A strategy to pay off home at retirement?

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Pepitoperez
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Re: A strategy to pay off home at retirement?

Post by Pepitoperez » Mon Oct 08, 2018 5:42 am

jvini wrote:
Sun Oct 07, 2018 4:07 pm
Hi. I just posted this on a similar post, but maybe it seems relevant to your situation. Hope so.

I just paid mine off. After considering the variables, including peace of mind, it made sense.

I want to retire (or at least feel very comfortable doing so) in 5 years. I'll be 57. For the past 19 years we have never paid extra on our mortgage, but rather invested any extra, along with maxing 401ks and contributing to a brokerage account, every month. Now that we have about 2 million saved, also have enough for two private colleges, and have benefited from one of the longest bull markets in history, we felt it was time.

Rather than rebalance into bonds this year (I rebalance yearly usually) we sold 300k in etfs and paid off the house (worth about 1 million).

Yes, I could have left that 300k invested and kept the mortgage (3.75%). But as we near retirement, we didn't want to risk retiring just as the market crashed and we watched our portfolio lose that 300k. We would have kept invested, knowing it would come back, but all things considered, it just seemed like the right time. And going forward we keep investing a large amount each month, including the extra money that was going towards the mortgage. It's a never ending debate on this great site, with good points on both sides. Thoughts on this post are very welcome. Thanks!
I value all of the opinions, you are correct it is a never ending debate, very good input. And thanks to everyone for taking the time to write back.

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randomizer
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Re: A strategy to pay off home at retirement?

Post by randomizer » Mon Oct 08, 2018 5:52 am

I like living debt-free, but when the interest rate is low enough it makes a lot of sense to pay the debt off slowly as possible. I think your rate is in the ball-park where you could make the argument for going either way. If the psychological benefit of being debt-free is worth it to you (a very personal thing), then it makes sense to pay off the mortgage. On the other hand, if the debt doesn't weigh on you psychologically I think you should pay it off as slowly as possible. The other thing you could consider would be to split the difference and pay it off faster but not all at once; for example, excess returns of dividends above the expected could be directed towards the mortgage, or you could set up a schedule (independent of returns) that would make one extra payment per quarter (or whatever other schedule takes your fancy; it's basically arbitrary).
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dratkinson
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Re: A strategy to pay off home at retirement?

Post by dratkinson » Mon Oct 08, 2018 6:48 am

runner540 wrote:
Sat Oct 06, 2018 5:07 pm
dratkinson wrote:
Sat Oct 06, 2018 8:04 am
Generally, I like the idea of being mortgage-free in retirement. One less thing to worry about.


Idea. You might be able to have your cake and eat it too. How? Maybe consider paying off your house with a reverse mortgage.

I have no idea how the numbers work out. Don't know if a RM is a good idea if it's more expensive than your home mortgage. So decision may depend upon the situation you want to leave for your heirs.



Welcome.
Um, what?!? Are you a salesperson of reverse mortgages? Please explain how borrowing against the home pays off that home.

Not a salesman, just an idea. And not claiming it to be the best idea.

I think these are the major points.
--RM pays off the bank mortgage which requires monthly payments. Which leaves savings intact.
--And replaces it with a RM which does not require monthly payments, and is repaid when house is sold after last person leaves it.


If OP had liquidity issues, then
--RM let's him keep his savings---doesn't tap it to pay off mortgage---so has more liquidity wiggle room.
--Not having a monthly mortgage payment adds to liquidity wiggle room.
--Home's built-up equity---in excess of mortgage payoff, if taken in RM---adds to liquidity wiggle room.
--With excess liquidity wiggle room, may be able to delay SS until age 70---which adds to liquidity wiggle room.


My neighbor (surviving widow) went through this recently.
--Paid off home, but not enough saved to live comfortably, and things were tight with (reduced) SS.
--RM (?60-70%? of appraised value) taken like HELOC---monthly amount to checking to make ends meet.
--Executor paid off RM when house sold.
--Believe heirs were happy with inheritance---didn't hear them complain about RM cost reducing it.

It was this forum that helped my neighbor set up RM.


Pepitoperez wrote:
Sat Oct 06, 2018 5:03 pm
...
Liquidity should not be an issue. Thanks.
At the time of my reply, I was assuming worst case. But logically, as OP has subsequently identified that liquidity is not an issue, then RM idea can be rejected in favor of better ideas.



Edit.
Last edited by dratkinson on Mon Oct 08, 2018 8:55 pm, edited 1 time in total.
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goblue100
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Re: A strategy to pay off home at retirement?

Post by goblue100 » Mon Oct 08, 2018 7:05 am

willthrill81 wrote:
Sun Oct 07, 2018 9:35 am

The OP probably has a lot more than $150k in bonds in his portfolio. Selling off enough of those, which likely have a yield well below 3.85%, to pay off the mortgage is likely mathematically superior. For those opining about this reducing liquidity, keep in mind that eliminating a mortgage reduces the need for liquidity.
This is the way I look at it. If his mortgage payment is $1000 a month, he needs ~$300,000 in bonds to generate that. Use $150,000 of bonds to pay off the mortgage and the remaining $150,000 in bonds now generates free cash flow.
Can't take it with you when you're gone | But I want enough to get there on - Rollin with the flow - Jerry Hayes

changingtimes
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Re: A strategy to pay off home at retirement?

Post by changingtimes » Mon Oct 08, 2018 3:01 pm

I have always firmly been in the don't-pay-it-off camp if the mortgage has a low interest rate.

But, I am likely to inherit an amount of money in the next few years which would be enough to pay off my 3.625% mortgage. That inheritance would be on top of what already feels like more than enough money for my future.

So I may very likely pay off the mortgage at the point, since it won't require withdrawing or selling stocks or anything. But I'll see what I feel like when the time comes.

Dulocracy
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Re: A strategy to pay off home at retirement?

Post by Dulocracy » Thu Oct 11, 2018 8:56 pm

I am of the opinion that if you have a mortgage, you should not retire. Have you considered working just a bit longer and only investing to get any match, but putting all extra money to pay down the mortgage? You would have the added benefit from not drawing down your assets for a few years and adding a tremendous amount of long term security.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.

MotoTrojan
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Re: A strategy to pay off home at retirement?

Post by MotoTrojan » Thu Oct 11, 2018 9:02 pm

Pepitoperez wrote:
Sat Oct 06, 2018 10:25 am
I know logically that would make sense, as I would get a better return than the 3.85 fixed rate paying on mortgage. However, there is a physiological component of not having mortgage, etc. Thanks to all for your input.
You might not get a better return. Also keep in mind that the 3.85% is an after-tax return, so it is pretty great.

Depending on your tax-situation I may do this over a couple of years to keep your capital gains rate low/non-existent.

bltn
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Re: A strategy to pay off home at retirement?

Post by bltn » Fri Oct 12, 2018 3:48 am

I would work until my mortgage is paid off. My security in retirement would be better. I would feel better about my home.

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