OT: Not Paying Off Your Mortgage

[Peter P.]

My friend and I were on a bike ride today and he tells me his financial advisor is recommending that he refinance his mortgage.

Jim is 61, married with two incomes, and has a 3.25% mortgage rate. The F.A. suggests taking out a 30 year mortgage at the current rate (which is higher) at 3.6%.

When I told him he'd be paying on his mortgage until he was 91, Jim said the F.A. told him to not worry about it. The idea is to lower the monthly payments and use the excess funds formerly going to the mortgage, to put into retirement accounts.

I countered that, when either spouse dies, the widow(er) is stuck with a mortgage at 1/2 income.

Is this the new normal?

[CNY rider]

Starting with when Jim realistically expects to retire.

[Ken Robb]

My cynical side wonders if the FA gets paid based on the value of the funds he manages for your pal.

[vqdriver]

how many years left to pay off the current mortgage?

[dbnm]

Current mortgage is paid off when?

Does he and spouse have life insurance?

How much is currently in his retirement fund?

How much is total current debt?

[Burnette]

What's the goal and what's the biggest drag for Jim?

There's too many unanswered questions to say.

How much is the home worth? How much is left on the home mortgage? Is Jim's home in a booming housing market or in a poor home selling market? Does Jim plan on moving when he retires? How much money is in these retirement accounts now? How much more will they grow with the added amount gained from the refi? How much will Jim get on pension money (if he gets one), 401k or similar and does he have an after tax Roth account? And as asked above, when does Jim expect to retire?

[echappist]

My cynical side wonders if the FA gets paid based on the value of the funds he manages for your pal.

almost most likely the case

a lot of "Financial Advisors" (in air quotes because there's no certification needed to become one, nor does the title imply the person has the client's best interest in mind) are worse than vermin carrying the plague

as with most situations, ask cui bono, and follow the money

[zzy]

Yeah unless the FA has a fiduciary obligation to the client (unlikely), the only person whose interests they really look after are his employer's. Well worth sitting down with a real fiduciary to get a second opinion.

[buddybikes]

To be free from a mortgage is HUGE. What if one dies, gets sick, etc, the stress on the other would grow. Of course it depends on massive number of factors, so of course I am talking generalities.

Wife and I paid off long time ago, we bought our house on the ocean (small) and I am focusing on getting my back in shape, not about who is paying the mortgage. Good friends of ours have remortgaged every chance they could, sitting on 2700 mth payment, with both retired. They want to move to smaller place near the water but don't have enough equity. They had the financial ability to unsaddle themselves years ago. Their choice...

[prototoast]

This seems like terrible advice. Refinancing at a higher interest rate to move some extra money into the stock market might lead to a higher long-term expected return, but for someone approaching retirement, there is a huge premium on risk-free returns, and the imputed rental return of owning your own home is much higher than other risk-free rates (10 year Treasury yield is under 2% right now).

[Spaghetti Legs]

I agree, that sounds like horrible advice to me. Only way it comes close to making sense is if your friend has an ARM or some balloon mortgage with a gigantic payment change coming or if he lied to you and he’s actually 30 years old. I assume he has a 15 year mortgage or some such and his monthly payment is higher at his current lower rate.

The mortgage broker I had for my home purchase last year pushed a 30 year mortgage hard, arguing that most people stay in their home for about 10 years. Also pushed hard not saving my for my kids college.

[Ralph]

I've had a mortgage free home for over 20 years. Have recently been kicking around (in my mind) the idea of taking out a big mortgage. I'm 78 now. I can make the case.....invest the money, withdraw 4% per year of invested funds.....sill own the home and have more money invested. Deduct the interest, etc.

And withdrawing 4% from balanced investment funds has stood the test of time since WW11. Principal has been more than maintained. So on paper.....not a bad idea. The FA is correct.....in theory.

But....I'm not going to do it. Like having a paid for home. Don't need more money to spend. Don't want the risk of something happening no one is thinking about. Being debt free is not all about money.

[Tickdoc]

This is Jim. Don’t be like Jim.https://cratesandribbons.files.wordpress.com/2013/01/stickfigure.jpg?w=1200

[djg]

It's the sort of thing that could work out, or not -- it's not obviously good advice and it's certainly not the safest course of action. I don't expect the market to tank any minute now, but it's been sort of wiggly the past half year or so and I've no particular confidence that next year or the year after will be as good as the two that came before this flattish-variable patch. And what do I know?

Plus . . . well, the standard deduction is much better than it was, so the deduction for mortgage interest is a less obvious subsidy than it once was.

At 61, your friend might be thinking that he'll have money in the market for 20 years or more. And he might. Still . . . trading a lower interest rate for a higher one so that he can borrow money to invest at risk is doing just that. And at 61 (a couple of years off for me, but I'm getting there), I might be looking for more predictable streams of income and at least a skew towards safety. That's me, not the friend, of course, and I've no idea what else is going on with his finances, so there's that. Personally, I wouldn't follow the advice that was mentioned.

[saab2000]

Sounds like the advisor might steer the friend into high cost investments. I’d look at all the details. Probably would not do it.

Everyone I know with a paid-off house is happy it’s paid off.

[Peter B]

Everyone I know with a paid-off house is happy it’s paid off.

:):hello::banana:

[clyde the point]

You’d be hard pressed to find any savvy investor to buy into that BS.

[Dave]

I would never refinance to a higher rate, but having some mortgage makes sense if you have a large retirement income. Paying off my mortgage would require cashing in retirement funds, paying lots of tax and add to the monthly surplus that I have.

[Llewellyn]

It sounds like advice from a financial adviser that is putting their interests before the client. The first red flag for me is why would you refinance with a higher rate :eek: It would make sense as a strategy for someone who is 21 or 31, but not a 61 year old approaching retirement (to be clear, I'm a big fan of the stock market but not of long-term debt to get into it).

And as other posters said, there is a huge sense of freedom from having no mortgage, even if it doesn't always stack up financially.

[Dekonick]

I do not see any good from this advice. Unless there is a SPECIFIC investment opportunity, buy into a building etc... there is no upside.

[tomato coupe]

There's nothing wrong with having a mortgage in this situation, as long as you don't squander the "borrowed" money. If you invest it, you likely will come out ahead financially. And, if an emergency arises, your assets will be more easily accessible.

[veloduffer]

Considering that the US and ost of the developed world will be in low growth mode just due to the aging population, the mortgage rate is a fairly high hurdle.

As one gets closer to retirement, one needs to reduce their exposure to volatility (equities). During the Financial Crisis, equities we’re down 40% and many folks retirement funds didn’t recover from it.

My firm has been stressing our portfolios and it is conceivable that equities may fall as much as 50% in the next recession if it is a 1-in-10 cyclical event. This is due to the high volume leverage in corporate debt, which are at record highs. The leveraged loan market has grown 5x in dice since 2014 to $1.5 trillion, which is now the same size as the junk bond market. Corporate debt is likely to be the next asset bubble (housing was in 2008).




Sent from my iPhone using Tapatalk

[DRZRM]

Hmmm, I'm just a historian not an economist, but as soon as we could swing it the wife and I switched to 15 year mortgages and never looked back. Rate is under 3%, and when we've moved we had significantly more equity, which allowed for a significant down payment, which made the next 15 year mortgage even more manageable. I'm looking forward to my house being paid off when the kids go to college.

[alancw3]

My cynical side wonders if the FA gets paid based on the value of the funds he manages for your pal.

not only that but he could also have an arrangement with a mortgage broker to split the commission on the new higher rate mortgage. mortgage brokers usually work on a gross commission of 1%-2% of the mortgage before any splits.

we are all different and have different tolerance levels to risk. for me there was nothing like the peace of mind when I paid off the mortgage on my first house over forty years ago. at some point in time this current investment bubble will burst and my best guess is that the financial effect will be even worse the back in 2008. imho commercial real estate will be the first thing to pop. I cannot believe in this area how many new strip shopping/office parks sit vacant that have never been rented and they just continue building more and more to also sit vacant.

at 71 year old with interest rates so low and look to be going lower again it is sometimes easy to be temped to put more money in the equity markets but then I am reminder of where I am in life with respect to investing. "at this point in life I am more interested in the return of my investment than the return on my investment".

[Jeff N.]

I say not no, but HELL no.

[biker72]

Sounds like the adviser that told my mother in law to sell all her holdings in a Fidelity mutual fund then bought it back 6 days later. He of course got a nice commission and she lost almost $1500.

I told her son to get a different adviser.

[zambenini]

I would at least consider this at my age, but I am 34 ... and at my age, I would want to move to buying more stock-- after they go on sale in the next bear market. And yet elsewheres on the internet I am reading about treasury bond prognostications and why real estate might be a safe place to not lose money in the next decade, supposing on said bear market. YMMV?

And further yet, I wouldn't kick the mortgage free freedom out of bed at any age. Can't imagine this plan being good for someone that age.

[sitzmark]

There's a play for this if you believe the recent monetary policies will ultimately produce 1970's era FDIC protected returns in excess of 3%-4%. (Likely? Not looking like it right now) Played intelligently a low 3% (15 year) mortgage will be close to cost-neutral with tax considerations. As long as the proceeds from the mortgage aren't used for speculation there is little risk. Change of mind ... use same funds to pay off mortgage and quick exit.

Right now I consider the "market" to be speculative for investment of large chunks of cash, but it is possible to lock money up in no-penalty CDs at 2.5%+ and keep the money "safe" - as safe as FDIC insured can be. As rate cuts continue to happen this opportunity will evaporate soon. If CD rates ever do rebound that cash could be intelligently put into some very lucrative CD ladders with little risk. There are other options, but at 61yo they aren't a smart play unless primary retirement income is more than sufficiently "secure".

Buffet and other high-net worth investors/money managers are sitting on large piles of cash right now awaiting future opportunities. B-H has almost $130billion of total assets in cash sidelined when historically $30-$40bil would be typical.

[54ny77]

talk to clarence beeks, then put it all on frozen concentrated orange juice futures.

looking good, lewis!

[Gummee]

Ain't none of y'all thinking about the guy in the OP's situation. It MAY actually be good for him. May not. None of us have the info to determine.

Let's think about this from another perspective: your house is paid off. Great. What happens if you NEED $$? Now that you can't work, you can't qualify for a loan. You have no way of paying it back. Sure you can sell the house, but where are you going to live? Chances are what you'll have to buy/rent is going to be similar to what you'd be paying with a mortgage on what you have now.

You certainly can't take a chunk of drywall to the bank and get cash for it.

Now.... if you have your assets OUTSIDE the walls of your house, if you NEED $ you can at least get to it.

That whole 'pay off the house early' thing was your Depression-era relatives' thinking. They had a pension. You don't. They had $ coming in every month that had to go X far. YOU need to make sure that YOU have the $$ to support yourself.

I get that the feeling of no debt is a good one. I don't have any either. ...but your house isn't an asset. It's a liability. It'll ALWAYS cost you $$: taxes, etc. The equity inside your house IS an asset, but it certainly isn't in any way shape or form liquid.

IMO the ability to pay off the mortgage at any time is a better move financially than having all your $ inside the walls of your house.

M

[zap]

edit


Everyone I know with a paid-off house is happy it’s paid off.

I know several who are strapped for cash and struggle to maintain the house.

So much depends on an individuals financial situation.

[Mikej]

The real question- what new bike are you getting when you cash out the house? The other thing, many of us older people are used to to the idea of paying off the mortgage, and also leaving the house to the kids. I think that in the future many of us will have to borrow against our primary residence to make ends meet, the kids can save their own money -

[54ny77]

yep. buying a home is one thing, owning it is quite another.

oh woops, there goes the a/c. poof! another n+1 bike...

housing is really just a forced savings vehicle that also carries with it tons of continual sunk costs. insurance, maintenance, repairs, upgrades, and on and on.

somehow forgotten is that a house (in whatever form--single family, condo, etc.) is supposed to be just a home. roof over the head, shelter. and a place to store bikes! historically, housing generally appreciated at the rate of long dated treasuries (the '07 crises helped revert stupid gains and get that trend back on track). if you had to sell and move on, hopefully break even or at least appreciation enough over the years to cover the commission and other transaction costs. somewhere along the way the idea came about that housing was supposed to trade and appreciate like an internet growth stock. i blame stupid house flipping and renovating shows for that. :rolleyes:

edit

I know several who are strapped for cash and struggle to maintain the house.

So much depends on an individuals financial situation.

[bcroslin]

Seems like terrible advice until you realize you could die tomorrow and not paying your house off or saving for retirement won't matter. Obviously, don't live like a rock star on a life-ending bender but at the same time living like pauper to possibly retire one day doesn't make sense either. Ask me how I know....

[Blown Reek]

There is so much bad advice in this thread it's incredible.

[Peter P.]

There is so much bad advice in this thread it's incredible.

Instead of talking trash, add your opinion to the mix. I'm interested.

[Frankwurst]

I'm not a financial adviser or guru by any stretch of the imagination but personally we paid off our house as fast as possible and took the whole house payment and invest that and I'm pretty happy with the results. If my financial adviser gave me the advice your friend received I'd tell him to pack sand and find a new adviser:beer:

[Blown Reek]

Instead of talking trash, add your opinion to the mix. I'm interested.

Unless you're guaranteed a 3.6 return, on top of any any all fees (lets be conservative... should we say 5%, 6%? after all broker fees, mortgage fees, etc.), you're automatically losing money. And if anyone's guaranteeing anything, you're already with the wrong people.

Anyway, once you get past a need-to-break-even 6%, what's the market historical return? 8%? And how much money are you playing with, high roller? $500,000? So figure out 2% of $500,000, which is $10,000, and that's going to be that additional 2% on your $500,000. And that's if you return 8%. You might, you might not.

And look at just how much you're paying the bank to use their money for the first years through an amortization schedule. Jeez.

If your house is paid off, the absolute last thing you should do is mortgage it to speculate in the market. Now if you're a billionaire (like Warren Buffet), that 1.5-2% might be a sweet couple/few million on a few billion. But for someone that's looking to leverage their house on the long-term appreciation of the American stock market, that's just bad practice.

But don't listen to me, you gotta talk with your tax guy to see if it makes sense for your situation. Past performance is no guarantee of future results. Investments are not FDIC insured. All those disclosures you should know before placing the trade.

[tomato coupe]

Unless you're guaranteed a 3.6 return, on top of any any all fees (lets be conservative... should we say 5%, 6%? after all broker fees, mortgage fees, etc.), you're automatically losing money. And if anyone's guaranteeing anything, you're already with the wrong people.

Anyway, once you get past a need-to-break-even 6%, what's the market historical return? 8%? And how much money are you playing with, high roller? $500,000? So figure out 2% of $500,000, which is $10,000, and that's going to be that additional 2% on your $500,000. And that's if you return 8%. You might, you might not.

And look at just how much you're paying the bank to use their money for the first years through an amortization schedule. Jeez.

If your house is paid off, the absolute last thing you should do is mortgage it to speculate in the market. Now if you're a billionaire (like Warren Buffet), that 1.5-2% might be a sweet couple/few million on a few billion. But for someone that's looking to leverage their house on the long-term appreciation of the American stock market, that's just bad practice.

But don't listen to me, you gotta talk with your tax guy to see if it makes sense for your situation. Past performance is no guarantee of future results. Investments are not FDIC insured. All those disclosures you should know before placing the trade.

You correctly cite an historical (last 60 years) annual S&P 500 return of 8%, but then you subtract a 3.6% mortgage rate and get a 1.5-2% net return, instead of the nominal 4.4% return. Over 30 years, 4.4% on $500,000 would yield over $3M, whereas 1.5% on $500,000 would yield about $1M. Either way, it's a decent amount of money.

[Ken Robb]

People often forget a couple of non-financial factors when analyzing rent vs.buy for housing. If you want to live in a house rather than an apartment it's very likely that the owner of that house will plan to move into it himself, rent it to a family member, or sell/cash out his investment within a few years and you will have to move. Moving is expensive and a PITA.
Apartments are more likely to remain rentals indefinitely but even some of those are converted to co-ops or condos so tenants have to move or buy the unit they have been renting. .
It is unlikely that you will be able to make a rental feel like "your own". Either decorating and mods you would like to make won't be allowed or their cost will be more than you will want to invest in temporary housing. If you want to have a pet that may be difficult too.

[Gummee]

I'm not a financial adviser or guru by any stretch of the imagination but personally we paid off our house as fast as possible and took the whole house payment and invest that and I'm pretty happy with the results. If my financial adviser gave me the advice your friend received I'd tell him to pack sand and find a new adviser:beer:

You gave up HOW many years of compound interest on your investments?

...and you're happy with that?

Go look at how much you would have had putting that $$ into the market rather than the walls of your house.

Also look at how much less you would have needed to invest to get to the same spot given the power of compound interest over the same time period you're using now.

M

[Ken Robb]

You gave up HOW many years of compound interest on your investments?

...and you're happy with that?

Go look at how much you would have had putting that $$ into the market rather than the walls of your house.

Also look at how much less you would have needed to invest to get to the same spot given the power of compound interest over the same time period you're using now.

M
I read that they took the money that were no longer going to pay a mortgage and invested it in the market not that they hid it in the walls?

[robertbb]

IMHO one of the most important things a person can do while they are able, is to ensure they have a home paid off by retirement/old age.

I believe this so much that the approach I implemented at 33 (I'm 38 now) was to buy my "retirement home" and put in place a schedule to ensure that it is owned outright by me when I stop working in ~25 years.

I chose a well-built apartment in a high quality, low density development that is quiet, private, secure and convenient to parks, transport, shops, has a lift, car garage and is in a generally in a "wealthy" area.

I saved and put a 20% deposit on it, and in the last 5 years have paid off a further 20%. By the end of the year, I'll have 50% equity and a remaining mortgage of $200k.

I recently moved out and now live with my girlfriend, and have found a tenant who's monthly rent easily covers my interest repayments to the bank (with a few hundred a month extra in my pocket).

Net result: I need to put $8000 a year into this place, for it to be paid off and all mine by the time I'll want to use it. That's about a months' salary, annually.

I also have a superannuation fund (401k) which is totally separate. That'll be bonus spending money when I hit retirement. Any other money I save above that $8,000 retirement home contribution, over the next 25 years, will go into an indexed fund.

When we start a family, I'm totally comfortable with renting our family home to give maximum agility with work, school zones, changes to transportation, if we get a bad neigbor... not to mention someone else paying the maintenance and worrying about wear-and-tear, council rates, interest payments, etc.

But a place to retire to safely... one property you know you can retreat to... non-negotiable for me.

[buddybikes]

>> believe this so much that the approach I implemented at 33 (I'm 38 now) was to buy my "retirement home" and put in place a schedule to ensure that it is owned outright by me when I stop working in ~25 years.

I chose a well-built apartment in a high quality, low density development that is quiet, private, secure and convenient to parks, transport, shops, has a lift, car garage and is in a generally in a "wealthy" area.'


Wow that is some long term planning. When we were that age, never thought we'd be buying a house in RI on the water, we thought VT since we were doing many trips there pounding the mountains... Instead I am pounding the bike trails on a twice fused back.

[Ozz]

Don't forget, mortgage interest is no longer deductible on new mortgages (maybe all?), and most older mortgages due to the new tax law.....

[cmg]

Bought into a less desirable neighborhood but it was larger sq. ft than needed, easily affordable, spent next 5 years attacking the principle and paid it off. Spent the next 18 years investing through my work savings plan. Sure taxes and maintenance costs are always there but those are minimal and can be planned over months. i know people that did what the OP is talking about. Starting to invest at 61 is a bit too late in the game. retirement will come knocking when he hits 70.

[echappist]

Don't forget, mortgage interest is no longer deductible on new mortgages (maybe all?), and most older mortgages due to the new tax law.....

that's incorrect; interest may be deducted on the first 750k of debt

whether it would make sense to deduct those interest in a whole separate issue, given that for a married household, the annual interest payment per se needs to be greater than ~$14k (assuming $10k in paid in SALT) in order for it to make sense

[Gummee]

I read that they took the money that were no longer going to pay a mortgage and invested it in the market not that they hid it in the walls?

If you're paying off your home, you're shoving money into the walls that you could be using to build a nest egg that will allow you to pay off the house whenever you want. ...which is more important these days than it was in your parent's time. Your parents were the last to have a pension. (aka annuity!)

You and I are in different circumstances. There's no lifetime of income coming automatically every month. ...but yet... Last generation's thinking is still being preached as gospel.

Shoving $ into something that you can't get it out of in need: your home means you're not investing into something that's earning you interest. It takes less $ to invest over a long period of time to get to the same point as paying off the house then investing. ...or... you can invest slightly more and really come out ahead

M

[Mzilliox]

i dont like owing people money, do you?

[Blown Reek]

i dont like owing people money, do you?

No, but how else are you going to leverage that sweet equity in your house in order to live the dream of compounding interest that comes from stock market certainity?

[C40_guy]

No, but how else are you going to leverage that sweet equity in your house in order to live the dream of compounding interest that comes from stock market certainity?

Stock market certainty?

The only thing certain about the stock market is that it will go up and it will go down.

The problem is, almost nobody knows which and when.

[Mzilliox]

No, but how else are you going to leverage that sweet equity in your house in order to live the dream of compounding interest that comes from stock market certainity?

i dont know? good point, haha. Sometimes i wonder if im in the right country.

One thing is for certain, if i pay off my house very soon, which i will, then i wont be paying a house payment at all. and my house payment money can go right to savings. and i will have equity available to borrow against should i ever want to acquire more property. or money available for a monthly payment, since i no longer have one of thems. stock markets are at least 30% fake stuff but land and water are always real.

of course im sure i could screw over more people, invest into something crappy that makes money and pollutes the earth, make some rich guys richer, and leverage or something. but enough people do that already

[pdonk]

Financial need to be looked at in their entirety with an understanding of local housing markets, early payment penalties and tax implications.

One thing we did was get term life insurance in the same amount as our original mortgage in case something happened to one of us, at least that way the other person has the option to pay off the house.

Depending on their net worth and investment structures, your friend may want to look at and if its legal/possible in the US is to set up a mortgage to themselves from themselves through one of their "registered" investment accounts. In Canada this is possible, not sure of the rules in the US.

[tomato coupe]

i dont like owing people money, do you?

I think that's the primary motivation for people who pay off their mortgage early. There's absolutely nothing wrong with that approach but, in many cases, it isn't the best thing to do from a financial point of view.

[echappist]

If you're paying off your home, you're shoving money into the walls that you could be using to build a nest egg that will allow you to pay off the house whenever you want. ...which is more important these days than it was in your parent's time. Your parents were the last to have a pension. (aka annuity!)

You and I are in different circumstances. There's no lifetime of income coming automatically every month. ...but yet... Last generation's thinking is still being preached as gospel.

Shoving $ into something that you can't get it out of in need: your home means you're not investing into something that's earning you interest. It takes less $ to invest over a long period of time to get to the same point as paying off the house then investing. ...or... you can invest slightly more and really come out ahead

M

we have to remember that the people in question are in the early 60s, and there is a higher likelihood of net negative return for the next 15-20 years in the equity market, compared to people who have 35-40 years to go for investing. Even if it is not net negative for the next 15-20 years, the sequence of returns will affect the final balance quite a bit (unless that money doesn't get touched for 15-20 years).

next, even assuming one could get a positive return in the equity market, the exposure is likely quite small. The amount invested per month is the difference in the mortgage payments, and I'm not sure how much it may be. However, for a loan size of $400k, the difference in monthly principal + interest payment is about $1k, when comparing principal + interest payment difference on a 15 yr loan at 3.25% vs 30 yr at 3.65%. So $12k extra per year (but if one were sane, not all that $12k should be exposed to the equity market), at return of 7%, after 10 years, $144k worth of investment principal is put in, and the investment return is ~$20k. Of course, a sane person would only put in at most 50% of the monthly investment into equity, while leaving the rest in bonds, so the investment return is likely lower.

And here's the rub, as most people who look into their finances know, it takes a long time (usually 20-30 years) for the annual investment returns to exceed annual investment contributions. Of course, investment returns in the long term will be substantial, but we are talking someone in his 60's.

Which really returns to the heart of the issue, which is that if investment returns generated solely form difference in monthly mortgage payments is significant to one's net worth, the solution shouldn't be to go for a longer termed loan. The solution ought to be significant downsizing, so that one has add'l income (e.g. via SPIA) in retirement. This is especially true, if the annual real estate taxes are significant (which is likely the case in a state such as CT). If, on the other hand, this investment return doesn't mean jack s*** to one's net wealth (say this person already has $2M in retirement saving accounts + brokerage + home equity), this person has "won" the retirement planning game and should stay the eff out.

[veloduffer]

If you're paying off your home, you're shoving money into the walls that you could be using to build a nest egg that will allow you to pay off the house whenever you want. ...which is more important these days than it was in your parent's time. Your parents were the last to have a pension. (aka annuity!)

Shoving $ into something that you can't get it out of in need: your home means you're not investing into something that's earning you interest. It takes less $ to invest over a long period of time to get to the same point as paying off the house then investing. ...or... you can invest slightly more and really come out ahead

M

I don’t get this idea that investing in your house is worse than investing in equities. It’s a risk/reward tradeoff and there’s no certainty about equities over real estate. Real estate is an asset, just like stocks and bonds, and like those assets, it’s value can appreciate or decline. For the most part, there is a demand for housing, which can provide support for price levels. But every market is different, as well as every house and needs to be evaluated.

I’ve been reading some of the replies and it amazes me that so many folks seemingly think (or at least biased in their thinking) that the past performance of the equity markets is a reliable indicator of the future, and that after the next cycle the equity markets will take off again.

When you look at the changes in the macro economy and demographic shifts (aging is global risk), long term growth looks weak globally for several years. The US deficit and debt will be a constraint, as will China’s slowdown and transition from a manufacturing economy to services & consumption. Add geopolitical risks (China/US, Japan/Korea, Iran, India/Pakistan, Russia) and climate change to the mix too.

[tomato coupe]

we have to remember that the people in question are in the early 60s, and there is a higher likelihood of net negative return for the next 15-20 years in the equity market...

The chance of a net negative return in the next 20 years is vanishingly small. The absolute worst performing 20-year period of the stock market spanned the Great Depression, yet it still produced 2.5% per year. In more recent times (i.e. the last 50 years) the worst performing 20-year period produced a 6.4% return per year.

[tomato coupe]

I don’t get this idea that investing in your house is worse than investing in equities. It’s a risk/reward tradeoff and there’s no certainty about equities over real estate. Real estate is an asset, just like stocks and bonds, and like those assets, it’s value can appreciate or decline.


Yes, both are assets that can increase and decrease in value. Historical, however, the stock market has increased in value more than real estate. For instance, from 1928 to 2013 the stock market increased at an average rate of 9.5% per year, while real estate increased at an average rate of 3.7% per year.

Real estate has done better in recent years. From 1975 to 2013, the average annual increase for the stock market and real estate were 7.6% and 4.3%, respectively.

[echappist]

The chance of a net negative return in the next 20 years is vanishingly small. The absolute worst performing 20-year period of the stock market spanned the Great Depression, yet it still produced 2.5% per year. In more recent times (i.e. the last 50 years) the worst performing 20-year period produced a 6.4% return per year.

you quoted the following (emphases added) from my original post


we have to remember that the people in question are in the early 60s, and there is a higher likelihood of net negative return for the next 15-20 years in the equity market, compared to people who have 35-40 years to go for investing. Even if it is not net negative for the next 15-20 years, the sequence of returns will affect the final balance quite a bit (unless that money doesn't get touched for 15-20 years).



that was a rather disingenuous quoting out of context, and you certainly didn't address the issue of sequence of returns (which is a concern to people in early 60s if they want to use that money in their 70s)

[Ozz]

that's incorrect; interest may be deducted on the first 750k of debt

whether it would make sense to deduct those interest in a whole separate issue, given that for a married household, the annual interest payment per se needs to be greater than ~$14k (assuming $10k in paid in SALT) in order for it to make sense

duh...you're right.....sorry, geographical bias and not enough coffee.

interesting perspectives here...lots of valid points, but need to be viewed via the subjects risk tolerance, age, and other financial needs.

Some people don't like debt...other are comfortable with the concept of leverage. Others are too comfortable....

best advice I saw was was to talk to a fiduciary, and not someone trying to sell something...review all assets and liabilities, project a budget for expected lifespan (100?) and develop a plan to generate income for lifespan and meet other objectives. BTW - I am not a fiduciary

[tomato coupe]

you quoted the following (emphases added) from my original post...

The chance of a net negative return in the next 20 years is no greater for a 61-year-old than it is for someone who has another 35-40 years to invest.

The sequence of returns (in the context of the mortgage vs. no mortgage issue) affects the details, but it does not change the overall financial picture.

[veloduffer]

Yes, both are assets that can increase and decrease in value. Historical, however, the stock market has increased in value more than real estate. For instance, from 1928 to 2013 the stock market increased at an average rate of 9.5% per year, while real estate increased at an average rate of 3.7% per year.



Real estate has done better in recent years. From 1975 to 2013, the average annual increase for the stock market and real estate were 7.6% and 4.3%, respectively.



True enough, but that is historical performance. Markets change - look at the stock market with the elimination of floor specialists, flash trading, more products to short the market with, ETFs, etc. And performance is only as good as when you need to withdraw/sell - 2009 is very different from 2019.

Portfolio construction points to diversification amongst assets, including bonds, real estate and hard assets (gold). A diversified portfolio has a slightly lower return than an all-equity portfolio and has much less volatility.




Sent from my iPad using Tapatalk

[Gummee]

i dont know? good point, haha. Sometimes i wonder if im in the right country.

One thing is for certain, if i pay off my house very soon, which i will, then i wont be paying a house payment at all. and my house payment money can go right to savings. and i will have equity available to borrow against should i ever want to acquire more property. or money available for a monthly payment, since i no longer have one of thems. stock markets are at least 30% fake stuff but land and water are always real.

of course im sure i could screw over more people, invest into something crappy that makes money and pollutes the earth, make some rich guys richer, and leverage or something. but enough people do that already
How exactly are you going to qualify for a loan if you aren't working/are disabled/etc?

There's more than just equity needed. Where's the income to pay back the loan

?

Land is great. Buy as much as you can because they're not making any more land. ...but... buying land is the same as paying off your mortgage: there's zero (or less) liquidity and a potentially large down side. The up side to buying land *could* be very large if you guess right tho.

M

[tomato coupe]

True enough, but that is historical performance.

Historical performance is all we've got -- no one can predict the future.

Markets change - look at the stock market with the elimination of floor specialists, flash trading, more products to short the market with, ETFs, etc. And performance is only as good as when you need to withdraw/sell - 2009 is very different from 2019.

Sure, markets change. That's why one must look at long term results, which are pretty consistent.

Portfolio construction points to diversification amongst assets, including bonds, real estate and hard assets (gold). A diversified portfolio has a slightly lower return than an all-equity portfolio and has much less volatility.

Diversification is good, but one could argue that owning your home, versus having a mortgage and investing the money (that would be locked up in your home), is the opposite of diversification.

[EDS]

I would not move into a higher interest mortgage at age 61 unless I were strapped for cash.

That said, I think a lot of people see they have had a 10% rate of return from the equity markets over the past decade and prefer to put extra cash in the market as a result rather than pay down low interest mortgages.

[C40_guy]

I don’t get this idea that investing in your house is worse than investing in equities.

The house value will vary whether or not there's a mortgage attached to it. You don't need to own it outright to benefit from its appreciation.

Separately, the home ownership math isn't quite that simple anymore.

Depending on local/regional housing costs and a variety of other factors, a case can be made for renting versus owning.

[tomato coupe]

That said, I think a lot of people see they have had a 10% rate of return from the equity markets over the past decade and prefer to put extra cash in the market as a result rather than pay down low interest mortgages.

That's Camp A. They are (generally) comfortable with the risk associated with more "aggressive" financial decisions.

Camp B prefers to pay off their mortgages. They are (generally) more risk averse.

[tomato coupe]

The house value will vary whether or not there's a mortgage attached to it. You don't need to own it outright to benefit from its appreciation.

Yeah, you're quite right. The changing value of the house is actually irrelevant, because you realize that change regardless of whether or not you have a mortgage. The real issue is, how much does it cost you to pay off a mortgage in terms of lost investment opportunity?

[EDS]

That's Camp A. They are (generally) comfortable with the risk associated with more "aggressive" financial decisions.

Camp B prefers to pay off their mortgages. They are (generally) more risk averse.

Both extremes are risky (heavy leverage or no diversified retirement planning). If you are already maxing out 401k and IRA contributions I support throwing money at the mortgage to get rid of it. That said, I think it is much riskier to aggressively pay down a mortgage if you are not simultaneously making adequate investments for retirement.

[MattTuck]

I am on year 1 of a 30 year mortgage. If you are in the last few years of the amortization schedule, there's not a very good reason to pay it off early.... you might save a few hundred to a few thousand bucks.

If you are early in the mortgage, that is the time to find ways to decrease your over all interest expense.

[kppolich]

Yes it is nice to live debt free, but also the opportunity cost of using that money to fund something other than a house is also an option. Depends on Jim's risk tolerance, insurance strategy, and retirement goal age/spending habits.

I'd sell the house and downsize. Use the extra money to inflate the nestegg going into retirement and have the next house paid for with a nice piece of change in the bank collecting steady interest instead of the other way around.

[Ralph]

As I mentioned in a post up the thread....and I'm a retiree of a career at Merrill Lynch (financial services firm).....I am well familiar with this discussion.

The reason we live in a paid for home is I wanted to be in a position in retirement where no one can kick me out of my home as long as I pay my taxes and HOA fees. Other expenses such as HO insurance, utilities, and maintenance are somewhat under my control....but taxes have to be paid.

I totally understand my paid for home represents dead money. Even though we are currently in a hot RE market around here. That most likely I could do better in the markets with a 75% mortgage. And all I get out of it is it's rent value. But I sleep good at nights in my old age knowing I have a place to live should I get sick and disabled. And BTW.....if one of us were to require skilled nursing care at $10,000 per month or so....and if we spent down all our money in a nursing home.....well.....Medicaid usually lets one of you stay in the house until you are both dead. But they require you to spend down other financial assets. If you lay in a nursing home bed for a couple years at $10,000 per month.....you go thru a lot of life's savings in a hurry. I've seen folks blow thru a million bucks before the state took over. Life doesn't always have a happy ending.

[MikeD]

I payed off my mortgage when I retired. I only had about 5-6 years left on it so the payment was mostly principal. Just wanted to be debt free when I retired. Financially, it was probably better to keep paying on the loan.

[tomato coupe]

I payed off my mortgage when I retired. I only had about 5-6 years left on it so the payment was mostly principal. Just wanted to be debt free when I retired. Financially, it was probably better to keep paying on the loan.

It doesn't matter when you pay it off, you will always have only principle left.

*Except for maybe a month of interest.

[MattTuck]

I think he meant his payments (at the time) were mostly principle, as opposed to the early years when payments are mostly interest.

[thunderworks]

It doesn't matter when you pay it off, you will always have only principle left.

*Except for maybe a month of interest.

I disagree . . . at the end of any given month, the interest exposure is clearly limited to the month just accrued . . . but I think you need to consider the number of months going forward for which you have an ongoing interest obligation.

[Ken Robb]

As I mentioned in a post up the thread....and I'm a retiree of a career at Merrill Lynch (financial services firm).....I am well familiar with this discussion.

The reason we live in a paid for home is I wanted to be in a position in retirement where no one can kick me out of my home as long as I pay my taxes and HOA fees. Other expenses such as HO insurance, utilities, and maintenance are somewhat under my control....but taxes have to be paid.

I totally understand my paid for home represents dead money. Even though we are currently in a hot RE market around here. That most likely I could do better in the markets with a 75% mortgage. And all I get out of it is it's rent value. But I sleep good at nights in my old age knowing I have a place to live should I get sick and disabled. And BTW.....if one of us were to require skilled nursing care at $10,000 per month or so....and if we spent down all our money in a nursing home.....well.....Medicaid usually lets one of you stay in the house until you are both dead. But they require you to spend down other financial assets. If you lay in a nursing home bed for a couple years at $10,000 per month.....you go thru a lot of life's savings in a hurry. I've seen folks blow thru a million bucks before the state took over. Life doesn't always have a happy ending.
In many ways Ralph and I think alike! This thread has gotten so long that I may have missed something but has anyone mentioned that there may not be much difference in the cost of paying a mortgage, insurance and maintenance on a home vs. paying to rent a similar place. Over time the rent is likely to increase more than the cost of ownership because most of it is the loan payment and that is fixed. I know payments on variable rate loans can change that but they aren't as common as fixed rate loans. So buying a $300,000 home with a loan for 80% or 90% isn't like choosing to skip investing $300,000 in the stock market. It's really skipping investing $30,000 or $60,000 that you put up as a down payment in the market. The "magic" of leverage may make investing in a home look even better because you have a $300,000 asset appreciating with a cash investment of only $30,000. If everything goes south you can't lose any more than the equity you have in the home. Losses in equity markets can be 100%.

[seanile]

So buying a $300,000 home with a loan for 80% or 90% isn't like choosing to skip investing $300,000 in the stock market. It's really skipping investing $30,000 or $60,000 that you put up as a down payment in the market. The "magic" of leverage may make investing in a home look even better because you have a $300,000 asset appreciating with a cash investment of only $30,000. If everything goes south you can't lose any more than the equity you have in the home. Losses in equity markets can be 100%.
id adjust your point to be "skipping investing $30,000 or $60,000 PLUS interest"
i did the math on this whole thing months ago and buying a house without a good amount down is ignoring the incredible burden of the final price you actually pay after interest is accounted for. wait long enough to put a majority down with cash that's earned in the market in the meantime.
https://i.imgur.com/P4Jgx8b.jpg
edit: i see now that PMI line-item needs to be eliminated from the totaling after the total down reaches 20%

[echappist]

I think he meant his payments (at the time) were mostly principle, as opposed to the early years when payments are mostly interest.

yikes, Matt, i expected better :p

[tomato coupe]

I disagree . . . at the end of any given month, the interest exposure is clearly limited to the month just accrued . . .


Isn't that what I posted?

"It doesn't matter when you pay it off, you will always have only principal left.

*Except for maybe a month of interest."

but I think you need to consider the number of months going forward for which you have an ongoing interest obligation.

You don't have an ongoing interest obligation if you pay it off.

[C40_guy]

has anyone mentioned that there may not be much difference in the cost of paying a mortgage, insurance and maintenance on a home vs. paying to rent a similar place.

Upside of renting is that the cost is pretty well fixed. The homeowner will have to periodically invest chunks of money into the property - roof, paint, windows, septic system, heating system, etc.

Any one of these alone could be equivalent to a year's rent...and they don't always happen when you're flush with cash. :)

[Dave]

Spending many months or years in a rest home, at the end of your life is the biggest possible waste of your money. My dad spent 10 years in a rest home after a stroke, but fortunately he was poor, so it cost him nothing. If you have assets, they will be taken for your care first. Pass the money on to your heirs before it's too late.

If I get Alzheimer's like my mother, I'd rather be dead than spend years in a care facility. She was lucky and it took less than a year to pass on. When your brain quits working, they don't feed you, so you starve to death. I've known people whose parents were spoon fed for a long time before passing on. What's the point, once you don't know anyone?

Have a good suicide plan, so you can get out while the getting is good. Argon gas works well. Helium is often diluted these days, so it no longer works.

[MikeD]

Isn't that what I posted?

"It doesn't matter when you pay it off, you will always have only principal left.

*Except for maybe a month of interest."



You don't have an ongoing interest obligation if you pay it off.



If it were early in the loan and I paid it off in 5 years, I would pay a huge amount of interest. At the end of the loan, I would pay very little in interest. That's how amortized mortgages work. They front load the interest.

[Frankwurst]

I read that they took the money that were no longer going to pay a mortgage and invested it in the market not that they hid it in the walls?

Correct and it seems to be working rather well as far as I'm concerned. :beer:

[tomato coupe]

If it were early in the loan and I paid it off in 5 years, I would pay a huge amount of interest. At the end of the loan, I would pay very little in interest. That's how amortized mortgages work. They front load the interest.

You seem to be conflating paying off the mortgage and making regular payments on the mortgage.

The bottom line is, regardless of when you pay off the mortgage, you will (at that time) owe mainly principal.

[MikeD]

You seem to be conflating paying off the mortgage and making regular payments on the mortgage.



The bottom line is, regardless of when you pay off the mortgage, you will (at that time) owe mainly principal.


So what? Sorry, you are not getting my point and while your's is correct, it's irrelevant to the discussion.

[Ken Robb]

Upside of renting is that the cost is pretty well fixed. The homeowner will have to periodically invest chunks of money into the property - roof, paint, windows, septic system, heating system, etc.

Any one of these alone could be equivalent to a year's rent...and they don't always happen when you're flush with cash. :)

Everywhere I have ever lived the average area rents were increased every year. The landlords have to face all the expenses you attribute to homeowners so they all have to be covered by rent unless the landlord is a philanthropist. :)
Short-term rentals can be wise but most people in most parts of the USA will be better off owning a home unless they plan on moving every few years.

[Gummee]

Spending many months or years in a rest home, at the end of your life is the biggest possible waste of your money. My dad spent 10 years in a rest home after a stroke, but fortunately he was poor, so it cost him nothing. If you have assets, they will be taken for your care first. Pass the money on to your heirs before it's too late.

If I get Alzheimer's like my mother, I'd rather be dead than spend years in a care facility. She was lucky and it took less than a year to pass on. When your brain quits working, they don't feed you, so you starve to death. I've known people whose parents were spoon fed for a long time before passing on. What's the point, once you don't know anyone?

Have a good suicide plan, so you can get out while the getting is good. Argon gas works well. Helium is often diluted these days, so it no longer works.
If you have a family history of disease X, you really do need to do the figuring out of stuff WELL before it could potentially become a problem

IIRC the IRS looks back ?5? ?7? years for Medicaid

M

[Kirk007]

The chance of a net negative return in the next 20 years is no greater for a 61-year-old than it is for someone who has another 35-40 years to invest.

The sequence of returns (in the context of the mortgage vs. no mortgage issue) affects the details, but it does not change the overall financial picture.

Except someone who is 61 and wants to retire in less than 10 years may not be able to bear the low returns.

I'm looking at this scenario now (sorta) and am also 61. Just sold a house that wasn't going to work long term - too many stairs, too much maintenance, but worth a lot - for one that could be suitable for the rest of our lives, cost less, with a separate residence even for a caretaker if necessary. I will have around a bunch of $$ to play around with and could either pay down the new mortgage and pay it off entirely by the time I'm 67 (costing me all of $38K in interest for the life of the loan) or reinvest that money. Considering the tax implications (interest deduction on new loan; tax on any ordinary income on market investments), I need a return of around 5-6% to make it worthwhile - 4-4.5% is about break even. Here's the rub - I prefer to have that principle investment secure - low risk. The beauty of today's interest's rates is the beast of secure investing. Why low risk threshold? Well, like others I see a well thought out home as security - roof overhead and even though we should be fine after I stop working, the peace of mind of having shelter, living in a community where we want to be, that will be a climate refugia (Puget Sound region has smaller projected temperature changes than most places in North America over the next 20-50 years), and not worrying about cashflow or dipping into principle of investments is worth more to me than the possibility of a net couple of percentage points return. Having lived through a number of recessions and seeing how long it took to get back to high watermarks following the 2007 recession, I just don't see the original advice given to the OP making any sense unless they have to take on risk to possibly generate enough marginal cash flow to pay the bills.

[tomato coupe]

Except someone who is 61 and wants to retire in less than 10 years may not be able to bear the low returns.

That's a very important consideration. But, if the 61-year-old has a good financial advisor, he would take that into account before he gives advice.

[Ralph]

If you have a family history of disease X, you really do need to do the figuring out of stuff WELL before it could potentially become a problem

IIRC the IRS looks back ?5? ?7? years for Medicaid

M

The claw back period in Florida is 5 years. Probably same elsewhere.

[Marc40a]

Granted, a lot more info is needed to accurately judge whether this is a prudent decision and a bike forum would be the last place I'd look for financial advice...

But

No one has mentioned the gross vs net income tax implications.
Using the hypothetical numbers discussed earlier. Let's say the current mortgage is 1k higher than a refi, that's 12k per year.

How much gross pay does that take from his check? Probably about 18k? after state and fed taxes?

Let's say he puts that 12k into retirement savings via a 401k. How much gross pay is that? That's right, 12k. So, he could either sock away the full 18k and really goose his retirement egg or just the 12k and pocket that 6k less taxes (4k ish?).

The whole refi strategy sounds a bit like a reverse mortgage, just a bit early and under his own terms. Not commenting on whether that's bad or not. Heck, who knows this guy's cash flow or future cash flow situation. Sounds grim, though.

I'm not an advisor, but I work in the industry.

[echappist]

Granted, a lot more info is needed to accurately judge whether this is a prudent decision and a bike forum would be the last place I'd look for financial advice...

But

No one has mentioned the gross vs net income tax implications.
Using the hypothetical numbers discussed earlier. Let's say the current mortgage is 1k higher than a refi, that's 12k per year.

How much gross pay does that take from his check? Probably about 18k? after state and fed taxes?

Let's say he puts that 12k into retirement savings via a 401k. How much gross pay is that? That's right, 12k. So, he could either sock away the full 18k and really goose his retirement egg or just the 12k and pocket that 6k less taxes (4k ish?).

The whole refi strategy sounds a bit like a reverse mortgage, just a bit early and under his own terms. Not commenting on whether that's bad or not. Heck, who knows this guy's cash flow or future cash flow situation. Sounds grim, though.

I'm not an advisor, but I work in the industry.

your entire argument is based on the emphasized sections above re: tax savings

if that were indeed the case, that would mean that he's contributing only at most 12k/year toward retirement (cf. maxing it out to the tune of ~24.5k/year)

and if he were, as you say, able to sock away 18k/year into 401(k) (remember, individual contributions to a 401(k) and equivalents thereof are capped, though company could match quite a bit more), that would mean he was putting away only 6k/year.

Neither is a particular rosy situation, as it would indicate a seriously undersized nest egg compared to his house. In which case, it'd be all moot, and he'd be much better off down sizing than hoping for significant returns within ten years. Remember, if you are arguing for tax benefits, then you have to also keep in mind the RMD requirements

[Marc40a]

your entire argument is based on the emphasized sections above re: tax savings

if that were indeed the case, that would mean that he's contributing only at most 12k/year toward retirement (cf. maxing it out to the tune of ~24.5k/year)

and if he were, as you say, able to sock away 18k/year into 401(k) (remember, individual contributions to a 401(k) and equivalents thereof are capped, though company could match quite a bit more), that would mean he was putting away only 6k/year.

Neither is a particular rosy situation, as it would indicate a seriously undersized nest egg compared to his house. In which case, it'd be all moot, and he'd be much better off down sizing than hoping for significant returns within ten years. Remember, if you are arguing for tax benefits, then you have to also keep in mind the RMD requirements

Agreed. I went with the assumption that his retirement contributions where nowhere near the max. Which I would assume is how he got into this pickle.

Also, agree that at 70.5, he's required to withdraw a small portion (4-5% to start) from his tax deferred accounts.

Good point about the potential for a company match for 401k contributions. That could change this math of this strategy in his favor, as well.

[tomato coupe]

I went with the assumption that his retirement contributions where nowhere near the max. Which I would assume is how he got into this pickle.

Why would you assume he's in some kind of financial pickle? There's nothing in the original post to indicate that.

[Marc40a]

Why would you assume he's in some kind of financial pickle? There's nothing in the original post to indicate that.

Sure there is.

A.) The advice was from a registered advisor. While that doesn't exactly guarantee that he's not getting fleeced. It certainly holds a lot more weight than speculation on a internet forum from non professionals.

B.) The recommendation was extreme so that's an indication that situation is likely dire.

C.) The original post indicates that he could sink the funds into his retirement plan. That tells me that he's nowhere near the max contribution. Which, if you're in a strong financial situation, you should be.

[Marc40a]

Continued...

Like I said, there's no way to know for sure without a more complete financial picture. How much he owes on his house, what it's worth, how much he makes, his retirement savings, etc...

If I had to guess from the original post... I'm guessing he's 'house poor' (Though I dislike using that term) - Probably under-funded his retirement over the years and likely had too high of a mortgage payment.

An ideal financial situation is the other way around, maxed retirement contributions each year and then a housing/mortgage budgeted after that.

These are generalizations, of course, based on the average situations.

[tomato coupe]

Sure there is.

A.) The advice was from a registered advisor. While that doesn't exactly guarantee that he's not getting fleeced. It certainly holds a lot more weight than speculation on a internet forum from non professionals.

You're speculating about his financial situation. His financial advisor is not.

B.) The recommendation was extreme so that's an indication that situation is likely dire.

The recommendation is not extreme, nor does it indicate the situation is dire.

C.) The original post indicates that he could sink the funds into his retirement plan. That tells me that he's nowhere near the max contribution. Which, if you're in a strong financial situation, you should be.

Not making the maximum contribution does not imply his situation is dire. The vast majority of people do not make the maximum allowable contribution, yet most of them are not in dire financial straits.

[tomato coupe]

Like I said, there's no way to know for sure without a more complete financial picture. How much he owes on his house, what it's worth, how much he makes, his retirement savings, etc...

And yet, you continue to speculate ...

If I had to guess from the original post... I'm guessing he's 'house poor' (Though I dislike using that term) - Probably under-funded his retirement over the years and likely had too high of a mortgage payment.

[Marc40a]

you're speculating about his financial situation. His financial advisor is not.

You just proved my point.


The recommendation is not extreme, nor does it indicate the situation is dire.

Sure it does. Why recommend it if the savings or advantages are minimal? It points to a cash flow issue.

Not making the maximum contribution does not imply his situation is dire. The vast majority of people do not make the maximum allowable contribution, yet most of them are not in dire financial straits.

It's not that he's not maxxed out as much as the implication that all that money can be sunk into retirement. A ~12-18k annual gap is nothing to sneeze at, but like I said, who knows how much we're talking.

As for most people's situation, i covered that in the 'generalizing' statement. Most people are under-funded and under-prepared for retirement. All the stats support it.

[Marc40a]

fixed

[seanile]

And yet, you continue to speculate ...

this is a thread based on a secondhand conversation. everything here is speculation

[Marc40a]

Shout out to Somerville.

I lived there for many years.

[Gummee]

this is a thread based on a secondhand conversation. everything here is speculation

Navel gazing at it's finest. We usually have to wait for winter to get these kinds of threads

M

[Marc40a]

I think that's the primary motivation for people who pay off their mortgage early. There's absolutely nothing wrong with that approach but, in many cases, it isn't the best thing to do from a financial point of view.


Yes and no. The game has changed a little bit.

See my post #40 on this page here:

https://forums.thepaceline.net/showthread.php?t=228823&page=3&highlight=mortgage+standard+deduction

[Dekonick]

Navel gazing at it's finest. We usually have to wait for winter to get these kinds of threads

M

Winter is coming

[Millses]

That's the saddest part of a mortgage, I can understand your friend. I got a mortgage 5 years ago, and I am still paying it. By the way I bought a house for my family in my hometown, with that mortgage. But I was lucky because, before I took that mortgage, I asked for help from Mortgage Advisor Middlesbrough (https://www.Middlesbroughmoneyman.com), and thanks to them, I got a good mortgage deal. Just tell your friend to be more careful next time, and to think twice before getting a loan, that's my advice for him. Have a nice day guys.

[soulspinner]

almost most likely the case

a lot of "Financial Advisors" (in air quotes because there's no certification needed to become one, nor does the title imply the person has the client's best interest in mind) are worse than vermin carrying the plague

as with most situations, ask cui bono, and follow the money

One of them ripped off my Sis inlaw. She lost 200000 but he got paid. * years later she got 60 back before lawyer fees. Oh ya he was a friend.

[Ralph]

When I retired at age 58, I paid off my mortgage. Looking back, it may not have been the smartest financial decision I ever made, but it was one of the more sensible decisions I ever made. It's been comforting all these last 22 retired years knowing that if it all goes to "heck", all I have to do is being able to pay the taxes and utilities to live here.

To me....having a paid for home is not just about the dollars. If it was all about the money, I should probably sell the house, save at least a $1000-1200/month in taxes, insurance, and maintenance, and use the "projected" (?) return off the house proceeds to rent a home.....and still have all the money. And I don't want to do that either.

And I'm a retired VP of Merrill Lynch with a pretty good grasp of the pro's and con's of this.

[AJM100]

IMO tell your friend to run and transfer his accounts. Sounds like he's saying to take cash out of a refi with. higher rate. Your friend would be better off getting a reverse mortgage down the road if he ever needed to leverage the home's equity or selling/downsizing.

Bet he wants to sell him an annuity too with the money he takes out of the home.

[reuben]

IMO tell your friend to run and transfer his accounts. Sounds like he's saying to take cash out of a refi with. higher rate. Your friend would be better off getting a reverse mortgage down the road if he ever needed to leverage the home's equity or selling/downsizing.

Bet he wants to sell him an annuity too with the money he takes out of the home.

Very, very skeptical of this FA. I paid my mortgage off years ago. Great move.

Your friend would have to earn at least as much on the new investments - after capital gains - as he'd pay on the mortgage.

[Elefantino]

I keep getting calls from mortgage companies offering below 3% refinancing on 30-year fixed for a limited time.

We don't have a mortgage.

Life is funny sometimes.

[C40_guy]

Interesting to see this thread brought back up after a year and a half...

In our case, we expect to pay off our mortgage in ~10 years.

My wife is a saver; she'd like to put every dime into paying off the mortgage. I'm the opposite; I'm an aggressive investor and consider the guaranteed return of 2.75% of paying off the mortgage as a bad choice.

I understand that for her it's a comfort issue. She wants to be debt free. But she doesn't understand N+1 :)

Over the past year our retirement accounts have grown by more than half of the mortgage balance. I don't know whether I'm a financial genius or just incredibly lucky. I'm hoping the former, will be happy with the latter (as long as it continues). 2020 was a wacky year, with regard to the market (and more); who knows what 2021 will bring.

So we *are* saving aggressively in our retirement accounts. But I don't want to put off living now for the future...the key is to find the right balance between the two.

[saab2000]

I just refinanced at 2.75% on a 20-year. I maybe could have done even better but I'm pretty happy for this rate. My monthly payments go up slightly but I'm chopping a decade off the previous mortgage. Or just over 9 years since I was just over a year in.

Everyone I know who has paid off their mortgage is happy to have done so. I would if I could. They all speak of the peace of mind of actually owning their house outright.

[VTCaraco]

My thinking has been that people are much more likely to skip a monthly contribution to a retirement whereas they would NOT skip a mortgage payment.

We've refinanced a few times.
Once because we were nearly paid off and we were fairly young, a second time to do some renovations, and a third time to secure funds to pay for our son's college. Our monthly payment have remained modest (relative to our income), our term stays manageable (always 10-yr notes and well within our "working years") and we've made good use (in my opinion) of the funds.

So I feel like our playing with mortgages (given interest rates, returns and relationships between money coming in and money going out) has been a prudent way for us to find balance between savings, liquidity and cash-flow.


I'm skeptical of all sources of financial advice, but I think that this has been fairly sound for us.
And I think that the underlying piece here, for us, is that we've lived in a home that is very reasonable relative to our income.

[oldpotatoe]

My thinking has been that people are much more likely to skip a monthly contribution to a retirement whereas they would NOT skip a mortgage payment.

We've refinanced a few times.
Once because we were nearly paid off and we were fairly young, a second time to do some renovations, and a third time to secure funds to pay for our son's college. Our monthly payment have remained modest (relative to our income), our term stays manageable (always 10-yr notes and well within our "working years") and we've made good use (in my opinion) of the funds.

So I feel like our playing with mortgages (given interest rates, returns and relationships between money coming in and money going out) has been a prudent way for us to find balance between savings, liquidity and cash-flow.


I'm skeptical of all sources of financial advice, but I think that this has been fairly sound for us.
And I think that the underlying piece here, for us, is that we've lived in a home that is very reasonable relative to our income.

Agree..for US, the bottom line was 'cash flow', as in refi with a low enough interest rate(didn't take any equity $ out) to make the monthly 'nut' the lowest possible. Don't need the $ or the increased monthly $ vs higher monthly payments to get it paid off.
We ARE going to sell it in the next 2 years to find a place closer to grand kids and one story..but RENT..as the interest paid now is so low, we don't itemize income tax returns now anyway..Take the proceeds(no capital gains tax)..and invest for kids when we both go south...:)

[wallymann]

My firm has been stressing our portfolios and it is conceivable that equities may fall as much as 50% in the next recession if it is a 1-in-10 cyclical event. This is due to the high volume leverage in corporate debt, which are at record highs. The leveraged loan market has grown 5x in dice since 2014 to $1.5 trillion, which is now the same size as the junk bond market. Corporate debt is likely to be the next asset bubble (housing was in 2008).

stress-testing is a hugely valuable exercise, but this doomsday scenario is dependent on interest-rates jumping substantially from their current record lows...how likely does your firm believe this outcome to be and when? has the fed made any noise about rates?

[shoota]

I've had a mortgage free home for over 20 years. Have recently been kicking around (in my mind) the idea of taking out a big mortgage. I'm 78 now. I can make the case.....invest the money, withdraw 4% per year of invested funds.....sill own the home and have more money invested. Deduct the interest, etc.

And withdrawing 4% from balanced investment funds has stood the test of time since WW11. Principal has been more than maintained. So on paper.....not a bad idea. The FA is correct.....in theory.

But....I'm not going to do it. Like having a paid for home. Don't need more money to spend. Don't want the risk of something happening no one is thinking about. Being debt free is not all about money.

Bam. Excellent post, thank you sir.

I wonder what the OP's friend wound up doing back in 2019...

[tuxbailey]

I just refinanced at 2.75% on a 20-year. I maybe could have done even better but I'm pretty happy for this rate. My monthly payments go up slightly but I'm chopping a decade off the previous mortgage. Or just over 9 years since I was just over a year in.

Everyone I know who has paid off their mortgage is happy to have done so. I would if I could. They all speak of the peace of mind of actually owning their house outright.

Me too. Chances a very low that we will get the current rate again soon. I plan to refinance again in couple years to a 15 year mortgage if the rate is similar to now.

[robt57]

We where looking to refi our 30 yr originated in 2011 into a 15yr.

Met with loan officer @ bank. Left metting abruptly at point of seeing the closing costs, and non answer to my question of points on back side.

Next 1st of the month we did a cap reduction = to the loan points/cost the refi would have been. And since then additional cap reduction per mo. Triple the previous cap reductions we had been doing for last few years.

[redir]

My wife and I have this discussion a lot. I'm of the opinion that we should pay off the house as fast as possible. This is where we live and once you own it the banks can't take it away. She is of the opinion that putting the money in an account that generates a better rate is best in the end. Both arguments are correct, that's the problem. You just gotta weigh the options.

[Kirk007]

Yes interesting to see this pop back up but these are interesting times. In Oct/Nov I had a popup advert to the effect that 30 year fixed rate mortgages were down to 2.25. We were at 3.75. Pursued and ended up working with what I was assured by our current lender was an untrustworthy internet lender. Well, at the end of the day we refinanced at 2.49% for 30 years and it cost me $800 to do so. Transaction was painless and as anticipated the loan has been sold to Fannie Mae and it's serviced by a big company, autopayment set up so should been set up and forget. The only downside, if this is one, is that the between declining interest payments, the restriction on deducting state and local taxes and our little ngo finally getting a health plan is that we may no longer do better than the standard deduction.

At a rate of 2.49% it gets harder and harder to justify paying off the mortgage, for our circumstances at least, which are that the current house we are in will likely not be a permanent residence for more than the next 5 years, if that (my wife is a bit like goldilocks with houses and I already have been told that this one isn't "just right" and I know I am not good with a remaining lifetime of Pac NW winters). So for us, putting extra disposable income into other investment vehicles rather than increasing our equity in our house just seems like a better option and our interest rate is so low that monthly nut is less than we would pay in rent for an equivalent house.

The original scenario though of refinancing to a higher interest rate - nuts.

[JasonF]

I'm a JD/CFP and as others have mentioned being debt-free is as much an emotional decision as a financial one.

Any "advisor" that urges a client to not pay down debt and instead "invest" in an annuity should be fired immediately. After all, paying down mortgage debt provides a guaranteed return whereas an annuity income stream includes both an interest component (which is very low in this environment) and a return of your own principal. It's an apples/oranges comparison.

If someone is risk averse I think it's perfectly fine to pay down mortgage debt, even if you think you could do better investing the money. After all, cash flow is freed up and that in and of itself is a good thing. At the very least you could invest the excess cash flow generated.

All that said, rates are so low now that I'm taking out a 30-year fixed mortgage @ 2.375%. No points/no closing costs. The mortgage will be only one-half of my annual income and we have no other debt. We have funds in taxable (non-IRA) accounts to pay it off but even at current high valuations, I'm optimistic the markets will out-earn 2.375%...there's never been a 35 year period where the annual return of the S&P500 fell below 8%...this chart is pretty striking and includes the Great Depression, 73-74, 2000-2009, 70s inflation, etc...

And if 100% equities is too risky, the rolling 10-year annual returns for a 60/40 portfolio aren't bad either....

And remember, a huge selling point about a low fixed-rate mortgage is that even benign inflation devalues the mortgage in nominal (future) dollars.

[robt57]

Well, at the end of the day we refinanced at 2.49% for 30 years and it cost me $800 to do so.

Only if your loan amount didnt actually increase. Thus my comment about back side points.

One of our options was near zero closing costs. But paying intertest on the closing costs for the term when they get added to the principal loan amount, no thanks. Our guy tried talking us into this by saying our loan was too small and that get us to a better rate.

While the better rate might be true, math shows paying interest on the closing costs for the term far out weighs a minute rate discount, in our case. Each state is different too.

[vav]

Yes interesting to see this pop back up but these are interesting times. In Oct/Nov I had a popup advert to the effect that 30 year fixed rate mortgages were down to 2.25. We were at 3.75. Pursued and ended up working with what I was assured by our current lender was an untrustworthy internet lender. Well, at the end of the day we refinanced at 2.49% for 30 years and it cost me $800 to do so. Transaction was painless and as anticipated the loan has been sold to Fannie Mae and it's serviced by a big company, autopayment set up so should been set up and forget. The only downside, if this is one, is that the between declining interest payments, the restriction on deducting state and local taxes and our little ngo finally getting a health plan is that we may no longer do better than the standard deduction.

At a rate of 2.49% it gets harder and harder to justify paying off the mortgage, for our circumstances at least, which are that the current house we are in will likely not be a permanent residence for more than the next 5 years, if that (my wife is a bit like goldilocks with houses and I already have been told that this one isn't "just right" and I know I am not good with a remaining lifetime of Pac NW winters). So for us, putting extra disposable income into other investment vehicles rather than increasing our equity in our house just seems like a better option and our interest rate is so low that monthly nut is less than we would pay in rent for an equivalent house.

The original scenario though of refinancing to a higher interest rate - nuts.

Hi Kirk,( and others) I am also at 3.75 and in the process of a refi. Would you mind disclosing your lender? I like the rates that I am seeing - between 2.25 and 2.5 but I don't like the closing costs - north of $ 6k so far all the optios that I have explored.

Thanks

[vav]

Only if your loan amount didnt actually increase. Thus my comment about back side points.

One of our options was near zero closing costs. But paying intertest on the closing costs for the term when they get added to the principal loan amount, no thanks. Our guy tried talking us into this by saying our loan was too small and that get us to a better rate.

While the better rate might be true, math shows paying interest on the closing costs for the term far out weighs a minute rate discount, in our case. Each state is different too.

This is my impression so far of the process. When I do the math, it starts to not make sense anymore and the deal is not as sweet as advertised

[veloduffer]

stress-testing is a hugely valuable exercise, but this doomsday scenario is dependent on interest-rates jumping substantially from their current record lows...how likely does your firm believe this outcome to be and when? has the fed made any noise about rates?

I made this quote in 2019 and stress-testing, for a firm, is to look at shocks and trying to remain solvent. The past 3 recessions (2000, 2008 and current) are far from Doomsday scenarios, yet the markets did fall as far as -57% (SPX in 2008) and had three consecutive years of negative returns in 2000.n In March 2020, the S&P did fall -34% in less than a month. So it doesn't take a high severe recession to produce high equity volatility.

What wasn't anticipated was the intervention by the Fed, which learned a lot from the Financial Crisis and deployed all their tools quickly. They also added new tools like buying corporate junk debt and ETFs, and regulators allowed lenders to extend payment deferrals and other modifications to impacted borrowers without classifying those assets as troubled (which would require higher reserves & capital).

Plus there was the large fiscal stimulus that wasn't so much to incentivize spending but providing survival for many households, in addition to rent and mortgage deferrals.

But, this has come at a cost. The US fiscal deficit is the highest it's ever been with about at $3.3 trillion or 16% of GDP and we spend about 9% of the govt budget on interest payments (about $380 billion), as US govt debt is $27 trillion and exceeds GDP. This is an unsustainable path. We benefit from low interest rates and the US being a reserve currency (this could change with cryptocurrency and could be other than bitcoin).

Compounding the situation is the aging US population and the depletion of Medicare (by 2026) and Social Security funds (by 2035), which are really US govt debt too (special non-tradable treasuries).

As for interest rates, there are several studies showing that asset values and interest rates are not highly correlated. Recessions don't require a jump in interest rates (eg Financial Crisis) as each recession is different.

[robt57]

Another aspect which may or may not be important to a refi customer. Does the originator sell off your loan 4 seconds after it closes.

In the 80s I had a second i pulled to finish off a renovation of a house that sold 3-4 months later. 1st and 2nd paid off upon sale.

The guy who bought the second mort resold it in a package to 5 other mortgage buyers. My closing attorney testified at his fraud trial.

Case in point about internet loan sourcing folks, newspaper back then ;)

[Kirk007]

broker was out of Phoenix - Milo Mortgage. Lender was Home Point Financial, which has mediocre reviews on line as a loan service agent with folks complaining about payments not being credited etc, but they are big and growing and having autopay on line, at least for me so far, assuages any concerns I had.

We went straight across on loan balance and since payment date lagged funding by almost 60 days I just added a payment to the first one to keep the balance declining as if the refi didn't happen (if that makes sense).

[JasonF]

Hi Kirk,( and others) I am also at 3.75 and in the process of a refi. Would you mind disclosing your lender? I like the rates that I am seeing - between 2.25 and 2.5 but I don't like the closing costs - north of $ 6k so far all the optios that I have explored.

Thanks

I'm using LenderFi....

I'm self-employed and so far no pushback (it's notoriously difficult for the self-employed to get financing)...then again, our debt-to-income ratio is under 5% and they're happy as long as it's under 40% for a conforming loan...

Here's a breakdown of a 30-year fixed @ 2.5%. Rates must have moved higher because I have a similar quote @ 2.375%. This is for a conforming loan in Los Angeles (conforming limit for my zip code is $822,375).

[robt57]

This is my impression so far of the process. When I do the math, it starts to not make sense anymore and the deal is not as sweet as advertised


And exactly why we took the path we took forgoing refi as per my initial post in this thread..

[robt57]

I'm using LenderFi....

I'm self-employed and so far no pushback (it's notoriously difficult for the self-employed to get financing)...then again, our debt-to-income ratio is under 5% and they're happy as long as it's under 40% for a conforming loan...

Here's a breakdown of a 30-year fixed @ 2.5%. Rates must have moved higher because I have a similar quote @ 2.375%. This is for a conforming loan in Los Angeles (conforming limit for my zip code is $822,375).

Without seeing the pre and post principal loan amounts...

[jds108]

The mortgage will be only one-half of my annual income and we have no other debt.

Your DTI from just your mortgage is 50%? Is that right?

[arimajol]

Interesting this popped back up now. I've got an ARM-5 mortgage, and the 5 year fixed period is ending this summer. The rate will jump from 2.99 to 4%, which is the floor for the adjustable period. House was a short sale, so principle is like 46k, home value is more like 120k. My wife just finished her PhD and we are about to start paying down her loans. It seems advantageous to refinance now to bring that rate down before it jumps. Thoughts on taking out some cash to pay down the $90k student loans that are 8% interest?

[bigbill]

I bought a house in September. I sold my last house in December of 2018 and have been renting in the area until I figured out life. I got a 2.87% APR mortgage from USAA, which is where I do my banking, car financing, and credit cards. My mortgage is less than what I was paying in rent. My neighborhood is about 50% retirees so if I decide to not stay here, I can easily sell it.

[OtayBW]

2.75% fixed 30 yr for me last month on a new purchase. Will be dead before I pay it off! :eek:

[tomato coupe]

The only thing sillier than thinking your bike preferences should apply to everyone, is thinking your financial situation applies to everyone. Some people like the security of paying off their mortgage early, while others are comfortable carrying a mortgage to the day they die.

[JasonF]

Without seeing the pre and post principal loan amounts...

You can plug in any figure you want to get their estimate of closing costs...this was for a conforming loan with at least 50% LTV...in this case a $750k mortgage on a home appraised for $1.5 million.

Your DTI from just your mortgage is 50%? Is that right?

No, our DTI for everything (incl. mortgage - what lenders call "back end dti") is under 5%. We own our cars and have no other debt.

[JasonF]

The only thing sillier than thinking your bike preferences should apply to everyone, is thinking your financial situation applies to everyone. Some people like the security of paying off their mortgage early, while others are comfortable carrying a mortgage to the day they die.

Agree 100%!

[prototoast]

Interesting this popped back up now. I've got an ARM-5 mortgage, and the 5 year fixed period is ending this summer. The rate will jump from 2.99 to 4%, which is the floor for the adjustable period. House was a short sale, so principle is like 46k, home value is more like 120k. My wife just finished her PhD and we are about to start paying down her loans. It seems advantageous to refinance now to bring that rate down before it jumps. Thoughts on taking out some cash to pay down the $90k student loans that are 8% interest?

Yes, refinancing house to 30 years with a lower interest rate and paying off 8% student loans is a good idea.

[robt57]

Jumbo loans above my paygrade. We are in a house we stole in 2011 with 5 figure balance. My goal was no mortgage by retirement, but retired quite early.


in this case a $750k mortgage on a home appraised for $1.5 million.

[MikeD]

Just after I retired, I had about five years left on the mortgage. The payment was mostly principal and it would have been better to not pay it off, but I did because I didn't want any debt going into retirement. More for piece of mind than anything.


Sent from my iPhone using Tapatalk Pro

[Ralph]

Just after I retired, I had about five years left on the mortgage. The payment was mostly principal and it would have been better to not pay it off, but I did because I didn't want any debt going into retirement. More for piece of mind than anything.


Sent from my iPhone using Tapatalk Pro

Same here.....Peace of mind has a value also.

[2000m2]

Sleeping well at night is worth a lot :)

[Gummee]

There's nothing wrong with having a mortgage in this situation, as long as you don't squander the "borrowed" money. If you invest it, you likely will come out ahead financially. And, if an emergency arises, your assets will be more easily accessible.

I wouldn't bother trying to convince most of these folks. Their mind is made up and they're following the last generation's advice. The generation that still had pensions (aka an annuity) to pay them after retirement

If you have to provide your own retirement, which is everyone with a 401(k) rather than a pension, you should think about compound interest working FOR you or against you

Like ole Forrest Gump: and that's all I'm going to say about that

M

[flying]

Should be like Baseball....meaning.... Home Base is Safe ;)

I always said I would be mortgage free before 60 & I was
I do not regret it one bit

A debt free life is a simple things & a great joy to us.

When I paid ours off I remember thinking back to reading about previous generations & how they use to have a mortgage burning party. It was something to celebrate :banana:

[George_H]

Here is a plagiarized response from another message board I follow:

Paying off the mortgage may or may not be the absolute optimum thing you can do financially, but it's not far enough from it to be unwise or foolish.

I've read all the clever-clever arguments for not paying off mortgages, and I believe any advantages are theoretical and marginal at best.

In life, s--t happens. Not paying down debt is like not fixing a leaky boat on the grounds that the math shows the pump is more than capable of dealing with the leak. The math may be correct, but the plan is not robust in the event of the unexpected.

Psychologically, paying off a mortgage is just unpleasant and boring. There's no creativity to it, no opportunity to exercise arcane knowledge or bold intuition. I honestly feel that people seek excuses not to do it.

Point number 1. Paying down the mortgage is bad for people who would like to sell you investments. They want you to give your money to them, not to the mortgage company. So, they are going to be quick to come up with all the plausible reasons why it's better to invest than to pay down the mortgage. Consider the possibility that some of the things you hear are either sales pitches, or sales pitches at second hand from people who've fallen for them.

Point number 2. Paying down the mortgage is bad for the mortgage company. They want a nice reliable stream of payments going out as long as possible. They don't want it to stop any earlier than usual.

So, if paying down the mortgage is bad for investment companies and bad for the mortgage company, who is it good for? Who's left? You.

[SPOKE]

I lost my job back in May due to COVID cutbacks. Still sleep well at night with a paid-off mortgage and a bit of non-qualified cash in the bank.

[tomato coupe]

I've read all the clever-clever arguments for not paying off mortgages, and I believe any advantages are theoretical and marginal at best.
The arguments are neither theoretical nor marginal. Our mortgage is at 3.625%. Our investment portfolio returned 21.3% in 2019 and 12.9% in 2020. The financial benefit of not paying off our mortgage is real and sizable.

[54ny77]

the answer to this question is marginally more volatile than what's better, campy vs. sram vs. shimano?


:banana:

[Louis]

My mortgage is less than what I was paying in rent.

Perhaps, but compared to renting home ownership comes with quite a few other expenses over and above the mortgage.

[robt57]

Perhaps, but compared to renting home ownership comes with quite a few other expenses over and above the mortgage.

Indeed, all you gotta do is look at my Home Depot yearly patronage.

[Ralph]

About a year ago, some relatives asked me to help them investigate a relatively unknown mortgage product called a "reverse to purchase" mortgage. They were in their early 70's, one in poor health, and needed a different home....one with no stairs and smaller....less upkeep. Their current home was mortgage free and worth $400,000-$425,000. They wanted to stay in their community in their home town, liked their life there, Doctors, etc....and also needed some money out of their home to supplement their income. They were considering a "reverse to purchase" to buy a different home. (from AIG)

Basically....they way it worked was....sorta like an insurance product. Based on their age and life expectancies. They would have been required to put down about 55% of the purchase price based on their ages....on a roughly $325,000 home they were considering. The balance of the sale of previous home they could keep. They would never have to leave the home until last one died, or left the home. No mortgage payments, etc. But mortgage balance is growing. And they W/B required to pay taxes, insurance, and keep it up as normal. When the last one left the home, the heirs could sell the home. If there was any equity at that point, heirs could have it. They could also sell the home at any time, and pay off the mortgage, if their condition changed, just like a normal mortgage. With a mortgage on 45% of the new home accruing interest and the whole home appreciating at traditional rate, heirs should still likely inherit something, but that wasn't one of the goals. Actually....an example of historical appreciation rates of homes in their area showed they should start GAINING equity paying back insurance costs at about year 10 (if they were in the home then). With equity growing from there.

Cost to do this was about $8000 roughly. A lot...but maybe not if it solved a big problem. I didn't see anything wrong with doing this for someone in their particular situation. Repeat....someone in their situation. It gave them the home they needed for that stage of their lives, and let them stay in the community they liked.....with cash out of previous home, and no mortgage payment.

[Alstra]

Depends on really! If you get a good plan with fixed rates then you're fine even if it's for 30 years. I was having the same dilemma with my hubby on whether we should go in such a stressful situation such as paying a mortgage possibly for the rest of our lives. We sat down and started calculating the overall expenses and our financial ability to maintain such monthly rates that most banks were asking for. We couldn't figure it out no matter how hard we tried. It was then that we took matters to a mortgage broker Liverpool (https://www.liverpoolmoneyman.com) . He was calm and friendly and showed real interest in our family benefits compared to any other cold bank agent we saw prior to him.