DW worried about What if ...? Wishes to pay off mortgage

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
frugaltigris
Posts: 92
Joined: Fri Sep 01, 2017 8:44 am

DW worried about What if ...? Wishes to pay off mortgage

Post by frugaltigris »

Hi Everyone,

I apologize that some of these will be newbie questions. I have learned a lot on this forum which has benefited me a lot, but as you will realize I am novice on some basic things. Please help with your advise and as always be kind to this newbie's stupid questions.

We are in early 40's and have a single child (10 years old). We have almost no friends due to our busy life. Relatives are all in India and not permanent residents of the USA (no SSN). We are going to stay in USA forever.

Most of the decisions about finance are taken by me following mostly what I have learned on this forum (Thanks to all!). We max out our 401k, my 403b, 457, Roths and contribute to maximum in 529. No debt except mortgage which is 110K left at 3.5% interest. Net worth is about 500K. My job is pretty stable (state employee). She is in a private sector. Since we live frugally and save decently, I debated on paying off mortgage early last year. But, thanks to the responses here I decided not to. Instead I opened a taxable which now has sufficient monies to pay off the mortgage completely. I have understood the power of liquidity as well as power of TLH. But I am financially illiterate on estate planning, which needs to be done soon.
We have no will or trust either.

My wife sometimes gets worried about what if something happens to both of us like we die together, leaving our child even without a home not paid off. She thinks it is best to pay off the mortgage as soon as possible instead of investing in a taxable. Is this something which can be taken care of via estate planning? Or do you think that it is better to have peace of mind and at least secure the home for our child by paying it of fully?

Further, what should be the steps for a novice like me to start estate planning?

Thanks veyr much for your suggestions and advise.
Goal33
Posts: 1487
Joined: Sun Apr 12, 2015 12:30 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Goal33 »

I don't think your 10 year old will be living at home if the two of you die together... Either way, sounds like you can afford to redirect new money and would have it paid off rather quickly.

My thought is it doesn't make a huge difference either way. Do whatever you want.
champion_ham
Posts: 88
Joined: Thu Apr 26, 2018 11:55 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by champion_ham »

If it helps you sleep better at night, pay off the mortgage. I think it’s a great idea to be completely debt free.
User avatar
FiveK
Posts: 10343
Joined: Sun Mar 16, 2014 2:43 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by FiveK »

If the worst happens and you both die, the primary consideration at this age should be "who will take care of your child?" That is something you can specify in a will - presumably after you have talked to the person(s) who you will specify.

In all likelihood, your current house would be sold because your child would move in with someone else. No need to pay off the house now due to this scenario.

Talking with a few local attorneys who specialize in estate planning, then working with the one who seems the best fit for you, is a reasonable way to start. Good luck!
User avatar
batpot
Posts: 1179
Joined: Thu Jul 11, 2013 8:48 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by batpot »

This is exactly what term life insurance is for.
User avatar
greg24
Posts: 3934
Joined: Tue Feb 20, 2007 10:34 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by greg24 »

You need to get a will completed, outlining who would care for your child if something were to happen. That should be job #1.

Term life insurance to provide financial support for the child is #2.

I think paying off the mortgage is a fine idea. But not really a plan for your child if you both were to pass.
KlangFool
Posts: 17865
Joined: Sat Oct 11, 2008 12:35 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by KlangFool »

batpot wrote: Fri Apr 19, 2019 11:45 am This is exactly what term life insurance is for.
+1,000.

KlangFool
adamthesmythe
Posts: 3780
Joined: Mon Sep 22, 2014 4:47 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by adamthesmythe »

Definitely term life insurance. A house is no good to a kid until he/she is at least 21. Until then living expenses, a guardian, and ideally enough for college is much more important.
DesertDiva
Posts: 928
Joined: Thu Mar 01, 2018 12:49 pm
Location: In the desert

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by DesertDiva »

batpot wrote: Fri Apr 19, 2019 11:45 am This is exactly what term life insurance is for.
+1 Yes - term life is the solution to paying off the mortgage if one of you dies. You may already have life insurance options through your employment.

Estate planning is needed to provide for your child in the event of an untimely death. Consult an attorney.

The decision to pay off your mortgage or continue carrying it is highly personal and the merits of both approaches have been discussed extensively on this forum. You need to discuss this with your spouse to determine your goals and tolerance towards mortgage debt. It is probably the "least worst" form of debt you can have; however, many will argue that there is a psychological benefit to not having a mortgage. Decide together what is in your best interests for your long term goals
User avatar
BL
Posts: 9523
Joined: Sun Mar 01, 2009 2:28 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by BL »

Do you each have some kind of term life insurance? Many have a certain amount free at work. Others find an INDEPENDENT life insurance agent that can shop various companies for you, or use something like term4sale.com to search for possibilities. You might want 10-20 years coverage of more than your mortgage.

You should probably see a lawyer to set up the necessary legal documents for will, and guardian of child and someone to handle her money. There are "do-it-yourself" books, but I think they are most useful in getting you to start thinking about the issues, so you are more knowledgeable when you see an estate lawyer. Especially since you have a younger child, there are some important issues that a lawyer can do best. Here is a popular book with software, Quicken WillMaker Plus 2019 and Living Trust software
by NOLO. You probably don't need a Living Trust, so there may be a cheaper version available. (Quicken Willmaker Plus 2019 Edition: Book & Software Kit Fourteenth Edition $49.24 at Amazon.com.) I would caution you to have it done by a recommended attorney, because you don't know what you don't know, and it will be too late when mistakes show up. Your library may have copies of this rather expensive book. (I don't think I paid that much for a similar book a few years ago.)

There is a mathematical best choice on paying off the mortgage, and a important psychological one as well. Consider both. Having life insurance in place could help as that could pay off the mortgage.

You might like having a book by Jane Bryant Quinn on hand as a handy easy-to-read reference on personal finance. Here is one: Making the Most of Your Money Now: The Classic Bestseller Completely Revised for the New Economy
by Jane Bryant Quinn | Dec 28, 2009
Last edited by BL on Sat Apr 20, 2019 12:48 pm, edited 1 time in total.
User avatar
RickBoglehead
Posts: 5608
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by RickBoglehead »

As stated, a 10 year old isn't going to be living in the house, so paying the mortgage off accomplishes nothing. It's time for estate planning, starting with WHO is going to take care of our child, followed by ensuring that your assets are protected for her and allocated to her properly until she obtains some age where she is now able to handle the assets she inherits.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Quaestner
Posts: 259
Joined: Tue Jul 18, 2017 6:39 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Quaestner »

Getting an estate plan was an uncomfortable expense for us. But being able to set up a trust to specify things about guardianship for our kids, how much they would inherit at particular ages/stages of life, taking care of medical directives, etc. gave us peace of mind that was worth it. I agree with others that term life insurance is important in your situation. It would give the child/guardian flexibility in the event you both die early. Your family's current investment strategy seems sound. However, its your wife's money too, and what you perceive as optimal might not be optimal from her point of view. If you do pay off the mortgage early, enjoy the peace of mind and don't look back about what the money might have later earned.
mega317
Posts: 4582
Joined: Tue Apr 19, 2016 10:55 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by mega317 »

Do I understand correctly that in one year you contributed $66,000 to retirement accounts, plus a 529, plus at least $110,000 in a new taxable account?
https://www.bogleheads.org/forum/viewtopic.php?t=6212
User avatar
JoeRetire
Posts: 5799
Joined: Tue Jan 16, 2018 2:44 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by JoeRetire »

frugaltigris wrote: Fri Apr 19, 2019 11:21 amWe have almost no friends due to our busy life.
I find this sad. We all have busy lives. Make time for friends - you'll benefit in the long run.
But I am financially illiterate on estate planning, which needs to be done soon. We have no will or trust either.
Yes. With a young child, you need to get these things done now. If you haven't already taken care of life insurance for yourself and your wife, make sure that gets done quickly too.
My wife sometimes gets worried about what if something happens to both of us like we die together,
She is right to be worried about that.
leaving our child even without a home not paid off. She thinks it is best to pay off the mortgage as soon as possible instead of investing in a taxable.
I don't see how a paid off home benefits a child who just lost both parents. A child cannot live in a home alone - paid off mortgage or otherwise.
Is this something which can be taken care of via estate planning?
Certainly, estate planning can provide a solid plan for care of your child in the event of your demise.
Or do you think that it is better to have peace of mind and at least secure the home for our child by paying it of fully?
No.
Further, what should be the steps for a novice like me to start estate planning?
Talk to an estate attorney. They will likely give you a checklist of decisions you must make.
Most important - who cares for your child if you should die?
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Starfish
Posts: 2002
Joined: Wed Aug 15, 2018 6:33 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Starfish »

You don't need to pay off your house, you need about 10 years of term life insurance to cover mortgage, tuition, cost of living etc, estate planning and to find somebody to take care of the kid in case of.
User avatar
Toons
Posts: 13802
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Toons »

I prefer having a paid off home.
You have "options"
once done.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
lazydavid
Posts: 3352
Joined: Wed Apr 06, 2016 1:37 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by lazydavid »

Toons wrote: Fri Apr 19, 2019 12:42 pm I prefer having a paid off home.
You have "options"
once done.
:happy
Options that are completely irrelevant with regards to estate planning for a 10 year old.
Retired2013
Posts: 244
Joined: Sat Dec 12, 2015 2:53 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Retired2013 »

When DW turned 40, she said she wanted the mortgage paid off. Cashed in the taxable accounts and paid off the mtg. We became debt free. However, we then directed all future mtg payments back to the taxable account.

Very happy and no regrets.
Olemiss540
Posts: 1507
Joined: Fri Aug 18, 2017 8:46 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Olemiss540 »

With a NW of only 500k including the house at your age, I would be more worried about the low liquidity/investments versus the house payment.

Keep sending every additional dollar ramping this up for the next 5 years and then reconsider if it is still bothering you both.

And get life insurance.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Topic Author
frugaltigris
Posts: 92
Joined: Fri Sep 01, 2017 8:44 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by frugaltigris »

Dear All,

Thanks very much for all the suggestions. They are very helpful.

I have some questions: Is it fine if we have employer based life insurance (which we currently have of 500K each) or shall we get a separate term life insurance independent from employer?

Is it possible to include non-US residents (those without SSN) in wills?

Thanks
codedude
Posts: 69
Joined: Thu Jan 26, 2017 9:15 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by codedude »

frugal,

Employer provided insurance is fine for now, but it being group insurance will slowly start costing you more in premiums as you age. Plus if lose a job etc you won’t have coverage.

If you are in good health, you should try to get level term life insurance while you are younger.

You can add anyone in your will.
User avatar
Noble Knight
Posts: 55
Joined: Wed Feb 20, 2019 9:31 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Noble Knight »

If you want to limit your available money and remove your money from the stock market instead of paying a fixed interest rate...by all means pay off your mortgage.
fundseeker
Posts: 875
Joined: Mon Dec 24, 2007 9:02 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by fundseeker »

Glad to hear you have life insurance, but I'll bet it's expensive. Even if it is free or low cost, term from a company other than your employer is best since you can lock in 20 or 30 years at today's low price and it'll never change, and will not be affected by changing jobs. You can get quotes online to get an idea of the cost, and then go through the health questionnaires and blood tests after you select a high quality insurance company (e.g., Protective Life or USAA, if you qualify to become a member).
Jack FFR1846
Posts: 12693
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Jack FFR1846 »

To retain the liquidity you have, take out a no cost HELOC, then pay off the mortgage. We still have a HELOC that we opened in 1996.
Bogle: Smart Beta is stupid
smitcat
Posts: 6533
Joined: Mon Nov 07, 2016 10:51 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by smitcat »

lazydavid wrote: Fri Apr 19, 2019 1:04 pm
Toons wrote: Fri Apr 19, 2019 12:42 pm I prefer having a paid off home.
You have "options"
once done.
:happy
Options that are completely irrelevant with regards to estate planning for a 10 year old.
Agreed - a paid off home in this case is not advisable.
student
Posts: 5162
Joined: Fri Apr 03, 2015 6:58 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by student »

You are doing fine so either way is fine. With the information that you have presented, personally I would not do it until it drops to below $50,000 (mostly for psychological reasons).
Last edited by student on Sun Apr 21, 2019 7:28 am, edited 1 time in total.
fru-gal
Posts: 1590
Joined: Wed Jan 02, 2019 9:48 pm
Location: New England

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by fru-gal »

fundseeker wrote: Sat Apr 20, 2019 7:14 am Glad to hear you have life insurance, but I'll bet it's expensive.
When I worked for Megacorps, a year's salary as life insurance was zero cost. However, it vanishes immediately if you lose your job and it is nowhere enough to provide for your child if one or both of you die.

I am always astonished at people who have kids and no will/trust or provision for who gets the kids if both die. I guess they think they are immortal.
Dottie57
Posts: 9210
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Dottie57 »

greg24 wrote: Fri Apr 19, 2019 11:55 am You need to get a will completed, outlining who would care for your child if something were to happen. That should be job #1.

Term life insurance to provide financial support for the child is #2.

I think paying off the mortgage is a fine idea. But not really a plan for your child if you both were to pass.
+1

Please start the process for a will ASAP. Close second is term lif insurance. Paying off mortgage is fine - only use money you would send to a taxable account. I paid mine off early and am glad I did.
tibbitts
Posts: 12014
Joined: Tue Feb 27, 2007 6:50 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by tibbitts »

Maybe I missed it but nobody is dealing with the only issue you really asked about: the international implications of a will or trust designating custody and inheriting assets. Specifically the terms-and-conditions for India (taxation, etc.)
Chris001122
Posts: 230
Joined: Tue Mar 09, 2010 12:50 pm
Location: The Upcountry, South Carolina

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by Chris001122 »

My employer provides around 1x my salary for free, but some experts recommend you have 6x to 7x salary in term life insurance for each spouse. It's pretty affordable. I think we pay around a $1100 a year for 6 x my salary 6 x my wife's salary. The 1x is covered by my employer's policy. The idea is that the living spouse would supplement their salary or even could quit their job and live off the interest for several years to care for the child.

I also recommend getting your will done and your wife's. The question will come up about an executor and guardian for the child if you did both pass at same time. It could be a relative in India or someone here that you would trust to care for your child and make sure they are well-cared for. We did this a few years back and listed my wife's sister for both roles.

I am impressed with your progress on the other facets of your financial plan. I wish I was this focused on saving sometimes.
"It's always been a mistake to bet against the United States since 1776." - Warren Buffett
aristotelian
Posts: 8093
Joined: Wed Jan 11, 2017 8:05 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by aristotelian »

Pay off mortgage vs keep cash vs investing has no effect on your net worth. It's just a matter of risk tolerance. One concern is liquidity. If something were to happen to you, a cushion for your spouse and heirs could be nice to have.
lakpr
Posts: 6072
Joined: Fri Mar 18, 2011 9:59 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by lakpr »

I will add just this. The $110k mortgage that you have at 3.5% interest, is not fetching you any tax benefit. I suspect that you took the standard deduction on your tax return for 2018. In other words, you are paying a 3.5% after tax rate on your mortgage. Divide it by the 1 - sum of your Federal marginal rate and your State marginal tax rate. I suspect it is at a minimum 27% (22% federal + 5% median state tax rate). The 3.5% tax rate is actually a 4.8% tax rate in disguise!

3.5%/(1 - 0.27) = 4.79%

As other posters mentioned, paying off or keeping the mortgage is not going to make a difference to you either way. But by paying off your mortgage, it is the equivalent of having $5k more in salary per year.

Put another way, you are paying $5k every year for absolutely no benefit.

For this reason alone, pay it off.
Last edited by lakpr on Sat Apr 20, 2019 11:45 pm, edited 2 times in total.
User avatar
FiveK
Posts: 10343
Joined: Sun Mar 16, 2014 2:43 pm

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by FiveK »

lakpr wrote: Sat Apr 20, 2019 11:39 pm Put another way, you are paying $5k every year for absolutely no benefit.
That's not quite true. Money not used to pay extra on the mortgage may be invested and earn more than $5K/yr. Whether it will earn that or not is what leads to the never-ending debate....
smitcat
Posts: 6533
Joined: Mon Nov 07, 2016 10:51 am

Re: DW worried about What if ...? Wishes to pay off mortgage

Post by smitcat »

FiveK wrote: Sat Apr 20, 2019 11:43 pm
lakpr wrote: Sat Apr 20, 2019 11:39 pm Put another way, you are paying $5k every year for absolutely no benefit.
That's not quite true. Money not used to pay extra on the mortgage may be invested and earn more than $5K/yr. Whether it will earn that or not is what leads to the never-ending debate....
Yup - not accurate. Without asking if the OP is in a non performance state and not knowing his/her future job stability or future inflation rate stating absolutes like this are very misleading.
Post Reply