Pay off house before retirement or have available cash?

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Artsdoctor
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Re: Pay off house before retirement or have available cash?

Post by Artsdoctor »

3-20Characters wrote: Wed Aug 28, 2019 6:18 am OP, you’re asking the wrong question. I’m afraid that you may not understand your risk—which is high for sequence of returns. Your portfolio is almost 90% S&P 500. Make sure your AA is one that you’re comfortable with instead of finding out it’s not a couple of years from retirement date—just before the salary spigot turns off abruptly.

Vanguard - Determine your asset allocation
https://personal.vanguard.com/us/FundsInvQuestionnaire

Also, figure out your expenses at retirement and see how much of that your portfolio income has to support (after SS). As for the mortgage, how would you pay it off? I think you’re thinking of cutting back on retirement contributions? If so, are you leaving employer matching funds on the table? That I would never do!
Agreed. We are discussing a topic that is relatively unimportant in the larger scheme of things. At first glance, the answer would be, "No, you're not ready pay off your mortgage because you don't have the fundamentals in place yet."

You're making $400,000-$500,000 per year. You're going to have to figure out how much you're going to want--and need--to spend each year once the earnings stop. You can't really make a plan, let alone decide if you've met your goals, until you've done that.

There are many, many ways to tap a portfolio, but a very loose estimate you might want to consider when you first retire is this: for every $1M you have, you'll take $40,000. So before we even consider what do you with your mortgage, you'll want to go back to basics and ask yourself how much your portfolio can generate when you're no longer working.

A couple of red flags jump out which you might have very quick and easy answers to:

You're making a reasonable salary. The amount of savings you have currently is far less than someone would generally have in that salary range although there might be extenuating circumstances (perhaps you went from making $100,000 per year to $500,000 per year in a very quick period of time). So at first glance, I'm skeptical that your portfolio will generate enough income for you but perhaps you've worked that out.

Your sequence of return risk is quite high. It doesn't sound like you're familiar with bonds or fixed income in general. Consequently, I'd take a step back and learn about the fundamentals of designing a portfolio to suit your needs; our Wiki page is a great resource for this. You can start with the basics and go on from there.

Only after you've put together an outline of your needs and goals can you then answer a question about your mortgage. The mortgage question is insignificant compared to the other issues above.
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Re: Pay off house before retirement or have available cash?

Post by grabiner »

SandysDad wrote: Fri Aug 30, 2019 8:43 am
HomeStretch wrote: Tue Aug 27, 2019 5:09 pm You have $1.7 million in savings ($1.5 million in equities and $200k in a money market fund). If you do decide to invest the $200k, consider a total US market bond.

You say you are risk averse but your current asset allocation of 88/12 (equities/cash) is very aggressive for your age/retirement target date.
Actually if you take the 500K in mortage debt as a negative against cash and bonds, the OP is over 100% equities. At 59 this is a very aggressive AA.
And thus paying off the mortgage would result in a more conservative asset allocation, and thus a more reasonable one.

I look at paying off my mortgage in the same way. My asset allocation is 90% net stock, counting the mortgage as a negative bond. If I pay off my mortgage, I will sell stock because that is what I hold in my taxable account, then move an equal amount from bonds to stocks in my employer plan. Thus, I will not change my risk level; I will have the same number of dollars in stock either way, expecting to take the same loss if the stock market crashes.
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Re: Pay off house before retirement or have available cash?

Post by Dottie57 »

delamer wrote: Fri Aug 30, 2019 2:12 pm
Dottie57 wrote: Fri Aug 30, 2019 9:04 am
Jack FFR1846 wrote: Wed Aug 28, 2019 6:34 am
RickBoglehead wrote: Wed Aug 28, 2019 5:59 am
I don't understand those that aim to be debt free in retirement.
I'm debt free. I have not yet retired.

I don't understand how anyone could retire with a mortgage hanging over their head.
+1
Our mortgage debt is 6% of our liquid net worth.

Our Social Security and pensions will more than cover our expenses in retirement.

Paying off a 2.75% mortgage has no appeal.

I can certainly understand why some people prefer to pay off their mortgages prior to retirement.

What I don’t understand is why people can’t see that our decision makes sense for us?
I am the conservative , risk averse person. I have friends (multiples) who retired early. And yet complain about mortgage payment. They knew ahead of time about the size of payments and the cost of health care.

I think you are the exception if your house is only 6% of net worth. I know mine is about 12%.

A mortgage in retirement can bulldoze you during a big, long market downturn. Bogleheads are very far from the norm.
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Re: Pay off house before retirement or have available cash?

Post by delamer »

Dottie57 wrote: Fri Aug 30, 2019 4:15 pm
delamer wrote: Fri Aug 30, 2019 2:12 pm
Dottie57 wrote: Fri Aug 30, 2019 9:04 am
Jack FFR1846 wrote: Wed Aug 28, 2019 6:34 am
RickBoglehead wrote: Wed Aug 28, 2019 5:59 am
I don't understand those that aim to be debt free in retirement.
I'm debt free. I have not yet retired.

I don't understand how anyone could retire with a mortgage hanging over their head.
+1
Our mortgage debt is 6% of our liquid net worth.

Our Social Security and pensions will more than cover our expenses in retirement.

Paying off a 2.75% mortgage has no appeal.

I can certainly understand why some people prefer to pay off their mortgages prior to retirement.

What I don’t understand is why people can’t see that our decision makes sense for us?
I am the conservative , risk averse person. I have friends (multiples) who retired early. And yet complain about mortgage payment. They knew ahead of time about the size of payments and the cost of health care.

I think you are the exception if your house is only 6% of net worth. I know mine is about 12%.

A mortgage in retirement can bulldoze you during a big, long market downturn. Bogleheads are very far from the norm.
You didn’t say people should think long and hard about having a mortgage in retirement, which I’d agree with.

You said that “I don’t understand how anyone could retire with a mortgage.”

Just because your friends complain about their mortgages in retirement and you are a risk adverse person, then no one should have a mortgage in retirement?

(Our house isn’t 6% of my net worth — our mortgage is 6% of our liquid assets.)
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Re: Pay off house before retirement or have available cash?

Post by Dottie57 »

delamer wrote: Fri Aug 30, 2019 5:17 pm
Dottie57 wrote: Fri Aug 30, 2019 4:15 pm
delamer wrote: Fri Aug 30, 2019 2:12 pm
Dottie57 wrote: Fri Aug 30, 2019 9:04 am
Jack FFR1846 wrote: Wed Aug 28, 2019 6:34 am

I'm debt free. I have not yet retired.

I don't understand how anyone could retire with a mortgage hanging over their head.
+1
Our mortgage debt is 6% of our liquid net worth.

Our Social Security and pensions will more than cover our expenses in retirement.

Paying off a 2.75% mortgage has no appeal.

I can certainly understand why some people prefer to pay off their mortgages prior to retirement.

What I don’t understand is why people can’t see that our decision makes sense for us?
I am the conservative , risk averse person. I have friends (multiples) who retired early. And yet complain about mortgage payment. They knew ahead of time about the size of payments and the cost of health care.

I think you are the exception if your house is only 6% of net worth. I know mine is about 12%.

A mortgage in retirement can bulldoze you during a big, long market downturn. Bogleheads are very far from the norm.
You didn’t say people should think long and hard about having a mortgage in retirement, which I’d agree with.

You said that “I don’t understand how anyone could retire with a mortgage.”

Just because your friends complain about their mortgages in retirement and you are a risk adverse person, then no one should have a mortgage in retirement?

(Our house isn’t 6% of my net worth — our mortgage is 6% of our liquid assets.)
I don’t understand why you want a mortgage in retirement. All that I have to say.
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Re: Pay off house before retirement or have available cash?

Post by Artsdoctor »

Dottie,

I have mixed feelings about having no mortgage as I approach retirement (or 65 because I'm not sure I'll retire!). It is true that having no monthly mortgage payment is very liberating and I don't have many regrets paying off the mortgage. If work-related income were to stop altogether, I'm sure I'd appreciate the freedom of not having a mortgage.

However, there are a couple of advantages of having a low-rate mortgage. If the rate is fixed, it is a hedge against inflation; for example, if you have a 2.8% fixed rate mortgage, your monthly payment is never going to change despite an uptick in inflation (if that ever happens). The other thing that I'm having trouble wrapping my head around is how illiquid a home investment can be; our home value is about 30% of our net worth, a figure that is relatively low for some parts of California but higher than I'd like. But it's very difficult to tap the equity of the house so it really doesn't help me out all that much aside from providing shelter. There is the imputed rent, of course, but there's a lot of money just sitting on a lot which I can't really spend.
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Re: Pay off house before retirement or have available cash?

Post by willthrill81 »

Artsdoctor wrote: Sat Aug 31, 2019 10:45 amHowever, there are a couple of advantages of having a low-rate mortgage. If the rate is fixed, it is a hedge against inflation; for example, if you have a 2.8% fixed rate mortgage, your monthly payment is never going to change despite an uptick in inflation (if that ever happens). The other thing that I'm having trouble wrapping my head around is how illiquid a home investment can be; our home value is about 30% of our net worth, a figure that is relatively low for some parts of California but higher than I'd like. But it's very difficult to tap the equity of the house so it really doesn't help me out all that much aside from providing shelter. There is the imputed rent, of course, but there's a lot of money just sitting on a lot which I can't really spend.
A paid off home is a hedge against inflation as well. And as long as one has enough income coming from other sources, I don't see how the relative illiquidity of a home is a real problem for retirees who are financially independent.

The value of imputed rent varies greatly from one place to another. In our case, it's about 5% annually. I don't feel confident that my investments will reliably outperform that going forward, especially when you take volatility into account.
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Re: Pay off house before retirement or have available cash?

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^ I can list a wide range of advantages to paying off a mortgage before retirement. I actually thought there would be bells and whistles when our last payment was made but it was a little anti-climactic. It was only later as the monthly cash account seemed to increasing and not decreasing that I realized that maybe there was something to it after all.

I think I did a poor job explaining the inflation hedge with a mortgage. Let's say that someone was paying a fixed rate on her mortgage and that the funds were coming from monthly social security deposit. As time goes on over the years, the social security income would increase but the mortgage payment would stay the same. Paying $1,200 a month in 2019 would be very different than paying $1,200 a month in 2035. Once the house is paid off, it's inflation-neutral, or at least that's the way I think of it. It may or may not appreciate in value, and it's logistically difficult to extract money out of it.
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Re: Pay off house before retirement or have available cash?

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Artsdoctor wrote: Sat Aug 31, 2019 2:57 pm ^ I can list a wide range of advantages to paying off a mortgage before retirement. I actually thought there would be bells and whistles when our last payment was made but it was a little anti-climactic. It was only later as the monthly cash account seemed to increasing and not decreasing that I realized that maybe there was something to it after all.

I think I did a poor job explaining the inflation hedge with a mortgage. Let's say that someone was paying a fixed rate on her mortgage and that the funds were coming from monthly social security deposit. As time goes on over the years, the social security income would increase but the mortgage payment would stay the same. Paying $1,200 a month in 2019 would be very different than paying $1,200 a month in 2035. Once the house is paid off, it's inflation-neutral, or at least that's the way I think of it. It may or may not appreciate in value, and it's logistically difficult to extract money out of it.
Yes, a paid off home is inflation neutral, so my reference to it as a 'hedge' is probably wrong since that term normally implies a negative correlation, which certainly does exist between the inflation-adjusted value of your mortgage and inflation rates.

I'm confused what you mean by it being "difficult to extract money" from a home. You get the value of imputed rent the entire time you live there, and as properties appreciate in value, rents (and the value of the imputed rent) tend to go up as well.
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Re: Pay off house before retirement or have available cash?

Post by Artsdoctor »

^ Once I pay off my house, it's an asset which is hard to tap; it's an illiquid asset. Yes, I have imputed rent and I can take out a reverse mortgage. However, unless I sell it, it's just an asset with a lot of expenses. In my particular case, its value makes up about 30% of our net worth which, to some extent, seems like a lot but I'm not necessarily crying. Think of it another way: there are people in my neck of the woods who have houses which comprise 80% of their net worths. They've paid off their mortgages but have very significant cash flow restrictions; their ability to tap the equity in their houses is somewhat limited.

I guess that the only point I was trying to make is that cash flow has value. Being house rich and cash poor is not an enviable position to be in but that's a digression.
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Re: Pay off house before retirement or have available cash?

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Artsdoctor wrote: Sat Aug 31, 2019 3:35 pm ^ Once I pay off my house, it's an asset which is hard to tap; it's an illiquid asset. Yes, I have imputed rent and I can take out a reverse mortgage. However, unless I sell it, it's just an asset with a lot of expenses. In my particular case, its value makes up about 30% of our net worth which, to some extent, seems like a lot but I'm not necessarily crying. Think of it another way: there are people in my neck of the woods who have houses which comprise 80% of their net worths. They've paid off their mortgages but have very significant cash flow restrictions; their ability to tap the equity in their houses is somewhat limited.

I guess that the only point I was trying to make is that cash flow has value. Being house rich and cash poor is not an enviable position to be in but that's a digression.
I entirely agree with you that having too much of one's net worth in one's home can be a real problem. Those that you describe sound more house poor to me though.
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Re: Pay off house before retirement or have available cash?

Post by abuss368 »

You need to have some degree of liquidity. You may have a cash need when you least expect it. What about additional principal payments.
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Re: Pay off house before retirement or have available cash?

Post by Elam »

Ideally, it's better to have zero debt [including paid off house and car] and plenty of liquid cash before you retire. Thank God, I was able to manage that with no problem [but I live in a less expensive part of the country.]
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Re: Pay off house before retirement or have available cash?

Post by mesaverde »

Unless you are determined to leave a large amount of $ to your children/heirs, you may want to consider getting a reverse mortgage in a few years. That way you'd be able to actually use that large portion of your net worth tied up in your illiquid asset.
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Re: Pay off house before retirement or have available cash?

Post by sixtyforty »

I've evaluated this question for our situation as well... and still do. Below are a few things I've looked into. Haven't paid ours off yet, but our mortgage is only about 7% of our liquid net worth.

1/3 Guideline - If you can pay off your mortgage using 1/3 or less of your "non-retirement" savings consider doing so. This was from "Retire sooner than you think" book. No quantitative data here to back this up but the guideline seems reasonable to me.

Run a few models ( see, https://www.bogleheads.org/wiki/Retirem ... d_spending ) with and without your mortgage to see how it affects your success rates/ spending / portfolio etc. I personally use Firecalc,CFiresim, iORP and Fidelity Financial Planner.
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Re: Pay off house before retirement or have available cash?

Post by sixtyforty »

sixtyforty wrote: Mon Sep 02, 2019 6:49 am I've evaluated this question for our situation as well... and still do. Below are a few things I've looked into. Haven't paid ours off yet, but our mortgage is only about 7% of our liquid net worth.

1/3 Guideline - If you can pay off your mortgage using 1/3 or less of your "non-retirement" savings consider doing so. This was from "Retire sooner than you think" book. No quantitative data here to back this up but the guideline seems reasonable to me.

Run a few models ( see, https://www.bogleheads.org/wiki/Retirem ... d_spending ) with and without your mortgage to see how it affects your success rates/ spending / portfolio etc. I personally use Firecalc,CFiresim, iORP and Fidelity Financial Planner.

Wanted to comment on my own post here to clarify running the models with a mortgage. If you have a 15 year mortgage and running the models for a 40 year retirement then most will assume your mortgage through 40 years, which is not correct. PV - financial goals I believe allows you to start and stop an expense (non inflation adjusted).
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Re: Pay off house before retirement or have available cash?

Post by ncbill »

It seems to matter most with those who have meager income/assets in retirement.

Just went through this with a relative who died in their early 70s a few months ago.

They had been laid-off at age 60, but rather than look for another job they decided to head back to school, spending ~$40,000 in the process (cashing in their pension until they could apply for SS at age 62...their only income source)

Sad part is they only had 10 years left on their mortgage @ layoff...pretty much any job they took would have allowed them to continue to service it (home would have been paid-off a few years ago)

Instead they refinanced to a 30 year and added a HELOC...nearly 2/3 of home value, current carrying costs are ~$1,600/month with ~$1,300/month mortgage & HELOC...just got the home listed, hope I can sell it quick!
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Re: Pay off house before retirement or have available cash?

Post by Sandi_k »

sixtyforty wrote: Mon Sep 02, 2019 6:49 am I've evaluated this question for our situation as well... and still do. Below are a few things I've looked into. Haven't paid ours off yet, but our mortgage is only about 7% of our liquid net worth.

1/3 Guideline - If you can pay off your mortgage using 1/3 or less of your "non-retirement" savings consider doing so. This was from "Retire sooner than you think" book. No quantitative data here to back this up but the guideline seems reasonable to me.
Wouldn't it be just as valid to see if the monthly PITI + HOA (if any) totaled more than 30% of your income from all sources? Especially if it's a fixed cost, and your pension or SS is inflation-adjusted, I'd think that would be equivalent - or better! - to carry the mortgage, since the mortgage is eventually paid off, and you leave your assets in the portfolio.

For us, we'll have a mortgage still for the first 5 years of retirement. We've set aside a sum in bonds on which we can draw down (if needed) to pay off the mortgage. We would vastly prefer to let the money stay invested, to smooth the volatility of the portfolio. But if the creek rises, we can indeed pay it off.
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Re: Pay off house before retirement or have available cash?

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Bacchus01 wrote: Tue Aug 27, 2019 7:52 pm There’s not going to be a “right” answer here, but lots of thoughts and information to help you make a very personal decision.

Contrary to those above, I would and will fully mortgage my house through a massive cash out right before going into retirement. Flexibility to me is way more important than a monthly payment or very low interest costs. But I’m not risk averse.
When are you planning on retiring? There is no guarantee of very low interest costs. Mortgage rates hit the middle teens in the early 1980s. What interest rate are you willing to pay for "flexibility"?
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Re: Pay off house before retirement or have available cash?

Post by Jack FFR1846 »

With respect to difficulty of getting equity out of a house.....before paying off our mortgage, we took out a zero cost HELOC. The most difficult part of getting equity is remembering if my HELOC checkbook is in the sock drawer or the underwear drawer. I suppose I could check both drawers, but that's so hard.
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Re: Pay off house before retirement or have available cash?

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Jack FFR1846 wrote: Tue Sep 03, 2019 10:30 am With respect to difficulty of getting equity out of a house.....before paying off our mortgage, we took out a zero cost HELOC. The most difficult part of getting equity is remembering if my HELOC checkbook is in the sock drawer or the underwear drawer. I suppose I could check both drawers, but that's so hard.
Certainly, you can get equity out of a house through a HELOC. But you create an obligation to make monthly payments if you do so. If a retiree has a cash flow problem, that isn’t ideal.
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Re: Pay off house before retirement or have available cash?

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delamer wrote: Tue Sep 03, 2019 10:34 am
Jack FFR1846 wrote: Tue Sep 03, 2019 10:30 am With respect to difficulty of getting equity out of a house.....before paying off our mortgage, we took out a zero cost HELOC. The most difficult part of getting equity is remembering if my HELOC checkbook is in the sock drawer or the underwear drawer. I suppose I could check both drawers, but that's so hard.
Certainly, you can get equity out of a house through a HELOC. But you create an obligation to make monthly payments if you do so. If a retiree has a cash flow problem, that isn’t ideal.
Indeed. The problem with 'getting equity out of your house' is that you can't really do it without selling the house. All a HELOC does is use your house as a security for a loan that must be repaid.

Now if someone could figure out a way to effectively sell shares of a home, that would be something.
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Re: Pay off house before retirement or have available cash?

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willthrill81 wrote: Tue Sep 03, 2019 11:23 am
delamer wrote: Tue Sep 03, 2019 10:34 am
Jack FFR1846 wrote: Tue Sep 03, 2019 10:30 am With respect to difficulty of getting equity out of a house.....before paying off our mortgage, we took out a zero cost HELOC. The most difficult part of getting equity is remembering if my HELOC checkbook is in the sock drawer or the underwear drawer. I suppose I could check both drawers, but that's so hard.
Certainly, you can get equity out of a house through a HELOC. But you create an obligation to make monthly payments if you do so. If a retiree has a cash flow problem, that isn’t ideal.
Indeed. The problem with 'getting equity out of your house' is that you can't really do it without selling the house. All a HELOC does is use your house as a security for a loan that must be repaid.

Now if someone could figure out a way to effectively sell shares of a home, that would be something.
For those whose meet the age requirements, a reverse mortgage/HELOC is an option that doesn’t create an immediate obligation of repayment.
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Re: Pay off house before retirement or have available cash?

Post by willthrill81 »

delamer wrote: Tue Sep 03, 2019 11:25 am
willthrill81 wrote: Tue Sep 03, 2019 11:23 am
delamer wrote: Tue Sep 03, 2019 10:34 am
Jack FFR1846 wrote: Tue Sep 03, 2019 10:30 am With respect to difficulty of getting equity out of a house.....before paying off our mortgage, we took out a zero cost HELOC. The most difficult part of getting equity is remembering if my HELOC checkbook is in the sock drawer or the underwear drawer. I suppose I could check both drawers, but that's so hard.
Certainly, you can get equity out of a house through a HELOC. But you create an obligation to make monthly payments if you do so. If a retiree has a cash flow problem, that isn’t ideal.
Indeed. The problem with 'getting equity out of your house' is that you can't really do it without selling the house. All a HELOC does is use your house as a security for a loan that must be repaid.

Now if someone could figure out a way to effectively sell shares of a home, that would be something.
For those whose meet the age requirements, a reverse mortgage/HELOC is an option that doesn’t create an immediate obligation of repayment.
True, but I've heard that the fees of reverse mortgages are ridiculously high.
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Re: Pay off house before retirement or have available cash?

Post by delamer »

willthrill81 wrote: Tue Sep 03, 2019 11:26 am
delamer wrote: Tue Sep 03, 2019 11:25 am
willthrill81 wrote: Tue Sep 03, 2019 11:23 am
delamer wrote: Tue Sep 03, 2019 10:34 am
Jack FFR1846 wrote: Tue Sep 03, 2019 10:30 am With respect to difficulty of getting equity out of a house.....before paying off our mortgage, we took out a zero cost HELOC. The most difficult part of getting equity is remembering if my HELOC checkbook is in the sock drawer or the underwear drawer. I suppose I could check both drawers, but that's so hard.
Certainly, you can get equity out of a house through a HELOC. But you create an obligation to make monthly payments if you do so. If a retiree has a cash flow problem, that isn’t ideal.
Indeed. The problem with 'getting equity out of your house' is that you can't really do it without selling the house. All a HELOC does is use your house as a security for a loan that must be repaid.

Now if someone could figure out a way to effectively sell shares of a home, that would be something.
For those whose meet the age requirements, a reverse mortgage/HELOC is an option that doesn’t create an immediate obligation of repayment.
True, but I've heard that the fees of reverse mortgages are ridiculously high.
My understanding is that the costs and other provisions of reverse mortgages have improved a lot — in the consumer’s favor — in the last few years.

It certainly is something I’d consider if I was “house poor” in retirement.
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Re: Pay off house before retirement or have available cash?

Post by willthrill81 »

delamer wrote: Tue Sep 03, 2019 11:37 am
willthrill81 wrote: Tue Sep 03, 2019 11:26 am
delamer wrote: Tue Sep 03, 2019 11:25 am For those whose meet the age requirements, a reverse mortgage/HELOC is an option that doesn’t create an immediate obligation of repayment.
True, but I've heard that the fees of reverse mortgages are ridiculously high.
My understanding is that the costs and other provisions of reverse mortgages have improved a lot — in the consumer’s favor — in the last few years.
I'd like to see the details since that's where a certain nefarious entity tends to reside.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
delamer
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Re: Pay off house before retirement or have available cash?

Post by delamer »

willthrill81 wrote: Tue Sep 03, 2019 11:39 am
delamer wrote: Tue Sep 03, 2019 11:37 am
willthrill81 wrote: Tue Sep 03, 2019 11:26 am
delamer wrote: Tue Sep 03, 2019 11:25 am For those whose meet the age requirements, a reverse mortgage/HELOC is an option that doesn’t create an immediate obligation of repayment.
True, but I've heard that the fees of reverse mortgages are ridiculously high.
My understanding is that the costs and other provisions of reverse mortgages have improved a lot — in the consumer’s favor — in the last few years.
I'd like to see the details since that's where a certain nefarious entity tends to reside.
Sorry, I don’t understand your comment.

Here’s some info: https://www.kiplinger.com/article/real- ... eover.html
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willthrill81
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Re: Pay off house before retirement or have available cash?

Post by willthrill81 »

delamer wrote: Tue Sep 03, 2019 11:46 am
willthrill81 wrote: Tue Sep 03, 2019 11:39 am
delamer wrote: Tue Sep 03, 2019 11:37 am
willthrill81 wrote: Tue Sep 03, 2019 11:26 am
delamer wrote: Tue Sep 03, 2019 11:25 am For those whose meet the age requirements, a reverse mortgage/HELOC is an option that doesn’t create an immediate obligation of repayment.
True, but I've heard that the fees of reverse mortgages are ridiculously high.
My understanding is that the costs and other provisions of reverse mortgages have improved a lot — in the consumer’s favor — in the last few years.
I'd like to see the details since that's where a certain nefarious entity tends to reside.
Sorry, I don’t understand your comment.

Here’s some info: https://www.kiplinger.com/article/real- ... eover.html
https://en.wikipedia.org/wiki/The_devil ... the_detail

They may be a fine option these days. I haven't heard enough about people's actual experiences with them to form a sound judgment on their current viability and would love to hear about them (i.e. experiences).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
delamer
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Re: Pay off house before retirement or have available cash?

Post by delamer »

willthrill81 wrote: Tue Sep 03, 2019 11:52 am
delamer wrote: Tue Sep 03, 2019 11:46 am
willthrill81 wrote: Tue Sep 03, 2019 11:39 am
delamer wrote: Tue Sep 03, 2019 11:37 am
willthrill81 wrote: Tue Sep 03, 2019 11:26 am

True, but I've heard that the fees of reverse mortgages are ridiculously high.
My understanding is that the costs and other provisions of reverse mortgages have improved a lot — in the consumer’s favor — in the last few years.
I'd like to see the details since that's where a certain nefarious entity tends to reside.
Sorry, I don’t understand your comment.

Here’s some info: https://www.kiplinger.com/article/real- ... eover.html
https://en.wikipedia.org/wiki/The_devil ... the_detail

They may be a fine option these days. I haven't heard enough about people's actual experiences with them to form a sound judgment on their current viability and would love to hear about them (i.e. experiences).
No direct experience here either.

Don’t know why, but “nefarious entity” just didn’t register!
rich126
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Re: Pay off house before retirement or have available cash?

Post by rich126 »

I think there will always be a difference of opinion on this topic. And no one knows the answer since it will depend on interest rates, stock market returns and the mortgage rate.

I know people who'd rather have 25 years left on their mortgage when they retire. And they probably prefer to have a mortgage with as many years as possible left on it when they kick the bucket. Otherwise they feel like they left money on the table (i.e., locked up in the house value). To some people dying with a $1.2M mortgage on a $1.5M house would make them happy otherwise they'd figured they wasted money paying off a mortgage for no reason (to them anyhow).

As the OP stated "What difference does the house value matter in retirement?" And mostly that is true (excluding important things such as property taxes, maintenance, insurance, etc.).

And everyone wishes they could pay off the mortgage w/o touching their investments, but that isn't possible :D

My house will be paid off in < 2 years. Maybe I won't have a mortgage or maybe I will sell it and put some of the money towards a new house and the rest invested.

One danger with having a large mortgage in retirement is if the house value declines and you are forced to sell it due to health or other reasons and can't pay off the mortgage. I don't know what the laws are for that. Seems like in 2008, people just walked away from the mortgage and the only thing held against them was a bad credit mark for 7 years (I think). If you were 75, mortgage of $800K, house value only $500K, could you just walk away from it and rent something? Was 2008 unusual and normally banks would go after your other assets? Beats me and not something I would want to worry about at that age.
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Nate79
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Re: Pay off house before retirement or have available cash?

Post by Nate79 »

rich126 wrote: Tue Sep 03, 2019 2:56 pm I think there will always be a difference of opinion on this topic. And no one knows the answer since it will depend on interest rates, stock market returns and the mortgage rate.

I know people who'd rather have 25 years left on their mortgage when they retire. And they probably prefer to have a mortgage with as many years as possible left on it when they kick the bucket. Otherwise they feel like they left money on the table (i.e., locked up in the house value). To some people dying with a $1.2M mortgage on a $1.5M house would make them happy otherwise they'd figured they wasted money paying off a mortgage for no reason (to them anyhow).

As the OP stated "What difference does the house value matter in retirement?" And mostly that is true (excluding important things such as property taxes, maintenance, insurance, etc.).

And everyone wishes they could pay off the mortgage w/o touching their investments, but that isn't possible :D

My house will be paid off in < 2 years. Maybe I won't have a mortgage or maybe I will sell it and put some of the money towards a new house and the rest invested.

One danger with having a large mortgage in retirement is if the house value declines and you are forced to sell it due to health or other reasons and can't pay off the mortgage. I don't know what the laws are for that. Seems like in 2008, people just walked away from the mortgage and the only thing held against them was a bad credit mark for 7 years (I think). If you were 75, mortgage of $800K, house value only $500K, could you just walk away from it and rent something? Was 2008 unusual and normally banks would go after your other assets? Beats me and not something I would want to worry about at that age.
Whether a mortgage can be a recourse or nonrecourse is state dependant. Most states are recourse mortgages, meaning the banks can and will come after you for the difference between the mortgage remaining and how much they get thru a sale. Just like any debt that is bad they have to go after you and collect - so it will go to collections, destroy your credit, get a judgement, etc. A few states are non recourse (like California) but the devil is in the details. Some states were nonrecourse in the past but thru loopholes and law changes found to become recourse.
Bacchus01
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Re: Pay off house before retirement or have available cash?

Post by Bacchus01 »

cherijoh wrote: Tue Sep 03, 2019 10:29 am
Bacchus01 wrote: Tue Aug 27, 2019 7:52 pm There’s not going to be a “right” answer here, but lots of thoughts and information to help you make a very personal decision.

Contrary to those above, I would and will fully mortgage my house through a massive cash out right before going into retirement. Flexibility to me is way more important than a monthly payment or very low interest costs. But I’m not risk averse.
When are you planning on retiring? There is no guarantee of very low interest costs. Mortgage rates hit the middle teens in the early 1980s. What interest rate are you willing to pay for "flexibility"?

I’ll make that determination at the time. That said, I’m looking at cash-outs right now. If I could take every penny out of my house I would.
rich126
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Re: Pay off house before retirement or have available cash?

Post by rich126 »

Nate79 wrote: Tue Sep 03, 2019 3:20 pm
rich126 wrote: Tue Sep 03, 2019 2:56 pm I think there will always be a difference of opinion on this topic. And no one knows the answer since it will depend on interest rates, stock market returns and the mortgage rate.

I know people who'd rather have 25 years left on their mortgage when they retire. And they probably prefer to have a mortgage with as many years as possible left on it when they kick the bucket. Otherwise they feel like they left money on the table (i.e., locked up in the house value). To some people dying with a $1.2M mortgage on a $1.5M house would make them happy otherwise they'd figured they wasted money paying off a mortgage for no reason (to them anyhow).

As the OP stated "What difference does the house value matter in retirement?" And mostly that is true (excluding important things such as property taxes, maintenance, insurance, etc.).

And everyone wishes they could pay off the mortgage w/o touching their investments, but that isn't possible :D

My house will be paid off in < 2 years. Maybe I won't have a mortgage or maybe I will sell it and put some of the money towards a new house and the rest invested.

One danger with having a large mortgage in retirement is if the house value declines and you are forced to sell it due to health or other reasons and can't pay off the mortgage. I don't know what the laws are for that. Seems like in 2008, people just walked away from the mortgage and the only thing held against them was a bad credit mark for 7 years (I think). If you were 75, mortgage of $800K, house value only $500K, could you just walk away from it and rent something? Was 2008 unusual and normally banks would go after your other assets? Beats me and not something I would want to worry about at that age.
Whether a mortgage can be a recourse or nonrecourse is state dependant. Most states are recourse mortgages, meaning the banks can and will come after you for the difference between the mortgage remaining and how much they get thru a sale. Just like any debt that is bad they have to go after you and collect - so it will go to collections, destroy your credit, get a judgement, etc. A few states are non recourse (like California) but the devil is in the details. Some states were nonrecourse in the past but thru loopholes and law changes found to become recourse.
Thanks. I would assume most would go after people to collect the debt but after people seemingly getting away with walking away from debt w/o actually filing for bankruptcy, I was (and probably still am) confused.
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Sandi_k
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Re: Pay off house before retirement or have available cash?

Post by Sandi_k »

rich126 wrote: Tue Sep 03, 2019 2:56 pm I think there will always be a difference of opinion on this topic. And no one knows the answer since it will depend on interest rates, stock market returns and the mortgage rate.

< snip >

And everyone wishes they could pay off the mortgage w/o touching their investments, but that isn't possible :D
Sure it is. If you have a pension, you pay out of cash flow, and leave your investments alone.

And for all those people relying on HELOCs: we have a good friend who had this as their "emergency fund" in 2008. Then their house value plummeted, and the bank sent them a nice note, telling them that they were reducing the HELOC max, based on lower valuations.

He had to get a CCd cash advance to pay his property taxes that Spring. :shock: :shock:
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willthrill81
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Re: Pay off house before retirement or have available cash?

Post by willthrill81 »

Sandi_k wrote: Thu Sep 05, 2019 11:22 pm And for all those people relying on HELOCs: we have a good friend who had this as their "emergency fund" in 2008. Then their house value plummeted, and the bank sent them a nice note, telling them that they were reducing the HELOC max, based on lower valuations.
I never heard of a HELOC being closed or even reduced on a paid off home though.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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