Yet another early mortgage payoff scenario

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Yet another early mortgage payoff scenario

Postby MP173 » Sun Dec 30, 2012 7:49 am

My mind is racing this morning and sleep is not an option. I am running thru possible scenarios and fairly certain as to what to do, but not quite certain.

The facts:
I will close (sell) a house that was a primary residence on Jan 2nd. No mortgage is held on it. This was the house my sons and I lived in prior to my current wife and I marrying and purchasing our house 3 years ago. A mortgage is held on our current residence. The original mortgage was 4.5% for 15 years and after 15months we took advantage of lower rates and refied to 3.5% for 10 years.

We have made extra payments on that mortgage and at the current schedule with no extra payments it will be paid off in appx 6 years. The current balance is about $70,000.

We are both 57 years old and have no other debt other than car loan for $10,000. Both our careers are fairly secure, I am in sales (variable income) and she has a stable (for now) career in education. We have no pension and fund our retirement accounts. Our retirement is well funded and I have plans to work for another 8 - 10 years. We have three adult children working and our youngest is a senior in high school with college around the corner. College seems to be funded with savings and potential full scholarship offer (at least for one year).

In addition to well funded 401k, 403b, IRA, and Roths, there is investment property (farm), and other non retirement assets such as I bonds, Vanguard tax free munis, dividend paying stocks, etc. Asset allocation is about 45% /45% with 10% in cash.

We live comfortably but well within our means...."comfortably frugal". We plan to stay in our current home for foreseeable future...our adult kids are all within an hour and the house meets our needs.

The emotions:
I love the thought of being debt free, as does she. With a variable income, it is great to have low fixed personal costs. The house I am selling was where my two boys grew up. There mother died 12 years ago and I took the boys thru the house one last time yesterday. This was "our home" for 25 years.

So, as I write this, it is obvious there is more here than just a "payoff the mortgage or not" scenario. I have no doubts or regrets selling the house, as I did a poor job as a landlord (I was a pushover and was taken advantage of...well documented on this forum).

The decision:
Are there ANY reasons not to payoff the existing mortgage that my wife and I hold? This will transfer some of "my assets" (pre-nup legal stuff) to "our assets" (our home). I feel great about that (yes, pre-nups, while necessary in blended families do create a bit of a "chill" in the air for awhile). The mortgage payoff would consume about 50% of the proceeds, so there will be $$$ left over ( we are going to remodel the master bathroom). The proceeds can easily fund our ROTHs for 2012/2013 and still have proceeds.

My oldest son has struggled, having entered the job market right when the "great recession" hit. He has worked hard and gained some traction, but is pretty much paycheck to paycheck. I co signed for his car loan and am considering eliminating that debt (only about $4000) to free up a little $$$ for him monthly.

The advise:
I really enjoy this forum community and have asked for and offered advise over the years. So now I ask...is there any reason NOT to pay off this mortgage. Yes, the rate is low but the feeling of being debt free is a great one (experienced it on the other home). Probably the biggest struggle I am having right now is whether or not to gift to my boys, as this is their last physical tie to our previous home (and their mother). Yes, she will always be in their memories, but this sale really shuts another door in their lives.

Thanks for putting up with this...I really needed to write this (if you cant tell).

Ed
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Re: Yet another early mortgage payoff scenario

Postby livesoft » Sun Dec 30, 2012 9:14 am

Please pay off the mortgage. -livesoft
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Yet another early mortgage payoff scenario

Postby stevewolfe » Sun Dec 30, 2012 10:08 am

Pay off the mortgage - that's an easier decision to me than paying off your son's remaining car loan balance of $4,000... He's just starting out, many people struggle for a bit and it helps them get their sea legs and keeps them motivated to do better.
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Re: Yet another early mortgage payoff scenario

Postby MP173 » Sun Dec 30, 2012 10:41 am

Thanks.

Just needed to analyze things. Probably more of an emotional issue than a financial issue.

Paying off the mortgage and will pay off the car loan (since I co signed, I am on the paperwork and I would just as soon give him and me a clean start).

Now figuring out what to do with Roth, but that is another issue (and one I will not post).

Thanks,
Ed
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Re: Yet another early mortgage payoff scenario

Postby bsteiner » Sun Dec 30, 2012 11:21 am

There are some reasons you might not want to pay off the mortgage. The interest rate is only 3.5%, or in the 2s after taxes. Over 10 years you're likely to earn considerably more than that after taxes. There's also some option value. In other words, if you have the cash, you can always pay off the mortgage later on, but you'll have the cash in case there's something you need it for. On the other hand, if you pay off the mortgage, you may not be able to borrow the money back if you need or want the money later on. Of course, if you don't pay off the mortgage, but you want to preserve the ability to do so in the future, you can't invest the money too aggressively, or spend it unwisely, but it doesn't sound like you're likely to do either of these things.
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Re: Yet another early mortgage payoff scenario

Postby mbres60 » Sun Dec 30, 2012 11:43 am

I'm going against the tide and say not to pay off the mortgage. Interest rate is low. You are taking $$$ from before the marriage and comingling it with joint assets. You had a prenup for a reason. It helps protect your assets premarriage in case the marriage dissolves or worse. In case of your death your children will not inherit that money which used to be yours alone. I am not a lawyer but those are just some of the things I thought about when reading your post.
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Re: Yet another early mortgage payoff scenario

Postby sscritic » Sun Dec 30, 2012 11:54 am

I didn't have a pre-nup, and I didn't commingle (for the most part). My wife kept her money separate after she sold her house (and later her rental); I kept my money separate when I sold my house. I did put in more for the downpayment on the first house we bought together; we bought it as tenants in common (50-50), so in that sense I commingled my "excess" downpayment.
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Re: Yet another early mortgage payoff scenario

Postby Levett » Sun Dec 30, 2012 12:59 pm

"Probably more of an emotional issue than a financial issue."

Sounds to me like it's both.

Been there. Done that.

Was a widower with three children for 19 years before I remarried (mutually agreed on prenup).

I did eventually sell the family home because we all agreed it was part of moving on (not to be mistaken for forgetting).

You are making a decision for several people.

It wouldn't be a bad idea to have a family gathering and put all your cards on the table. It will be instructive for the entire family.

I wish you all the best.

Lev

P.S. When the "kids" are back in town, they often go back to see the family home. The owner always invites them in. Very nice. :)
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