Take out 15 year Mortgage in time we have left?

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mickeyvee
Posts: 97
Joined: Fri Dec 10, 2010 4:22 pm
Location: Fountain Hills, Arizona

Take out 15 year Mortgage in time we have left?

Post by mickeyvee » Sun Sep 23, 2018 8:10 pm

Hi All,
I was reading an existing post Should we temporarily reduce our retirement contributions in order to pay off our $400k mortgage in 7 years?, asking the question “Should we temporarily reduce our retirement contributions in order to pay off our $400k mortgage in 7 years?” They’re 33, married with a 1yo. I didn’t want to hijack the thread but I started thinking….

I’m 64 and my wife is 57, living in our future retirement home. I plan to work 3 more years and my wife 62 is planning another 5 years. Our dream home has a $390k mortgage (30 year fixed 3.75%). Currently, we’re contributing to ROTH, 401k and taxable savings (total $2,000/mo). Our portfolio is at $1m with 30% in ROTH.

The provocative question is, should we try to pay down our mortgage more aggressively and only contribute to the 401k match in our remaining years? This would lower our expenses in retirement but minimize our retirement savings accumulation during the time we have left.

I foresee living in our house for another 15 years. Thoughts?

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delamer
Posts: 6138
Joined: Tue Feb 08, 2011 6:13 pm

Re: Take out 15 year Mortgage in time we have left?

Post by delamer » Sun Sep 23, 2018 11:03 pm

Here’s how I’d look at the decision, whether you keep the same mortgage or refi. There is no obvious answer —

Would you be able to pay off the mortgage by the time you are both fully retired if you dropped your retirement contributions?

**If no, then what would be the advantage of prepaying?

**If yes, then take a look at your expected expenses in retirement both with and without the mortgage. Compare those with your expected income from Social Security and pensions.

How much do you need to withdraw from your portfolio under each scenario to cover the difference between expenses and SS/pensions?

Then look at your expected portfolio under each scenario.

What withdrawal rate would you need under each scenario:

Mortgage paid off, but smaller portfolio?

Mortgage in place, but larger portfolio?

JoeRetire
Posts: 1598
Joined: Tue Jan 16, 2018 2:44 pm

Re: Take out 15 year Mortgage in time we have left?

Post by JoeRetire » Mon Sep 24, 2018 7:26 am

mickeyvee wrote:
Sun Sep 23, 2018 8:10 pm
I’m 64 and my wife is 57, living in our future retirement home. I plan to work 3 more years and my wife 62 is planning another 5 years. Our dream home has a $390k mortgage (30 year fixed 3.75%).
So your "dream home" is your current and future retirement home?
The provocative question is, should we try to pay down our mortgage more aggressively and only contribute to the 401k match in our remaining years?
Are your investments returning more than 3.75% ?
I foresee living in our house for another 15 years. Thoughts?
What happens after 15 years?

mickeyvee
Posts: 97
Joined: Fri Dec 10, 2010 4:22 pm
Location: Fountain Hills, Arizona

Re: Take out 15 year Mortgage in time we have left?

Post by mickeyvee » Mon Sep 24, 2018 8:14 am

Thanks for getting back to me.
delamer: I agree. As I was typing my post, I was thinking projections just like you suggested. I have to create some scenarios over and run them over 20 years.

JoeRetire: Answers to your three questions:
So your "dream home" is your current and future retirement home?
Yes, we moved to AZ 2 years ago and bought this house. We are both still working.
Are your investments returning more than 3.75% ?
Yes they are.
What happens after 15 years?
I will turn 80 and will probably sell the house and downsize.
Life - Can't live with it...can't live without it!

JBTX
Posts: 4043
Joined: Wed Jul 26, 2017 12:46 pm

Re: Take out 15 year Mortgage in time we have left?

Post by JBTX » Mon Sep 24, 2018 12:16 pm

mickeyvee wrote:
Sun Sep 23, 2018 8:10 pm
Hi All,
I was reading an existing post

Code: Select all

https://www.bogleheads.org/forum/viewtopic.php?f=2&t=259369
, asking the question “Should we temporarily reduce our retirement contributions in order to pay off our $400k mortgage in 7 years?” They’re 33, married with a 1yo. I didn’t want to hijack the thread but I started thinking….

I’m 64 and my wife is 57, living in our future retirement home. I plan to work 3 more years and my wife 62 is planning another 5 years. Our dream home has a $390k mortgage (30 year fixed 3.75%). Currently, we’re contributing to ROTH, 401k and taxable savings (total $2,000/mo). Our portfolio is at $1m with 30% in ROTH.

The provocative question is, should we try to pay down our mortgage more aggressively and only contribute to the 401k match in our remaining years? This would lower our expenses in retirement but minimize our retirement savings accumulation during the time we have left.

I foresee living in our house for another 15 years. Thoughts?
No.

Admiral
Posts: 1369
Joined: Mon Oct 27, 2014 12:35 pm

Re: Take out 15 year Mortgage in time we have left?

Post by Admiral » Mon Sep 24, 2018 1:18 pm

Currently, we’re contributing to ROTH, 401k and taxable savings (total $2,000/mo).
This is a problem as I see it. Assuming you can afford to do so, you should be maximizing your retirement contributions. As you are both over 50, that's $18,500 + $6000 catch up EACH, or $49k. You're only saving half that (unless you meant $2000 each month PER PERSON).

Why would you pre-pay a 3.75% loan when you can defer taxes at your marginal tax rate (which is presumably much higher than 3.75%)?

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