. And extremely low odds of going bad in any significant way. Even the 10 year rolling returns have only seen a few sub 4% return periods, and the very few negative periods were less than ~ 2% negative. The risk, though not zero, is pretty tame.

You are free to pass up on the historically good deal. I don't care. But I hate to see it misrepresented for other people to read.

-ERD50

Perhaps you lack reading comprehension.

 

[MichaelB]

Have people been eating kale salad with grouch dressing for lunch? A little holiday friendliness would be nice. I also suggest some take a refresher of this
.
.

 

[BeachOrCity]

Some of the arguments that advocate investing the money rather than paying off the mortgage are akin to “I prefer a 100% stock allocation because that always outperforms a mixed bond and cash and stock allocation over 30 year periods”. But 100% stock aa is not wise for an early retiree is it?

As I stated previously look at your target and actual asset allocation then compare it adjusting bond allocation down by the amount of your mortgage on your principal residence. Use these before and after allocations to decide if paying off the mortgage brings you closer or further from your aa target.

As long as you have sufficient liquid reserves this is the most non emotional way to look at this.

 

[pb4uski]

This sort of weak, convoluted response...

... A little holiday friendliness would be nice.

I thought characterizing the response as weak and convoluted was generous ... the last sentence of the response was good but the rest of it was bunk.

 

[SmallCityDave]

I thought characterizing the response as weak and convoluted was generous ... the last sentence of the response was good but the rest of it was bunk.

Well that's alright I guess I don't have a dog in this fight, my answer is based on what's worked for me.

 

[ivinsfan]

The tone of some of these posts makes you think that these posters are using their own money to pay off or not pay off other people's houses.

It Christmas, put on your Santa hats.....

 

[2177V]

I had a similar situation: I owned a house with a mortgage and a rental house that paid the monthly mortgage. I decided to sell the rental house and I used the proceeds to pay off the mortgage because I was approaching retirement. About 3 years after the sale, the market price of both houses skyrocketed and I would have been better off keeping the rental house. However, I had piece of mind which was good for me psychologically plus I had more retirement cash flow. I only recommend that you should ask yourself what is more important to you. (1) piece of mind? (2) cash flow? (3) potential equity growth? (4) future use of the rental house for relatives? (5) cash leftover from the proceeds for other investments? As you can see, there is easy answer. Talking to a CPA is an option because the CPA account for taxes. The CPA fee is between $70 to $130 an hour and it has been my experience that the CPA will think of options that I had not thought of.

 

[joeea]

I've been making double payments (or more) on my 15-year mortgage to get it paid off in 6.5 years. I have 4 payments left. For me it's a mental/emotional thing. I feel that I can't truly be "FI" if I'm obligated to make monthly payments on something.

Many (most?) people give up some financial gains for mental/emotional reasons. It makes perfect sense as long as you understand that's what you are doing.

Good for you. I hope it gives you the relief/pleasure/comfort you are seeking.

 

[SmallCityDave]

Many (most?) people give up some financial gains for mental/emotional reasons. It makes perfect sense as long as you understand that's what you are doing.

Good for you. I hope it gives you the relief/pleasure/comfort you are seeking.

Something to be said for not having any debt!

 

[Teacher Terry]

Our house was paid for but when interest rates went to 3% we took a 30 year mortgage and pulled out 100k. If I ever can’t make a 400 /month mortgage it won’t matter which way I went plus I doubt either of us will live that long.

 

[2177V]

When I was working and younger, I can easily handle complex debt and financial issues. However, now that I am retired and financially independent, the last thing I want on my mind is complex debt and financial issues when I am on a beach and looking at the girls. You will discover that there are other things that become more important than money.

 

[Morricol61]

Slightly different thought to most - have you considered selling your principal residence and moving into the debt free rental?

 

[candidman]

If we see another 2008 crisis, which looks kind high right now, you may be stuck with a house with no renters, which could take away from the 350K you earned so far from renting it. I have a feeling your asking this question because of what's been going on a Wall Street. My brother got hit with this situation resulting from 2008, and wounded up having to pay the monthly mortgage for a couple of years. But this was a fixer upper, so it may not apply to you.

Btw, I paid off my mortgage in 2006, and I have absolutely no regrets. I guess I don't have the nerves of a tenant.

 

[brucethebroker]

... now that I am retired and financially independent, the last thing I want on my mind is complex debt and financial issues when I am on a beach and looking at the girls. You will discover that there are other things that become more important than money.

So....Oggling girls on the beach has only RECENTLY become more important to you than money?

 

[2177V]

No way I will move into the rental because the rental is like a slum while my principle house is upper middle class. I either rent or sell the rental.

 

[2177V]

brucethebroker...Very good response. Here is another joke....

My Will specify that I be cremated and my ashes scattered on a beach...where the girls in bikinis lay their butt on.

This is much better than being in a box and saves my family the cost of a casket and a burial plot. ; )

 

[HI Bill]

Wow, this turned into an emotional thread. There is a market risk with real estate and with the markets. What if both fall together, which is looking more and more likely? The loss of the mortgage interest deduction and asset risk when you are very close to retirement may not be a risk the OP wants to take. Given the hassles of being a landlord, and having to pay $2k less each month for the mortgage, along with not worrying about real estate values would make paying off the mortgage worthwhile for me, especially with the markets recent instability.

 

[joeea]

Something to be said for not having any debt!

Sure. Some folks are bothered by debt more than others.

Those folks are willing to pay a premium for the privilege of saying they are "debt free".

Others would rather not pay that premium and aren't bothered by reasonable debt.

 

[joeea]

When I was working and younger, I can easily handle complex debt and financial issues. However, now that I am retired and financially independent, the last thing I want on my mind is complex debt and financial issues when I am on a beach and looking at the girls. You will discover that there are other things that become more important than money.

True. As some folks get older, they are no longer capable of handling the normal bill paying process.

If paying the monthly mortgage bill has become too complex for you to handle, then it makes complete sense to use up some of your assets to pay off the mortgage. You might also want to pay for help with other complex financial tasks.

You could consider having someone computer-savvy help you set up your bank account to auto-pay all your recurring bills. Perhaps a younger relative that you trust can help.

 

[Henry Lili]

I did a fair amount of research on the topic five years ago. I decided to pay it off given that home equity would by just north of 10% of net worth. Of course, if I simply put it in an S&p 500 my net worth would be higher. Still, I sleep well at night. No regrets.

 

[almost there]

Agree, paid off my house. Then the rental. May have made more in the market.
But both have gone way up over the years. And I sleep like a log.

 

[FinancialDave]

I am at a crossroad on whether to pay off our primary house. DW and I have a rental property that we own free and clear that generates $1000 per month after tax cash flow. Our current P&I payment on our primary house is $2000. If we sell the rental, we would have enough cash after the capital gains and depreciation recapture to pay off our primary house. Looking for thoughts from others who have been in a similar situation.

What I didn't see anyone ask is what are you doing with the $1000 per month now? Is it all going toward the mortgage?

IMHO you should never have a paid off rental with a mortgage on your primary UNLESS you are ok moving into the rental. This is how many were "out in the street" in 2009-2010 when they lost their job and couldn't pay the mortgage.

The above aside, because it is water under the bridge, the math hardly ever favors taking a huge lump sum and paying off a mortgage, especially while you are still working. That is why I would favor sticking with the rental a little longer and paying down the mortgage with the thousand a month.

Did I just say that because I hate owning rentals

I basically went the investment route (didn't pay down the mortage while working). Retired in 2012 and with the huge market gains in 2012 & 2013 paid off the mortage over a two year time span, mainly to keep taxes down. That was obviously a risk, but I took it as a small one. Now after a 10 year bull market, I don't see any huge gains in our future, so sinking the money into investments would not be my first choice, at least for your stated situation.

Dave

 

[GR111]

My brain said we could make enough in the market to cover the mortgage, & tax benefits, etc. but my heart said pay it off and have one less thing to worry about. So in our case we paid it off to reduce stress. For us - seekers of the simple life - it was the right choice.