OT: Not Paying Off Your Mortgage

[Peter B]

Originally Posted by saab2000

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

[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 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).




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[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]

Originally Posted by Ken Robb

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