Carrying a big long mortgage

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Scooter17
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Carrying a big long mortgage

Post by Scooter17 »

I’m curious to everyone’s thoughts on this:

https://www.edelmanfinancialengines.com ... g-mortgage
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FrugalYankee
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Re: Carrying a big long mortgage

Post by FrugalYankee »

I currently agree with this and I have a 3.375%, 30 year mortgage. Having a paid off home feels good, but you’re tying up money that can not grow or be used for any other purpose. I see my home as an expense, not an investment. As the article states you will never be free of property taxes, home owners insurance, and maintenance expenses. I prefer to keep my money liquid so I can comfortably afford those expenses that will never go away. It is a personal decision.
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willthrill81
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Re: Carrying a big long mortgage

Post by willthrill81 »

If you're post-tax mortgage rate is 3.5% and your pre-tax bond yield is 1.7%, the current SEC yield on Vanguard's total bond market fund VBTLX, I don't understand why you would choose to buy bonds instead of paying down/off your mortgage.

Now if you're foregoing paying down/off your mortgage to buy stocks, that's a different matter and may make more sense.

Nonetheless, going into retirement with a mortgage increases sequence of returns risk because it's a form of leverage, which makes the good times better and the bad times worse.
“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
Jack FFR1846
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Re: Carrying a big long mortgage

Post by Jack FFR1846 »

Put Dave Ramsey and Ric Edelman in a room and let them argue it out.

The one thing I'd say is that while I don't see what Dave would gain by one paying off his mortgage, Edelman's firm charges a hefty AUM on money it manages. If you pay off your mortgage, there's money they can't get their percentage from.

With the current, high standard deduction, it's quite common for mortgage payers to get zero in tax relief.

Both sides have strong views. Pick yours. I paid off my mortgage but at the time, if I didn't, the money would have done nothing but bought savings bonds or paid a few more track fees for the racecar.
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Triple digit golfer
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Re: Carrying a big long mortgage

Post by Triple digit golfer »

Here's a question that comes up often. Does it ever make sense to hold bonds yielding a lower rate than one's current mortgage?

I personally have around $170k in Total Bond. Mortgage has $313k remaining at 3.5%. Portfolio is 80/20.

Should I:

1. Sell the bonds and pay down the mortgage, and be 100% equities plus a smaller mortgage.

2. Sell the bonds and invest them in equities, being 100% equities with a larger portfolio and larger mortgage than #1.

3. Keep the bonds and mortgage and continue with my 80/20 portfolio.

Assume that my portfolio is my emergency fund.
HEDGEFUNDIE
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Re: Carrying a big long mortgage

Post by HEDGEFUNDIE »

My post-tax mortgage rate is 1.7%

My mortgage is $1.2M

I could have written this article myself.
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arcticpineapplecorp.
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Re: Carrying a big long mortgage

Post by arcticpineapplecorp. »

gotta love these gems:
Payments on such loans will never rise but incomes usually do.
Tell that to those who lose their jobs in a recession or pandemic.
You might be worried that your home’s value will fall. If you’re afraid that your home’s value might decline, you should sell the house before that happens...

Can you protect it without having to sell? Yes! Simply get a new mortgage, and pull the equity out of the house. It’s the same thing as selling, except that you don’t have to sell!

Here’s how the idea works: Say you bought a house for $200,000 with no money down (meaning you owe the bank $200,000). Further say that prices have skyrocketed, and houses in your neighborhood have been selling for $500,000. You fear that prices will fall, dropping your home’s value to $400,000.
Most people don't fear their home value will fall because it's risen too far too fast. They fear it'll fall because they see the neighborhood going south. And this guy's clearly a market timer because it's easy to determine when prices will fall after they've risen, right?
our mortgage interest is tax-deductible. And mortgage interest is tax-favorable.

These two points are related, and together they offer you important benefits to carrying a mortgage.

The interest you pay on loans to buy, build or substantially improve a qualified residence (up to $750,000) is tax-deductible if you itemize your deductions.
But how many people itemize under the new tax laws?
But you suspect there’s a flaw here. In order to invest that $240,000, you’d have to be willing to accept the higher monthly payment. Where will you get the money to do that each month?

You’ll find the money from two places. First, increase your paycheck! Remember that the new loan payments are almost entirely tax-deductible interest. That means you don’t need to have as much money withheld from your paycheck. So file a new IRS Form W-4 at work to increase your exemptions; this will reduce the amount of taxes that are withheld from your paycheck, boosting your net pay. Yes — you’ve just given yourself a raise! And you can use this increased paycheck to help you pay for your new mortgage payment.

Second, if your paycheck isn’t enough, simply make periodic withdrawals from the investment account you’ve just created. Soon enough, as your income rises, you won’t need this crutch; your income will become enough to handle the cost, as shown in Reason #6.
loan payments are almost entirely tax-deductible interest? huh? Is he saying get a larger loan to itimize deductions??

And he's saying at the same time build up the investment account, but take money out if you need it to pay the mortgage??

"soon enough as your income rises"??? So everyone's income rises as soon as they need it to??

oy.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
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rterickson
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Re: Carrying a big long mortgage

Post by rterickson »

I just read in another blog where Ric said "I just refinanced our house to a 30-year fixed rate at 2.875 percent.”

At least he puts his money where his mouth is.
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Re: Carrying a big long mortgage

Post by Sandtrap »

Scooter17 wrote: Sun Apr 26, 2020 4:53 pm I’m curious to everyone’s thoughts on this:

https://www.edelmanfinancialengines.com ... g-mortgage
The 11 Great Reasons for "Carrying A Big Long Mortgage" in this article . . . . make 11 assumptions.

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Downtwn
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Re: Carrying a big long mortgage

Post by Downtwn »

When the after-tax mortgage rate is approximating the risk free savings rate in an online savings acct as it is now, I have prioritized building up large cash reserves. When I have more than enough liquidity to withstand long Coronavirus or other downturn then would evaluate investment opportunities vs paying down mortgage.
need403bhelp
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Re: Carrying a big long mortgage

Post by need403bhelp »

Sorry to hijack the thread.

My 30 year fixed mtg is now at 3.125%.

I have access to and use a fully liquid TIAA traditional account in my Roth and pre tax 403b that pays a guaranteed 3% minimum.

As such, should I direct all extra payments that I would normally make to my mortgage to the tiaa traditional instead?

Practically speaking, since I already max out all tax advantaged accounts, this means I would basically do some of my stock investing that now takes place in my 403b in my taxable account, at least enough to displace the extra funds in tiaa traditional that would normally go to my mortgage.

What am I missing?

Thanks!
michaeljc70
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Re: Carrying a big long mortgage

Post by michaeljc70 »

Clickbait.

Most mortgage interest isn't deductible anymore. Some of the other things are blatantly obvious ("Your mortgage doesn’t affect your home’s value").

This is the site for that guy on the radio whose advice I would never take.
Kbg
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Re: Carrying a big long mortgage

Post by Kbg »

I decided to roll my mortgage down to a 15yr...had about 21 years left on a 30 year at 3.5%. I was able to get a 2.25% 15yr mortgage with a bunch of points paid. My figuring is right now I will be able to deduct the points whereas later when my income goes down I may or may not be able to deduct interest at all. With interest rates as low as they are I don't see a huge amount of upside to bonds/cash so it seemed like a good thing to do. It is nice to go from about 50/50 principal/interest to about 70/30.

At the end of the day, I think this decision is a matter of personal preference and a bunch of assumptions that none of us really know how they are going to turn out.
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Re: Carrying a big long mortgage

Post by grabiner »

need403bhelp wrote: Sun Apr 26, 2020 11:53 pm Sorry to hijack the thread.

My 30 year fixed mtg is now at 3.125%.

I have access to and use a fully liquid TIAA traditional account in my Roth and pre tax 403b that pays a guaranteed 3% minimum.

As such, should I direct all extra payments that I would normally make to my mortgage to the tiaa traditional instead?

Practically speaking, since I already max out all tax advantaged accounts, this means I would basically do some of my stock investing that now takes place in my 403b in my taxable account, at least enough to displace the extra funds in tiaa traditional that would normally go to my mortgage.
If you put more money in TIAA Traditional, and moving stock from the 403(b) to taxable, your effective return is the return of TIAA Traditional, minus the tax cost of holding stock in a taxable account rather than in the 403(b). I would estimate that tax cost at about 0.6% (0.3% tax on 2% qualified dividends, and about another 0.3% annualized tax on capital gains when you eventually sell); add state tax if applicable. If your taxable investments are destined for your heirs or charity, then count only the dividend tax.

So you can compare that to the return from paying down your mortgage (adjusted for tax if you itemize), and weigh the difference against the value of keeping more funds liquid and the optionality of keeping the mortgage.
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grabiner
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Re: Carrying a big long mortgage

Post by grabiner »

Triple digit golfer wrote: Sun Apr 26, 2020 7:16 pm Here's a question that comes up often. Does it ever make sense to hold bonds yielding a lower rate than one's current mortgage?

I personally have around $170k in Total Bond. Mortgage has $313k remaining at 3.5%. Portfolio is 80/20.

Should I:

1. Sell the bonds and pay down the mortgage, and be 100% equities plus a smaller mortgage.

2. Sell the bonds and invest them in equities, being 100% equities with a larger portfolio and larger mortgage than #1.

3. Keep the bonds and mortgage and continue with my 80/20 portfolio.
1 and 3 are equivalent in risk, so you should prefer 1 to 3 if the mortgage yields more than the bonds, and you don't get any other benefit such as liquidity.

This is the decision I made a month ago, when bond rates fell significantly below my mortgage rate; I sold bonds to pay off my mortgage, keeping the same dollar amount in stock.
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willthrill81
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Re: Carrying a big long mortgage

Post by willthrill81 »

Triple digit golfer wrote: Sun Apr 26, 2020 7:16 pm Here's a question that comes up often. Does it ever make sense to hold bonds yielding a lower rate than one's current mortgage?

I personally have around $170k in Total Bond. Mortgage has $313k remaining at 3.5%. Portfolio is 80/20.

Should I:

1. Sell the bonds and pay down the mortgage, and be 100% equities plus a smaller mortgage.

2. Sell the bonds and invest them in equities, being 100% equities with a larger portfolio and larger mortgage than #1.

3. Keep the bonds and mortgage and continue with my 80/20 portfolio.

Assume that my portfolio is my emergency fund.
As Grabiner has pointed out, #1 and #3 are equivalent in risk. With #2, your effective AA would be over 100% due to the leverage created by the mortgage.
“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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Re: Carrying a big long mortgage

Post by abuss368 »

I have a goal to be debt free by retirement (excluding an auto loan because at some point we may always have one).

Paying down /off debt reduces the financial stress of a portfolio. Less cash flows are needed to live.

Going into retirement with a mortgage increases sequence of returns risk because of leverage. The good times can be nice but the bad times much worse.
John C. Bogle: “Simplicity is the master key to financial success."
rbaldini
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Re: Carrying a big long mortgage

Post by rbaldini »

I took the view that my stock/bond investments are likely to return a higher rate than the interest rate on my mortgage. So I put less down than I could have (20%), chose a 30-year mortgage, went with a higher interest-rate option, and continually choose to invest my savings in the market instead of paying down the mortgage. Others might prefer to reduce their debt; I get that.
Triple digit golfer
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Re: Carrying a big long mortgage

Post by Triple digit golfer »

grabiner wrote: Mon Apr 27, 2020 10:55 am
Triple digit golfer wrote: Sun Apr 26, 2020 7:16 pm Here's a question that comes up often. Does it ever make sense to hold bonds yielding a lower rate than one's current mortgage?

I personally have around $170k in Total Bond. Mortgage has $313k remaining at 3.5%. Portfolio is 80/20.

Should I:

1. Sell the bonds and pay down the mortgage, and be 100% equities plus a smaller mortgage.

2. Sell the bonds and invest them in equities, being 100% equities with a larger portfolio and larger mortgage than #1.

3. Keep the bonds and mortgage and continue with my 80/20 portfolio.
1 and 3 are equivalent in risk, so you should prefer 1 to 3 if the mortgage yields more than the bonds, and you don't get any other benefit such as liquidity.

This is the decision I made a month ago, when bond rates fell significantly below my mortgage rate; I sold bonds to pay off my mortgage, keeping the same dollar amount in stock.
Given that my portfolio is essentially my emergency fund, I am having a hard time selling bonds to lower my mortgage balance and being 100% equities.

Currently, in an emergency, I would sell whichever asset, stocks or bonds, are heavy in my portfolio. At 80/20, I'd sell at 80/20. At 82/18, I'd sell stocks until down to 80%. At 78/22, I'd sell bonds, and so on.

Any advice?
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Re: Carrying a big long mortgage

Post by grabiner »

Triple digit golfer wrote: Mon Apr 27, 2020 11:18 am
grabiner wrote: Mon Apr 27, 2020 10:55 am
Triple digit golfer wrote: Sun Apr 26, 2020 7:16 pm Here's a question that comes up often. Does it ever make sense to hold bonds yielding a lower rate than one's current mortgage?

I personally have around $170k in Total Bond. Mortgage has $313k remaining at 3.5%. Portfolio is 80/20.

Should I:

1. Sell the bonds and pay down the mortgage, and be 100% equities plus a smaller mortgage.

2. Sell the bonds and invest them in equities, being 100% equities with a larger portfolio and larger mortgage than #1.

3. Keep the bonds and mortgage and continue with my 80/20 portfolio.
1 and 3 are equivalent in risk, so you should prefer 1 to 3 if the mortgage yields more than the bonds, and you don't get any other benefit such as liquidity.

This is the decision I made a month ago, when bond rates fell significantly below my mortgage rate; I sold bonds to pay off my mortgage, keeping the same dollar amount in stock.
Given that my portfolio is essentially my emergency fund, I am having a hard time selling bonds to lower my mortgage balance and being 100% equities.

Currently, in an emergency, I would sell whichever asset, stocks or bonds, are heavy in my portfolio. At 80/20, I'd sell at 80/20. At 82/18, I'd sell stocks until down to 80%. At 78/22, I'd sell bonds, and so on.
This is the reason for the last note, "and you don't get any other benefit such as liquidity". You probably don't want to sell your portfolio down to 0% bonds because you would lose your emergency fund, and would be forced to sell stocks if you had an emergency need during a bear market. If you need an emergency fund which is 5% of your portfolio, you could satisfy this by leaving 5% of the portfolio in a low-risk bond fund.

This was not an issue for me. While I also do not have a separate emergency fund, I am only 88% stock even after paying off my mortgage. (I have the risk of 100% stock, because I overweight riskier stock; I have chosen to increase risk that way rather than by holding more stock.)
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Re: Carrying a big long mortgage

Post by rbaldini »

grabiner wrote: Mon Apr 27, 2020 10:55 am 1 and 3 are equivalent in risk, so you should prefer 1 to 3 if the mortgage yields more than the bonds, and you don't get any other benefit such as liquidity.

This is the decision I made a month ago, when bond rates fell significantly below my mortgage rate; I sold bonds to pay off my mortgage, keeping the same dollar amount in stock.
Can you explain how the risk of 1 and 3 are equal? I'm not following.

In scenario 3 you have $680k in stock, $170k in bonds, and $313k mortgage debt. In scenario 1, you have $680k, $0k in bonds, and $143k in mortgage debt. I could see how these are nearly equivalent in risk in the sense that the amount of stock is the same, and stock is perhaps the overriding contributor to volatility. But in the former case, you have $170k in bonds, which have *some* volatility, whereas the latter puts that $170k into decreasing a mortgage debt that has no volatility at all. On the other hand, the former gives you $170k in more liquid assets (bonds are much easier and cheaper to sell than houses), which might matter in rare emergency situations (probably not for this person, but perhaps for those who don't yet have substantial savings).

Is it more that they are *nearly* equivalent in risk, or am I missing something?
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Re: Carrying a big long mortgage

Post by rustymutt »

FrugalYankee wrote: Sun Apr 26, 2020 7:00 pm I currently agree with this and I have a 3.375%, 30 year mortgage. Having a paid off home feels good, but you’re tying up money that can not grow or be used for any other purpose. I see my home as an expense, not an investment. As the article states you will never be free of property taxes, home owners insurance, and maintenance expenses. I prefer to keep my money liquid so I can comfortably afford those expenses that will never go away. It is a personal decision.
You make the perfect argument for renting. Thanks, problems solved here.
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Re: Carrying a big long mortgage

Post by rustymutt »

Jack FFR1846 wrote: Sun Apr 26, 2020 7:12 pm Put Dave Ramsey and Ric Edelman in a room and let them argue it out.

The one thing I'd say is that while I don't see what Dave would gain by one paying off his mortgage, Edelman's firm charges a hefty AUM on money it manages. If you pay off your mortgage, there's money they can't get their percentage from.

With the current, high standard deduction, it's quite common for mortgage payers to get zero in tax relief.

Both sides have strong views. Pick yours. I paid off my mortgage but at the time, if I didn't, the money would have done nothing but bought savings bonds or paid a few more track fees for the racecar.
Just the thought gave me a headache. Goodies to for all.
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Re: Carrying a big long mortgage

Post by grabiner »

rbaldini wrote: Mon Apr 27, 2020 11:30 am
grabiner wrote: Mon Apr 27, 2020 10:55 am 1 and 3 are equivalent in risk, so you should prefer 1 to 3 if the mortgage yields more than the bonds, and you don't get any other benefit such as liquidity.

This is the decision I made a month ago, when bond rates fell significantly below my mortgage rate; I sold bonds to pay off my mortgage, keeping the same dollar amount in stock.
Can you explain how the risk of 1 and 3 are equal? I'm not following.

In scenario 3 you have $680k in stock, $170k in bonds, and $313k mortgage debt. In scenario 1, you have $680k, $0k in bonds, and $143k in mortgage debt. I could see how these are nearly equivalent in risk in the sense that the amount of stock is the same, and stock is perhaps the overriding contributor to volatility. But in the former case, you have $170k in bonds, which have *some* volatility, whereas the latter puts that $170k into decreasing a mortgage debt that has no volatility at all.
The mortgage debt does not have a present value equal to the balance; if you computed the present value, it would change with interest rates, just as bond yields do. (The investor who holds your mortgage, say through a GNMA or FNMA security, does this calculation.)

The simplest comparison is to a bond portfolio which matches your mortgage in duration. If you have ten years left on your mortgage, you could buy a bond portfolio which pays enough each year to make that year's mortgage payment, and use those bonds to make the mortgage payment. You would be in the same situation as if you had no mortgage and no bonds. If the yield on these bonds is lower than your mortgage balance, then the value of the bonds is higher than your mortgage balance, so you would make a profit by selling the bonds to pay off the mrtgage.
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Re: Carrying a big long mortgage

Post by megabad »

Theoretically, Carrying a big long mortgage is not nearly as beneficial as holding a big long mortgage to term. Almost no one does this. Basically this just nullifies all his arguments. And I say that as a supporter of mortgages
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Re: Carrying a big long mortgage

Post by dsmil »

I'm more in the Edelman camp than the Dave Ramsey camp when it comes to mortgages, or any low-interest debt for that matter. I don't agree with "have as big a mortgage as you can get", but I don't mind having some low-interest debt if it allows me to have more savings/investments available in a time of need.

I also think that people assume that once a certain loan is paid off, the added monthly cash flow is going to go straight to investments each month. This would be the camp that cites a 4% loan and says that you'll get a 4% "return" on additional payments made towards that loan. In reality, extra cash flow often means extra spending for people. That 4% "return" might turn into 2% for spending and 2% for savings.
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Re: Carrying a big long mortgage

Post by whodidntante »

Mortgages are the only form of leverage that some Bogleheads approve of. Since leverage can be pretty useful and mortgages are a reasonably low cost way to get it, I think that mortgages are a net positive for Bogleheads. It allows them to be leveraged while the mental accounting exception they've made allows them to preserve their belief system that leverage is dangerous.

What does OP think about it? It's bad form to post a naked link without contributing to the discussion.
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Re: Carrying a big long mortgage

Post by rbaldini »

grabiner wrote: Mon Apr 27, 2020 11:40 am The mortgage debt does not have a present value equal to the balance; if you computed the present value, it would change with interest rates, just as bond yields do. (The investor who holds your mortgage, say through a GNMA or FNMA security, does this calculation.)
I'm confused. $100k has uncertain future growth, i.e. some volatility. If I sell the bonds to pay down part of my mortgage, my net worth doesn't change, but if I have a fixed rate mortgage then I *know* the return on this investment exactly, no? Hence, volatility and risk not equal?
grabiner wrote: Mon Apr 27, 2020 11:40 am The simplest comparison is to a bond portfolio which matches your mortgage in duration. If you have ten years left on your mortgage, you could buy a bond portfolio which pays enough each year to make that year's mortgage payment, and use those bonds to make the mortgage payment. You would be in the same situation as if you had no mortgage and no bonds. If the yield on these bonds is lower than your mortgage balance, then the value of the bonds is higher than your mortgage balance, so you would make a profit by selling the bonds to pay off the mortgage.
It's the same situation except, again, that (1) when you purchase the bonds they will also fluctuate in value, and (2) the bonds you purchased are a liquid asset, whereas paying down a debt reduces your liquidity, no? Trying to address differences in risk/volatility/uncertainty between the two approaches.

Maybe I'm missing something fundamental here.
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Re: Carrying a big long mortgage

Post by cherijoh »

Scooter17 wrote: Sun Apr 26, 2020 4:53 pm I’m curious to everyone’s thoughts on this:

https://www.edelmanfinancialengines.com ... g-mortgage
Here's my input:

Reason #1: Your mortgage doesn’t affect your home’s value. True, but not the most compelling reason. Taken to the extreme, people would try and put the smallest down payment allowed, which could leave them vulnerable to being upside down in their mortgage if housing prices decreased even a little. As people saw during the Great Recession, having no equity in their home left them tied to a boat anchor.

Reason #2: A mortgage won’t stop you from building equity in the house. Also, true but dependent on how hot your local market is. If you are in a flat market, you are dependent on the mortgage balance declining, which is a slow process initially. IMO it is more compelling as an argument if you know that you do not plan to stay in the house over the long haul.

Reason #3: A mortgage is cheap money. Absolutely true. Anyone making the argument that paying off a 3% mortgage is a good deal because a 5-yr CD or 10-yr treasury bond has a lower yield is comparing apples to oranges. Obviously nobody knows what future interest rates will be, but a fixed low interest rate mortgage is the best hedge an individual can get against inflation. Interest rates go down - you can refinance to a lower rate. Interest rates go up - the bank is stuck with the loan as long as you stay in the house and you pay on time. My parents took out a 4.75% VA loan in 1964 and made out like bandits in the late 70s and early 80s when the high inflation dramatically eroded the real cost of their mortgage. I remember my mom being surprised when the mortgage was paid off that P&I represented less than a third of her payment (since they had continued to escrow property taxes and Insurance).

Reasons #4 and #5: Your mortgage interest is tax-deductible. And mortgage interest is tax-favorable. Prior to the 2017 tax reform bill, that was mostly true. But increasing the standard deduction makes that less true - especially for MFJ taxpayers in moderate COL areas. In addition, the lower cap on mortgage interest may make it only partially true in ultra-high COL area like Northern CA, Boston, and NYC.

Reason #6: Mortgage payments get easier over time. This was true back when inflation was higher and excellent medical insurance with low deductibles was mostly provided (and paid for) by employers. Even if your salary didn't keep up with inflation, the fixed P&I meant that your mortgage took a smaller % of take-home pay as time went on. It may still be true for professionals who buy a house early in their career when they have promotions (with salary bumps) to anticipate.

Reason #7: Mortgages allow you to sell without selling. Really dumb idea and what got lots of people in trouble during the great recession when their homes and investments plummeted in value AND they lost their jobs. Full disclosure: I have a HELOC which I used once when I needed to buy a car fast and didn't want to raid my EF or sell investments. I paid it off very quickly and haven't used it since. But taking money out to lock in the home equity is DUMB!! There is no guarantee that investments will go up.

Reasons #8 and #9: Mortgages allow you to invest more money and to invest it more quickly. Mortgages allow you to create more wealth than you otherwise would. I would rate this absolutely true if the money you are saving for the huge downpayment would otherwise go towards maximizing tax advantaged accounts. The same for those diverting money towards extra principal payments instead of maxing tax-advantaged accounts. If you leave tax-advantaged space on the table, you lose it and tax-deferred (or Tax-free for Roth) compounding for good. If you are already maxing retirement accounts, then IMO its not as clear cut and you need to consider risk adjusted returns and your need for liquidity as well as whether you plan to stay in the house.

Reason #10: Mortgages give you greater liquidity and flexibility. This is very true. But you need to determine how much liquidity you actually need. If contemplating paying off a mortgage, I would look at your net worth breakdown before and after the payoff. If the outstanding mortgage represents a small fraction of your total net worth, then no big deal. But if home equity is 20% of your net worth now and paying off the mortgage boosts it up to 60%, then I think you are headed for a liquidity problem!!

Reason #11: You’ll never get rid of your monthly payment, no matter how hard you try. True, but mostly a matter of semantics and whether you think of "mortgage payment" as P&I or the all-inclusive PITI.
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Re: Carrying a big long mortgage

Post by randomguy »

willthrill81 wrote: Sun Apr 26, 2020 7:03 pm
Nonetheless, going into retirement with a mortgage increases sequence of returns risk because it's a form of leverage, which makes the good times better and the bad times worse.
Do you have have any math to back that statement up? My gut feeling is the 1966 retiree did better with a mortgage than by paying off the house. You would have had a 5.5% mortgage and when you hit 1981 and you would be making 12% off your bonds. And the nominal returns of the 70s were't horrible. If you told me the 1966 retiree who held a mortgagenmade it 30 years instead of going broke, I wouldn't blink an eye. I expect you took on more risk and were rewarded for it.

Leverage is going to make the good time better and bad times worse, but if you can survive the bad times, you still come out ahead. Might need to buy more antacid though....
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Re: Carrying a big long mortgage

Post by willthrill81 »

randomguy wrote: Mon Apr 27, 2020 12:41 pm
willthrill81 wrote: Sun Apr 26, 2020 7:03 pm
Nonetheless, going into retirement with a mortgage increases sequence of returns risk because it's a form of leverage, which makes the good times better and the bad times worse.
Do you have have any math to back that statement up? My gut feeling is the 1966 retiree did better with a mortgage than by paying off the house. You would have had a 5.5% mortgage and when you hit 1981 and you would be making 12% off your bonds. And the nominal returns of the 70s were't horrible. If you told me the 1966 retiree who held a mortgagenmade it 30 years instead of going broke, I wouldn't blink an eye. I expect you took on more risk and were rewarded for it.

Leverage is going to make the good time better and bad times worse, but if you can survive the bad times, you still come out ahead. Might need to buy more antacid though....
A very simple demonstration is to assume that you had a $100k mortgage that was paid for by a $100k investment portfolio. If you did this in the year 2000 and paid an average of 5% mortgage interest*, refinancing along the way, and no PMI, resulting in an P&I payment of $537/month that is not indexed to inflation (i.e. nominal, not real dollars), a 60/40 AA would have now have just $25,405 remaining but with $6,444 withdrawn each year. As such, te portfolio is very unlikely to make it to the 30 year mark (i.e. when the mortgage would be paid off), meaning that the retiree would have been better off without it.

*Mortgage rates were actually averaging about 8% back then, but the retiree could have refinanced along the way. Average rates didn't drop below 5% until late 2009 and averaged about 4% from 2012 until now, so 5% seems like a somewhat conservative fixed rate for our purposes here.

Edit: I initially forgot that PV automatically selects that withdrawals are indexed to inflation, but the P&I of a mortgage is not. I've since corrected this.
Last edited by willthrill81 on Mon Apr 27, 2020 2:21 pm, edited 1 time in total.
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Re: Carrying a big long mortgage

Post by abuss368 »

cherijoh wrote: Mon Apr 27, 2020 12:36 pm
Scooter17 wrote: Sun Apr 26, 2020 4:53 pm I’m curious to everyone’s thoughts on this:

https://www.edelmanfinancialengines.com ... g-mortgage
Here's my input:

Reason #1: Your mortgage doesn’t affect your home’s value. True, but not the most compelling reason. Taken to the extreme, people would try and put the smallest down payment allowed, which could leave them vulnerable to being upside down in their mortgage if housing prices decreased even a little. As people saw during the Great Recession, having no equity in their home left them tied to a boat anchor.

Reason #2: A mortgage won’t stop you from building equity in the house. Also, true but dependent on how hot your local market is. If you are in a flat market, you are dependent on the mortgage balance declining, which is a slow process initially. IMO it is more compelling as an argument if you know that you do not plan to stay in the house over the long haul.

Reason #3: A mortgage is cheap money. Absolutely true. Anyone making the argument that paying off a 3% mortgage is a good deal because a 5-yr CD or 10-yr treasury bond has a lower yield is comparing apples to oranges. Obviously nobody knows what future interest rates will be, but a fixed low interest rate mortgage is the best hedge an individual can get against inflation. Interest rates go down - you can refinance to a lower rate. Interest rates go up - the bank is stuck with the loan as long as you stay in the house and you pay on time. My parents took out a 4.75% VA loan in 1964 and made out like bandits in the late 70s and early 80s when the high inflation dramatically eroded the real cost of their mortgage. I remember my mom being surprised when the mortgage was paid off that P&I represented less than a third of her payment (since they had continued to escrow property taxes and Insurance).

Reasons #4 and #5: Your mortgage interest is tax-deductible. And mortgage interest is tax-favorable. Prior to the 2017 tax reform bill, that was mostly true. But increasing the standard deduction makes that less true - especially for MFJ taxpayers in moderate COL areas. In addition, the lower cap on mortgage interest may make it only partially true in ultra-high COL area like Northern CA, Boston, and NYC.

Reason #6: Mortgage payments get easier over time. This was true back when inflation was higher and excellent medical insurance with low deductibles was mostly provided (and paid for) by employers. Even if your salary didn't keep up with inflation, the fixed P&I meant that your mortgage took a smaller % of take-home pay as time went on. It may still be true for professionals who buy a house early in their career when they have promotions (with salary bumps) to anticipate.

Reason #7: Mortgages allow you to sell without selling. Really dumb idea and what got lots of people in trouble during the great recession when their homes and investments plummeted in value AND they lost their jobs. Full disclosure: I have a HELOC which I used once when I needed to buy a car fast and didn't want to raid my EF or sell investments. I paid it off very quickly and haven't used it since. But taking money out to lock in the home equity is DUMB!! There is no guarantee that investments will go up.

Reasons #8 and #9: Mortgages allow you to invest more money and to invest it more quickly. Mortgages allow you to create more wealth than you otherwise would. I would rate this absolutely true if the money you are saving for the huge downpayment would otherwise go towards maximizing tax advantaged accounts. The same for those diverting money towards extra principal payments instead of maxing tax-advantaged accounts. If you leave tax-advantaged space on the table, you lose it and tax-deferred (or Tax-free for Roth) compounding for good. If you are already maxing retirement accounts, then IMO its not as clear cut and you need to consider risk adjusted returns and your need for liquidity as well as whether you plan to stay in the house.

Reason #10: Mortgages give you greater liquidity and flexibility. This is very true. But you need to determine how much liquidity you actually need. If contemplating paying off a mortgage, I would look at your net worth breakdown before and after the payoff. If the outstanding mortgage represents a small fraction of your total net worth, then no big deal. But if home equity is 20% of your net worth now and paying off the mortgage boosts it up to 60%, then I think you are headed for a liquidity problem!!

Reason #11: You’ll never get rid of your monthly payment, no matter how hard you try. True, but mostly a matter of semantics and whether you think of "mortgage payment" as P&I or the all-inclusive PITI.
Definately a lot of good items on that list no doubt. However nothing is better than having a paid of house and being debt free.
Last edited by abuss368 on Tue Apr 28, 2020 11:10 am, edited 1 time in total.
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Re: Carrying a big long mortgage

Post by megabad »

It is definitely a rather complicated assumption that a mortgage increases sequence of returns risk. Compared to what? I don’t think that is trivial at all. Of course I generally have a hard time understanding “sequence of return risk” since it assumes your withdrawals are basically unchangeable for maybe 30-40 years. Your risk is always zero if you have unlimited flexibility with withdrawals.
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Re: Carrying a big long mortgage

Post by willthrill81 »

megabad wrote: Mon Apr 27, 2020 2:08 pm It is definitely a rather complicated assumption that a mortgage increases sequence of returns risk. Compared to what? I don’t think that is trivial at all. Of course I generally have a hard time understanding “sequence of return risk” since it assumes your withdrawals are basically unchangeable for maybe 30-40 years. Your risk is always zero if you have unlimited flexibility with withdrawals.
Three posts above, I've provided a real world example of how a mortgage can hurt a retiree. It can also help them. But you don't know in advance which way it will go.

The basic problem is quite simple. If you have a mortgage, you have to make that payment every month, even if your portfolio is suffering. That's the basic essence of sequence of returns risk.

Even a today's historically low interest rates, a 3.5% 30 year mortgage would equate to about a 5.4% fixed withdrawal rate from a portfolio of equivalent size. Would you be alright with a retiree saying that they were going to implement a 5.4% absolutely fixed withdrawal rate (no flexibility allowed with a mortgage), even if the withdrawals weren't indexed to inflation, for 30 years? I wouldn't.
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Re: Carrying a big long mortgage

Post by megabad »

willthrill81 wrote: Mon Apr 27, 2020 2:16 pm The basic problem is quite simple. If you have a mortgage, you have to make that payment every month, even if your portfolio is suffering. That's the basic essence of sequence of returns risk.

Even a today's historically low interest rates, a 3.5% 30 year mortgage would equate to about a 5.4% fixed withdrawal rate from a portfolio of equivalent size. Would you be alright with a retiree saying that they were going to implement a 5.4% absolutely fixed withdrawal rate (no flexibility allowed with a mortgage), even if the withdrawals weren't indexed to inflation, for 30 years? I wouldn't.
I don’t agree that a mortgage is a “payment that you have to make every month”. The mortgage is simply leverage. One can delever at any time.
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Re: Carrying a big long mortgage

Post by willthrill81 »

megabad wrote: Mon Apr 27, 2020 2:29 pm
willthrill81 wrote: Mon Apr 27, 2020 2:16 pm The basic problem is quite simple. If you have a mortgage, you have to make that payment every month, even if your portfolio is suffering. That's the basic essence of sequence of returns risk.

Even a today's historically low interest rates, a 3.5% 30 year mortgage would equate to about a 5.4% fixed withdrawal rate from a portfolio of equivalent size. Would you be alright with a retiree saying that they were going to implement a 5.4% absolutely fixed withdrawal rate (no flexibility allowed with a mortgage), even if the withdrawals weren't indexed to inflation, for 30 years? I wouldn't.
I don’t agree that a mortgage is a “payment that you have to make every month”. The mortgage is simply leverage. One can delever at any time.
As long as you have the mortgage, you have to make your mortgage payment. Yes, you can pay it off if you are willing and able to, but presumably retirees who had specifically elected to keep the mortgage in retirement would not pay it off unless they had already experienced a poor sequence of returns and wanted to staunch further losses.

Do you see how retaining a mortgage increases retirees' risk? I'm not saying that it doesn't increase their opportunity for reward as well, because it does.
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Re: Carrying a big long mortgage

Post by abuss368 »

One potential consideration the past couple of years is that most investors are now reporting a standard deduction on their tax returns. Thus the interest on a mortgage is not deducted.
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Re: Carrying a big long mortgage

Post by megabad »

willthrill81 wrote: Mon Apr 27, 2020 2:42 pm
Do you see how retaining a mortgage increases retirees' risk? I'm not saying that it doesn't increase their opportunity for reward as well, because it does.
Increases risk or increases sequence of return risk? I do agree that leverage can increase risk. Though US 30 yr mortgages are artificially constructed such that the true effect is masked (and rather limited).
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Re: Carrying a big long mortgage

Post by willthrill81 »

megabad wrote: Mon Apr 27, 2020 3:02 pm
willthrill81 wrote: Mon Apr 27, 2020 2:42 pm
Do you see how retaining a mortgage increases retirees' risk? I'm not saying that it doesn't increase their opportunity for reward as well, because it does.
Increases risk or increases sequence of return risk? I do agree that leverage can increase risk. Though US 30 yr mortgages are artificially constructed such that the true effect is masked (and rather limited).
Specifically, it increases sequence of returns risk. Retirees' portfolios may average higher returns than a mortgage rate (taxes are important here as well since not many are able to deduct their mortgage interest any more, but investment returns are usually taxable in some way), but due to sequence of returns risk, retaining a mortgage can still result in lower terminal wealth vs. not having it.
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Re: Carrying a big long mortgage

Post by megabad »

willthrill81 wrote: Mon Apr 27, 2020 3:06 pm
Specifically, it increases sequence of returns risk. Retirees' portfolios may average higher returns than a mortgage rate (taxes are important here as well since not many are able to deduct their mortgage interest any more, but investment returns are usually taxable in some way), but due to sequence of returns risk, retaining a mortgage can still result in lower terminal wealth vs. not having it.
Is your “sequence of returns risk” higher or lower if you rent? A mortgage can increase your exposure, but it doesn’t necessarily have anything to do with the sequence of returns. I can fashion a mortgage to where it works pretty much exactly like rent. I can fashion a mortgage with “variable” payments. I can undo a mortgage or change it in a number of ways quite often if I do choose.
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Re: Carrying a big long mortgage

Post by Scooter17 »

All great information and thank you. I just refinanced to a 30 yr at 3.250 with under $1k in fees, but I kept my current balance and also don’t believe in getting the biggest mortgage possible.
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Re: Carrying a big long mortgage

Post by CT-Scott »

It should be pointed out that the article being linked to was written many years ago. If Edelman were writing it today, I'm sure he would have added some caveats about the discount you get when itemizing your taxes.

Even so, I'm personally in favor of putting the minimum down and getting a 30 year mortgage, with rates as low as they are.

One thing that doesn't get highlighted enough is the question of how confident you are that you'll be living in that same house long-term. If you absolutely love the house/area and can't imagine ever selling it, then I can see more value in paying it off early. Conversely, if you have a fairly high confidence level that you will want to move within the next 5 years (or possibly even farther out), it makes little sense to me to pay it down/off.

Then there's another factor that few like to discuss, because it can be a contentious issue...if you're in a no-recourse state, and you are open to the idea of strategically defaulting on your mortgage, should it ever go underwater and you wanted/needed to sell, then that's another reason to not strive to pay it down/off early.
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Re: Carrying a big long mortgage

Post by CurlyDave »

abuss368 wrote: Mon Apr 27, 2020 11:04 am
...Going into retirement with a mortgage increases sequence of returns risk because of leverage. The good times can be nice but the bad times much worse.
I have difficulty imagining 30 years of bad times.
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Re: Carrying a big long mortgage

Post by MarkerFM »

I carry relatively large mortgage balances and the interest is not all deductible. Currently, the yield on my bond allocation is probably under a bit, but they are munis so it wouldn't be a lot.

The yield on those bonds will change over time, but the rate on my mortgages will not.

A key benefit of the mortgages is the option value. One could decide at any time between now and the end of the mortgage to pay more principal or pay it off entirely. This option has a value. I was paying a lot extra in principal each month (partly to increase the tax-deductibility of the interest, partly because the bond yields are stinky and equity values were looking lofty). When the market fell off a cliff, I stopped that and have been buying equities instead.

While possible to re-mortgage at some point if things change, it is not always possible to do that and also the rate could be unfavorable.
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Re: Carrying a big long mortgage

Post by randomguy »

willthrill81 wrote: Mon Apr 27, 2020 1:48 pm
randomguy wrote: Mon Apr 27, 2020 12:41 pm
willthrill81 wrote: Sun Apr 26, 2020 7:03 pm
Nonetheless, going into retirement with a mortgage increases sequence of returns risk because it's a form of leverage, which makes the good times better and the bad times worse.
Do you have have any math to back that statement up? My gut feeling is the 1966 retiree did better with a mortgage than by paying off the house. You would have had a 5.5% mortgage and when you hit 1981 and you would be making 12% off your bonds. And the nominal returns of the 70s were't horrible. If you told me the 1966 retiree who held a mortgagenmade it 30 years instead of going broke, I wouldn't blink an eye. I expect you took on more risk and were rewarded for it.

Leverage is going to make the good time better and bad times worse, but if you can survive the bad times, you still come out ahead. Might need to buy more antacid though....
A very simple demonstration is to assume that you had a $100k mortgage that was paid for by a $100k investment portfolio. If you did this in the year 2000 and paid an average of 5% mortgage interest*, refinancing along the way, and no PMI, resulting in an P&I payment of $537/month that is not indexed to inflation (i.e. nominal, not real dollars), a 60/40 AA would have now have just $25,405 remaining but with $6,444 withdrawn each year. As such, te portfolio is very unlikely to make it to the 30 year mark (i.e. when the mortgage would be paid off), meaning that the retiree would have been better off without it.

*Mortgage rates were actually averaging about 8% back then, but the retiree could have refinanced along the way. Average rates didn't drop below 5% until late 2009 and averaged about 4% from 2012 until now, so 5% seems like a somewhat conservative fixed rate for our purposes here.

Edit: I initially forgot that PV automatically selects that withdrawals are indexed to inflation, but the P&I of a mortgage is not. I've since corrected this.

Another very simple example
100k, 5% mortgage and a 30% US, 15% SV, 15% international and 40% bonds portfolio. It is year 20 and you have 63k and only owe 51k on the mortgage. So taking the mortgage paid off nicely. If you care about risk, why the heck are you entering retirement with an undiversified portfolio? Now we haven't looked at details like refinancing costs, tax savings (probably in the realm of 800/year early on), tax cost of that added income, and so on. It should be pointed out that 2000-2020 is a fun period in that bond choice matters a lot. If you would have held 10 years instead of total bond, you would have had 84.5k instead of 63k.


But a high level we don't care about one example. We care about all examples. That is the whole point of diversification. An undiversified portfolio will almost always do better in some cases and worse in others compared to a diversified one. What we tend to care about is find something that makes the worst case better. The worst case right now isn't 2000. It is 1966. Does the inflation diversification that holding a mortgage a big enough advantage to counter act the added volatility risk?
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Re: Carrying a big long mortgage

Post by randomguy »

willthrill81 wrote: Mon Apr 27, 2020 2:16 pm

Three posts above, I've provided a real world example of how a mortgage can hurt a retiree. It can also help them. But you don't know in advance which way it will go.

The basic problem is quite simple. If you have a mortgage, you have to make that payment every month, even if your portfolio is suffering. That's the basic essence of sequence of returns risk.

Even a today's historically low interest rates, a 3.5% 30 year mortgage would equate to about a 5.4% fixed withdrawal rate from a portfolio of equivalent size. Would you be alright with a retiree saying that they were going to implement a 5.4% absolutely fixed withdrawal rate (no flexibility allowed with a mortgage), even if the withdrawals weren't indexed to inflation, for 30 years? I wouldn't.
Why wouldn't you? Historically the nominal SWR for 50/50 is a bit over 6% if memory serves. 5.4% seems high because we are used to talking about real values not nominal ones. This discussions pops up everytime someone wonders why they can get 6% nominal from an annuity but only 4% real from a portfolio. Everyone thinks Peter Lynches 7% is absurdly high these days. But he was talking nominal not real. He was high, but not by much.
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Re: Carrying a big long mortgage

Post by willthrill81 »

megabad wrote: Mon Apr 27, 2020 3:19 pm
willthrill81 wrote: Mon Apr 27, 2020 3:06 pm
Specifically, it increases sequence of returns risk. Retirees' portfolios may average higher returns than a mortgage rate (taxes are important here as well since not many are able to deduct their mortgage interest any more, but investment returns are usually taxable in some way), but due to sequence of returns risk, retaining a mortgage can still result in lower terminal wealth vs. not having it.
Is your “sequence of returns risk” higher or lower if you rent? A mortgage can increase your exposure, but it doesn’t necessarily have anything to do with the sequence of returns. I can fashion a mortgage to where it works pretty much exactly like rent. I can fashion a mortgage with “variable” payments. I can undo a mortgage or change it in a number of ways quite often if I do choose.
Renting is a different animal. In the examples above, I was analyzing carrying a mortgage and investing the difference vs. having no mortgage and a correspondingly smaller portfolio.
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Re: Carrying a big long mortgage

Post by willthrill81 »

randomguy wrote: Mon Apr 27, 2020 4:27 pm
willthrill81 wrote: Mon Apr 27, 2020 1:48 pm
randomguy wrote: Mon Apr 27, 2020 12:41 pm
willthrill81 wrote: Sun Apr 26, 2020 7:03 pm
Nonetheless, going into retirement with a mortgage increases sequence of returns risk because it's a form of leverage, which makes the good times better and the bad times worse.
Do you have have any math to back that statement up? My gut feeling is the 1966 retiree did better with a mortgage than by paying off the house. You would have had a 5.5% mortgage and when you hit 1981 and you would be making 12% off your bonds. And the nominal returns of the 70s were't horrible. If you told me the 1966 retiree who held a mortgagenmade it 30 years instead of going broke, I wouldn't blink an eye. I expect you took on more risk and were rewarded for it.

Leverage is going to make the good time better and bad times worse, but if you can survive the bad times, you still come out ahead. Might need to buy more antacid though....
A very simple demonstration is to assume that you had a $100k mortgage that was paid for by a $100k investment portfolio. If you did this in the year 2000 and paid an average of 5% mortgage interest*, refinancing along the way, and no PMI, resulting in an P&I payment of $537/month that is not indexed to inflation (i.e. nominal, not real dollars), a 60/40 AA would have now have just $25,405 remaining but with $6,444 withdrawn each year. As such, te portfolio is very unlikely to make it to the 30 year mark (i.e. when the mortgage would be paid off), meaning that the retiree would have been better off without it.

*Mortgage rates were actually averaging about 8% back then, but the retiree could have refinanced along the way. Average rates didn't drop below 5% until late 2009 and averaged about 4% from 2012 until now, so 5% seems like a somewhat conservative fixed rate for our purposes here.

Edit: I initially forgot that PV automatically selects that withdrawals are indexed to inflation, but the P&I of a mortgage is not. I've since corrected this.

Another very simple example
100k, 5% mortgage and a 30% US, 15% SV, 15% international and 40% bonds portfolio. It is year 20 and you have 63k and only owe 51k on the mortgage. So taking the mortgage paid off nicely. If you care about risk, why the heck are you entering retirement with an undiversified portfolio? Now we haven't looked at details like refinancing costs, tax savings (probably in the realm of 800/year early on), tax cost of that added income, and so on. It should be pointed out that 2000-2020 is a fun period in that bond choice matters a lot. If you would have held 10 years instead of total bond, you would have had 84.5k instead of 63k.


But a high level we don't care about one example. We care about all examples. That is the whole point of diversification. An undiversified portfolio will almost always do better in some cases and worse in others compared to a diversified one. What we tend to care about is find something that makes the worst case better. The worst case right now isn't 2000. It is 1966. Does the inflation diversification that holding a mortgage a big enough advantage to counter act the added volatility risk?
I don't know that I would call a portfolio with TSM and TBM "undiversified," though its level of diversification could certainly be improved.

If you want to look at the impact of this on 1966, then please do the analysis and show us the results.
randomguy wrote: Mon Apr 27, 2020 4:38 pm
willthrill81 wrote: Mon Apr 27, 2020 2:16 pm Three posts above, I've provided a real world example of how a mortgage can hurt a retiree. It can also help them. But you don't know in advance which way it will go.

The basic problem is quite simple. If you have a mortgage, you have to make that payment every month, even if your portfolio is suffering. That's the basic essence of sequence of returns risk.

Even a today's historically low interest rates, a 3.5% 30 year mortgage would equate to about a 5.4% fixed withdrawal rate from a portfolio of equivalent size. Would you be alright with a retiree saying that they were going to implement a 5.4% absolutely fixed withdrawal rate (no flexibility allowed with a mortgage), even if the withdrawals weren't indexed to inflation, for 30 years? I wouldn't.
Why wouldn't you? Historically the nominal SWR for 50/50 is a bit over 6% if memory serves. 5.4% seems high because we are used to talking about real values not nominal ones. This discussions pops up everytime someone wonders why they can get 6% nominal from an annuity but only 4% real from a portfolio. Everyone thinks Peter Lynches 7% is absurdly high these days. But he was talking nominal not real. He was high, but not by much.
5.4% nominal might seem low if we're talking about 3% historic inflation. But with 2% being the Fed's target and the market's expectation for inflation being even lower than 2%, 5.4% nominal still seems high to me.
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Re: Carrying a big long mortgage

Post by arsenalfan »

Glancing at article:
3-5 works so long as you itemize.
10 works if you've stretched or live in a HCOL area, where paying off would otherwise make you "house-poor" (no other savings other than home equity).

Pay off house vs invest is a routine BH question.
Less often is the "mortgage as a negative bond" mental exercise.

The responses vary on everyone's personal circumstances.
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Re: Carrying a big long mortgage

Post by willthrill81 »

Paying an after-tax 3.5% on a mortgage while also buying bonds paying a pre-tax 1.7% only makes sense to me if the investor is overtly willing to pay for the liquidity this method provides. But the expected result of this approach is a loss of funds, not a gain.

Doing the above to buy stocks is a different matter.
“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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