kd2008 wrote: ↑Wed Apr 14, 2021 5:42 pm
Life is risky. We hardly ever take equivalent risk with our choice of partners, jobs, friends etc. And we dust up and try again if we fail.
Take the risk you can. Insure the ones you cannot.
For some, cash flow picture in retirement improves dramatically upon paying off mortgage and saves taxes on withdrawals from IRAs.
Their is no one size fits all.
Agreed. I don't believe there is a "wrong" decision here. One can easily make their case for one side or the other which includes many factors, both financial as well as personal (as is often the case in life).
Admiral wrote: ↑Wed Apr 14, 2021 6:59 pm
I would not pre-pay a sub-4% mortgage unless it was to kill it before retirement (and, again, in such a case you're hopefully financially comfortable anyway.)
I don't subscribe to the morgage-as-negative-bond theory of finance, nor do I take issue with holding bonds and a mortgage (at least bonds in a retirement account.) You can't eat your house or sell off a bathroom. Bonds have their place in a portfolio. A mortgage is simply a debt uncorrelated to a portfolio.
I have never, and won't likely ever, pre-pay my 2.25% mortgage. I may pay it off early. But certainly not down.
* At age 48, I now often think about paying off my mortgage for retirement. Mainly to have more flexibility in terms of income for Roth conversions and whatever else that may be a possibility (subsidies, etc.).
* I also think mortgage and bonds play different roles in my overall finances. I struggle with some of the arguments in regard to having both. Very often I see analysis based upon current conditions (mortgage rate today vs bond rate today to support paying off the mortgage). I do not see it as straightforward as this and I think carefully about my fixed rate mortgage at 2.625% which is a certainty vs my BND / BNDX ETFs which are fluctuating with the market. Of course, I don't know the future, but I am willing to make an assessment of potential options and risks and take action accordingly.
* In other posts, I have supported the general idea of borrowing as much as possible for as long as possible and paying it back with inflated dollars. At my current mortgage rate and future inflation (whatever that may ultimately may be), I am willing to continue holding my mortgage for quite some time and see how things play out. Depending on interest rates, I think a reasonable chance I may pay it off per schedule vs before retirement.
* Further (and important for our family), the mortgage provides me with flexibility to support longer term goals as well as current obligations at this time life including:
- Additional funding for retirement (boosting Roth contributions via mega backdoor Roth to achieve a better balance / optionality with pre-tax (currently 83% pre-tax and 17% Roth))
- Cash flowing a portion of college expense for 4 kids (rest via 529s)...2 kids already in college.
I-Know-Nothing wrote: ↑Wed Apr 14, 2021 5:43 pm
If you don’t have a mortgage in retirement, you will have lower expenses, which opens up a lot more opportunities. You could bring your expenses low enough that your income qualifies you for substantial ACA credits, which would make your income needs even lower. And you can potentially keep your tax bracket down - so you can do more Roth conversions at 0 or 10%.
Also agreed! As mentioned above, I think about this a lot (and when / how much time to give myself to accomplish it if I should decide to do so.). As noted immediately above, decision and timing are still pending (let's see how things develop over the next few years).
Admiral wrote: ↑Thu Apr 15, 2021 8:04 am
There's very little utility in agonizing over pre-paying a mortgage with a tiny interest rate or buying bonds with a tiny interest rate. Your mortgage has the tremendous financial benefit of being FIXED at that tiny rate. Bond interest rates are not fixed. I cannot tell you how many times over the last 8 years people have been absolutely 100% sure that interest rates would be zero, or below zero, only to be wrong.
Inflation now seems to be a thing again, even a modest thing. Keep your mortgage, keep your bonds, and wait to see what happens. The great thing about investing in taxable (call it a dedicated "sinking fund" if you want, but it's mental accounting) is that when you have enough, you can
pay off your mortgage, but you don't have
Fat-Tailed Contagion wrote: ↑Wed Apr 14, 2021 12:40 pm
I don't see many people consider the inflation factor in a fixed-rate mortgage.
Every year you are paying your fixed-rate mortgage with less valuable dollars.
At very low rates, it seems like a winning strategy to take out as much debt as possible for the longest possible term.
Aligns with my current thinking.
prd1982 wrote: ↑Wed Apr 14, 2021 12:33 pm
Paying off your mortgage may not be the best financial decision, but it won’t be the worst investment decision you make.
Yup. Fully support those who wish to do so.
KlangFool wrote: ↑Wed Apr 14, 2021 12:26 pm
Let me give you one more. Folks that pay off the low interest- rate mortgage and then take a more expensive student loan for their kids.