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Location: Formerly Pleasanton Ca, now in Marietta Ga
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Quote:
Originally Posted by KathrynAragon
My point was that though a person is in theory borrowing money at 4 percent or whatever, they are paying a huge chunk of real money every real month on interest only, and with a typical mortgage, most of the payment goes to interest only for at least 10 years.
And whether it's logical or just "feel good" depends entirely on one's own stage in life and circumstances. For instance, our mortgage payment was around $1600 a month, though we were paying a lot more per month to pay it off quickly. So now when we roll into retirement in a few years, we will not have that monthly payment over our heads. Plus we will be able to invest that money each month, rather than spending it on interest (mostly interest till the ten year or so mark).
When a person enters retirement, they are typically on a fixed income. Now, that income may be comfortable, but it's generally fixed, so it's very helpful from a logical point of view not to have a monthly mortgage or rent payment. I mean, most people, myself included, are not playing the market or constantly studying how to move money around to get the highest return this month. Personally, on a fixed income, I want my expenses fixed as well, and I want my investments to be conservative - the time for higher risk is in the past. So yes, there is a psychological feel good component too in knowing what one's monthly expenditures are and are not going to be.
Yes, but if you took the money and invested it, because it earns more than the interest you pay you could have earned enough to pay off your even mortgage sooner.
Now if a person is on a fixed income, paying 4% on a mortgage , the mortgage payments are always the same, so that satisfies the "psychological feel good component too in knowing what one's monthly expenditures are and are not going to be" as you say. But if they are earning 8-12 % against that 4% cost, the spread would be even more important to someone on a fixed income. That's extra income to them. To me that's even more comforting, especially if you are older on a fixed income and you have to worry about inflation.
At one time I had no mortgage and that felt ok. Then I ran the numbers on how much money I could make and cover a mortgage and felt that was not really the best financial solution afterall. I am retirement age and I feel a lot better making money over a paid off mortgage, but that's me.
on the other hand at 6%-10% average return , first year on your own money you average 10,00 to 18,000 while spending 8k on interest using your numbers ....
many retirees who live off their portfolio usually use 4--60% equities in order to mathematically draw at least 4% inflation adjusted . fixed income only has been far to risky to use alone and has already failed more than 60% of the 118 rolling 30 year periods to date . in practice most of us do not live on fixed income in retirement unless you live on ss or pension alone and even then that is not fixed as it is adjusted by cola's ...that term living on a fixed income is another old myth ...you know who lives on a fixed income ? workers who don't see raises
i guess if your original premise does not hold true financially keep changing the parameters .
You can't count on 6-10% a year because of sequence risk. As you've often pointed out, the stock market can go for years without this type of return.
You can't count on 6-10% a year because of sequence risk. As you've often pointed out, the stock market can go for years without this type of return.
wrong ..if we are talking comparing to a mortgage or not , over typical retirement periods or accumulation periods which span decades of time then returns have ALWAYS been in the 6-10% range from equities .. in fact 50/50 has never lost money over any 10 or 20 year period of time .
wrong again on the sequence risk --- the sequence risk only comes in to play when spending down ..but even so your returns are STILL YOUR RETURNS , that does not change ... it is the success rate of how long the money will last that changes with sequence risk , not what your returns measure... your return average is your return average regardless
on the other hand at 6%-10% average return , first year on your own money you average 10,00 to 18,000 while spending 8k on interest using your numbers ....
many retirees who live off their portfolio usually use 4--60% equities in order to mathematically draw at least 4% inflation adjusted . fixed income only has been far to risky to use alone and has already failed more than 60% of the 118 rolling 30 year periods to date . in practice most of us do not live on fixed income in retirement unless you live on ss or pension alone and even then that is not fixed as it is adjusted by cola's ...that term living on a fixed income is another old myth ...you know who lives on a fixed income ? workers who don't see raises
i guess if your original premise does not hold true financially keep changing the parameters .
My point is pertinent only with PAID OFF MORTGAGES. My point was to showcase how much money is spent on interest alone with a mortgage. And I do realize that not everyone can pay off a home or go without a mortgage or rent.
And to be clear, I NEVER said "pay off your house INSTEAD of investing in the market."
By "fixed income" I mean living off one's investments and SS or pensions or whatever - not working and changing jobs or selling more for more commission or whatever. For example, when my dad was working, his income was variable (but more than when he was no longer working). Same with my husband - when he quits working, we will have to live on investments and SS. Of course there will be some fluctuation but surely you get my drift. Or maybe not, who knows.
Anyway, ideally, at this stage in our lives, with retirement looming in the near future, what works for us may not work for others, because not every situation is the same - however, in our case, we have both investments AND a paid off home. So we are not paying interest on a mortgage, and we are able to invest that money (from both interest AND principal) into the market.
I do know that not everyone has that luxury, but some people do. If you don't have to pay interest, don't. Especially hundreds of dollars a month of interest only. Invest it instead.
No rent, no mortgage = more money to invest in a diverse portfolio. Meanwhile the home value continues to rise - as it has consistently every decade. Some years more, some years less, some years it goes down, some years it goes up - just like the market. But just like the market, over time it is consistently up. Invest wisely in real estate and it's just another part of a diverse portfolio that should perform well over time.
My point is pertinent only with PAID OFF MORTGAGES. My point was to showcase how much money is spent on interest alone with a mortgage. And I do realize that not everyone can pay off a home or go without a mortgage or rent.
By "fixed income" I mean living off one's investments and SS or pensions or whatever - not working and changing jobs or selling more for more commission or whatever. For example, when my dad was working, his income was variable (but more than when he was no longer working). Same with my husband - when he quits working, we will have to live on investments and SS. Of course there will be some fluctuation but surely you get my drift. Or maybe not, who knows.
living off ones portfolio is not fixed income . your income and assets vary with markets , investments and interest rates as well as cola's on ss and any pension
workers who don't get raises of any sort are the only ones living on what i would call a fixed income .. they in fact can do other things to supplement that income so it really is a meaningless term . the term was conceived to conjure up a vision of an old feeble woman living near poverty on her social security check ..but even thayt is not fixed in any way and varies with the cpi
borrowing money has interest costs whether a mortgage or margin ... but as long as you average over time more than you pay , you are ahead.. it is very rare over the long term at these low mortgage rates that you won't come out ahead investing elsewhere . so there really is no contest on a financial basis , it is silly to even debate it ...... that does not mean investing and taking a mortgage should be for everyone , there are other factors , but for purposes of comparing taking a mortgage to not taking one , how much you pay to borrow is irrelevant if you are going to compare to investing at these levels .
Last edited by mathjak107; 05-30-2019 at 12:10 PM..
workers who don't get raises of any sort are the only ones living on what i would call a fixed income .. they in fact can do other things to supplement that income so it really is a meaningless term .
borrowing money has interest costs whether a mortgage or margin ... but as long as you average over time more than you pay , you are ahead
And as long as you don't pay interest you are even more ahead.
And as long as you don't pay interest you are even more ahead.
Not true one bit ...that is what we are trying to explain to you .......i suggest before you argue this rediculous point further google the term leverage, and how using other peoples money to earn more money increases returns ....the money you pay cash with is no longer able to be invested anywhere else .... it is in the house ,,all you are saving is the interest ....if you could invest your money and average 6-10% while paying 4-5 you are ahead ..... this is a simple concept ,I don’t understand why you can’t follow it
You can do better than that with a non-traditional mortgage, though. I'm not saying it works for everyone, but we're going with a 10 year ARM at 2.95%. I mean, some of the most safe investments like high yield savings accounts aren't going to beat 2.95%, but... many investments will over the long haul (or, should I say most).
If you can reliably make 6-10% on your money, though, as mathjak said, and you can get someone to loan you money at 4-5%, that's kind of a no brainer. Like, what's hard to calculate there? You loan me $1 million and I pay you $45,000 interest per year, and I put the million dollars into, say, an apartment complex with a fractional interest that pays me $80,000 per year, just to use a random example, then I cover the $45,000 interest from my $80,000 and have $35,000 left over. Granted, it's not so easy to find that type of investment, I'm just saying strictly speaking if you're sure you can make better than 5% elsewhere, it makes sense to pay 5% or less for a mortgage. There is a psychological component of course to having no mortgage, not saying there isn't, and I also like that idea. But as long as you understand it's largely psychological and not math / logic based.
I wouldn't touch an ARM with a 10 foot pole after what happened in 2008. Especially since mortgage rates are so low.
The reality is most people would benefit from arms ....they over pay early on in life since many homeowners don’t stay in their early homes very long..they pay way to much in interest with fixed mortgages for to short a time
wrong ..if we are talking comparing to a mortgage or not , over typical retirement periods or accumulation periods which span decades of time then returns have ALWAYS been in the 6-10% range from equities .. in fact 50/50 has never lost money over any 10 or 20 year period of time .
wrong again on the sequence risk --- the sequence risk only comes in to play when spending down ..but even so your returns are STILL YOUR RETURNS , that does not change ... it is the success rate of how long the money will last that changes with sequence risk , not what your returns measure... your return average is your return average regardless
I'd rather have peace of mind that comes with no mortgage or monthly rent. If the market drops 60-70%, even a 50-50 portfolio is going to take a tremendous hit, and likely take a long time to recover.
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