Payoff mortgage or not?
Question:
– Hide quoted text — Show quoted text -> >How do you go about determingin whether it makes financial sense to pay >off > >a mortgage in preparation for retirement? > >We refinanced last year for a 30 year 5.75% loan. > >Retirement is in 10 years. We were doubling up the principle payments to > >payoff in 15 or so years. But im wondering if we would be better of > >investing that. If you can make 6 % or more on investments would you be > >better off leaving the loan at 30 years and investing the money that was > >being paid to pay of the loan early? I think we are paying about 500 a > >month as extra payment for early payoff. > >thx for any tips > Paying it off probably makes sense. Here are a few considerations. > 1. Money that is used to pay off your mortgage is in effect a 100% > secure investment of Treasury Bond quality paying a tax free 5.75%. At > today’s rates that 5.75% can’t be matched in a treasury security and > is mighty near the 6% return you believe a stock market investment > "may" produce. But, you might say, "We will lose the deduction". > That’s true, but you will find that when you retire your annual income > will decline somewhat, dropping your tax bracket, and the deduction > will probably be of little value — maybe of no value whatsoever if it > doesn’t pay you to itemize. > 2. If you continue to have a mortgage after retirement age, you will > require an additional increment of income to support the mortgage > payments. Depending on the source, that income will likely have an > impact on the taxability of Social Security. > 3. It’s nice to minimize expenses in a post-retirement environment. If > your other sources of income take a turn for the worse, or you spend > more than you were counting on, you will be in a better position to > cope than would be the case if you were saddled with a mortgage. > So unless your situation doesn’t fit what I’ve described, my advice > would be to pay it off. > Jeff >Not to mention, it’s just a damn lot less hassle. That’s gotta’ be worth >something too! >Gary
A friend of mine paid his mortgage off several years ago had no debt and always paid his credit card within 30 days. We were in a mall and he applied for a cell phone and was turned down as having a poor credit rating. Thumper To reply drop XYZ in address
Response:
It seems to me to be more important to ask if your home is in an area where it is likely to appreciate or depreciate. Many neighborhoods go downhill for a variety of reasons including it becomes unfashionable, major industry moves, natural disaster, etc. Do you plan to live in it after retirement or move to a different location or type of housing? -Connie
Response:
> How do you go about determingin whether it makes financial sense to pay off > a mortgage in preparation for retirement? > We refinanced last year for a 30 year 5.75% loan. > Retirement is in 10 years. We were doubling up the principle payments to > payoff in 15 or so years. But im wondering if we would be better of > investing that. If you can make 6 % or more on investments would you be > better off leaving the loan at 30 years and investing the money that was > being paid to pay of the loan early? I think we are paying about 500 a > month as extra payment for early payoff. > thx for any tips
There are a whole lot of variables to consider prior to making that decision. First and foremost, is can you afford the additional money? From what you post, since you are considering doing that, apparently you can. Second, is how much is the aggregate mortgage, or, IOW, how much will you have available and for how many years, through an early payoff? If the amount is significant, that is something to consider. If it amounts to a smaller amount, then it may not be such a good idea. Third, what are the tax advantages you lose in early payoff? Fourth, what investment strategy would you use to invest the money instead of an early payoff? And what rate of return would you need to get, taking all of these things into consideration, to make it worthwhile? Remember, when taxes are considered, rates of return that provide you with a financial benefit change, so even if lower, will give you an aggregate benefit. In short, you are asking what appears to be a simple question, but in reality is complex. You’ll get opinions on the internet, but bear in mind, that anyone who offers you an opinion may not be taking all those things into consideration and surely does not know your financial condition or your comfort level. The best bet is to seek the advice of a competent financial planner who is NOT out to sell you a product. Alan
Response:
– Hide quoted text — Show quoted text – >:How do you go about determingin whether it makes financial sense to pay off >:a mortgage in preparation for retirement? >: >:We refinanced last year for a 30 year 5.75% loan. >:Retirement is in 10 years. We were doubling up the principle payments to >:payoff in 15 or so years. But im wondering if we would be better of >:investing that. If you can make 6 % or more on investments would you be >:better off leaving the loan at 30 years and investing the money that was >:being paid to pay of the loan early? I think we are paying about 500 a >:month as extra payment for early payoff. >: >:thx for any tips >: >: >: >every $ you pay into the mortgage principle starts earning 5.75% less >in expense the day the mtgage principle is reduced by that $. look at >your net. you no longer have to pay in that amount in interest, and >this is certain.
You really aren’t paying that amount in interest if you are itemizing. Thumper – Hide quoted text — Show quoted text ->whether this is a good investment depends on what alternatives you have. >when high quality investments start paying above 5.75%, the only >comparable quality investment right now are 5 and 10 year us bonds. >they pay significantly less. >to do better, you have to accept risk. how much risk are you willing >to tolerate? >on the other hand, the only possible consequences of our current >fiscal dilemna in the us is further devaluation of the us$ which >implies inflation. it is always better to pay off a debt with cheaper >dollars in the future. >so ny answer to your question depends on how soon, and how fast, you >expect substantial inflation. >i learned this the hard way by going through many periods of high >inflation since i became economically aware in the late 40s, and saw >fixed assets devalue over and over again as the $ went through its >gyrations. >if you have little faith in the $, don’t pay off the mortgage, >find investments which will keep pace with inflation in the long term. >as ed hall used to say, the us$ has become a widow’s and orphan’s >short. >this scheme is riskier, but has been justified over and over again in >the past 55 years. YMMV
To reply drop XYZ in address
Response:
– Hide quoted text — Show quoted text ->How do you go about determingin whether it makes financial sense to pay off >a mortgage in preparation for retirement? >We refinanced last year for a 30 year 5.75% loan. >Retirement is in 10 years. We were doubling up the principle payments to >payoff in 15 or so years. But im wondering if we would be better of >investing that. If you can make 6 % or more on investments would you be >better off leaving the loan at 30 years and investing the money that was >being paid to pay of the loan early? I think we are paying about 500 a >month as extra payment for early payoff. >thx for any tips > Paying it off probably makes sense. Here are a few considerations. > 1. Money that is used to pay off your mortgage is in effect a 100% > secure investment of Treasury Bond quality paying a tax free 5.75%. At > today’s rates that 5.75% can’t be matched in a treasury security and > is mighty near the 6% return you believe a stock market investment > "may" produce. But, you might say, "We will lose the deduction". > That’s true, but you will find that when you retire your annual income > will decline somewhat, dropping your tax bracket, and the deduction > will probably be of little value — maybe of no value whatsoever if it > doesn’t pay you to itemize. > 2. If you continue to have a mortgage after retirement age, you will > require an additional increment of income to support the mortgage > payments. Depending on the source, that income will likely have an > impact on the taxability of Social Security. > 3. It’s nice to minimize expenses in a post-retirement environment. If > your other sources of income take a turn for the worse, or you spend > more than you were counting on, you will be in a better position to > cope than would be the case if you were saddled with a mortgage. > So unless your situation doesn’t fit what I’ve described, my advice > would be to pay it off. > Jeff
Not to mention, it’s just a damn lot less hassle. That’s gotta’ be worth something too! Gary
Response:
I had a similar situation in 1989 and decided to pay off the mortgage by 1994 when I retired. Glad I did. Visa Frequent Flyer is my only significant monthly bill and I still invest regularly. Happy in Retirement – Hide quoted text — Show quoted text – > How do you go about determingin whether it makes financial sense to pay > off > a mortgage in preparation for retirement? > We refinanced last year for a 30 year 5.75% loan. > Retirement is in 10 years. We were doubling up the principle payments to > payoff in 15 or so years. But im wondering if we would be better of > investing that. If you can make 6 % or more on investments would you be > better off leaving the loan at 30 years and investing the money that was > being paid to pay of the loan early? I think we are paying about 500 a > month as extra payment for early payoff. > thx for any tips
Response:
- Hide quoted text — Show quoted text – > I had a similar situation in 1989 and decided to pay off the mortgage by > 1994 when I retired. Glad I did. Visa Frequent Flyer is my only significant > monthly bill and I still invest regularly. > Happy in Retirement >How do you go about determingin whether it makes financial sense to pay >off >a mortgage in preparation for retirement? >We refinanced last year for a 30 year 5.75% loan. >Retirement is in 10 years. We were doubling up the principle payments to >payoff in 15 or so years. But im wondering if we would be better of >investing that. If you can make 6 % or more on investments would you be >better off leaving the loan at 30 years and investing the money that was >being paid to pay of the loan early? I think we are paying about 500 a >month as extra payment for early payoff. >thx for any tips
This would depend on several other considerations. First the amount of the mortgage compared to your expected retirement income. This should not be more than 30% of income. If your retirement income will be taxable, then the interest deduction may be of some help. Alonzo, indicated he retired ten years ago, if he drives like 90%+ of us then his auto would be approaching replacement time, that interest is not deductible. Rest assured the auto payment will cut in to the retirement funds. I think the next consideration just might be the most important one. A 5.75% loan is reversed, that is considered this is the return on any investment you would make, is highly questionable, as well as doubt that it is secure. A share Certificate in my credit union on 24 month commitment only pays 2.45%. This is a secure investment and I doubt that you could get up to the 5.75% any where with a secure investment. If you are paying $500 of additional principle and only dropping 15 years off the term, you must have one very large payment and owe around $500,000. your payment would be in the neighborhood of $2,000. I would come up with a lot more than $500 extra and do pay off the note. BILL P. — *KERRY LIED WHILE GOOD MEN DIED*
Response:
How do you go about determingin whether it makes financial sense to pay off a mortgage in preparation for retirement? We refinanced last year for a 30 year 5.75% loan. Retirement is in 10 years. We were doubling up the principle payments to payoff in 15 or so years. But im wondering if we would be better of investing that. If you can make 6 % or more on investments would you be better off leaving the loan at 30 years and investing the money that was being paid to pay of the loan early? I think we are paying about 500 a month as extra payment for early payoff. thx for any tips
Response:
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