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Old 01-26-2015, 06:25 PM
 
Location: Coastal Georgia
37,105 posts, read 45,631,484 times
Reputation: 61722

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Here is my dilemma. We moved 4 years ago and were intent on making our mortgage manageable with our retirement income, so put 1/2 down payment. Fine and dandy, except we paid about $5k too much and so the house is barely worth what we paid so far.
I am haunted by the fact that we have about 150k laying stagnant, when we could be investing this money.
I don't know whether to get a reverse mortgage, thereby gaining $650 a month, or refinancing, and taking the equity out and investing it. Then, we would have a bigger mtg payment, but might recoup it from investing it.
What to do?
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Old 01-26-2015, 06:47 PM
 
Location: The Triad (NC)
28,496 posts, read 62,167,040 times
Reputation: 32177
Quote:
Originally Posted by gentlearts View Post
...intent on making our mortgage manageable with our retirement income...
...we paid about $5k too much and so the house is barely worth what we paid so far.
Your math eludes me but unless you intend to move anytime soon... so what?

Quote:
I am haunted by the fact that we have about 150k laying stagnant,
when we could be investing this money.
Think of it as the "buy in" to sit at the higher stakes able.

Many will pay 100% for their "retirement home" and avoid the mortgage altogether.
I'm one of them.

The deeper question is whether to have a $300,000 property at all(if I have the math right)...
or at least relative to your total net worth and other investments.

Quote:
What to do?
Ride it out. Or sell and then get a more modest property.
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Old 01-26-2015, 09:00 PM
 
Location: Near a river
16,042 posts, read 18,975,704 times
Reputation: 15649
I don't understand the OP's situation, either. On a $300,000 home, what does a mere "$5K too much" mean?

In some areas of the country, like mine, owning a home IS an investment. The value goes up without fail in certain locations. If yours isn't a good location (i.e., mediocre at best), why ever spend that much on a home?
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Old 01-26-2015, 11:41 PM
 
Location: Wisconsin
21,539 posts, read 44,010,725 times
Reputation: 15140
Everything I've ever read on this board indicates that reverse mortgages are a very expensive last resort - however, should one of you die, the other might be allowed to remain in the home.

Also, you may or may not actually have $150k laying stagnant, depending on the value of the home. Be that as it may, lender will still require equity of 20-25%. Assuming house is valued at $300k, mortgage of $225-$240k may be doable. So, if you already owe $150k, most you'll get out on a refi will be $75-$90k. Refi costs will reduce that another $3k, easily.

Assuming you already have or will set aside sufficient cash reserves for 3-5 five years' needs and know what you are doing, then, yes, for now the market should provide better returns in the area of 7-9% in reasonably conservative funds. Keep in mind we are in an aging bull market; although, for the near term, a downturn does not appear imminent, there will be corrections here and there. Cash reserves will carry you through the inevitable down times coming in the next 3-5 years, so you won't be forced to sell invested assets at a loss.

Cost/Benefit Analysis:
$3,150 - Cost of Add'l borrowed money 3.5% x $90k = $3,150
$7,200 - Stk Mkt @ 8% x $90k

$4,050 - Gain Annually - maybe

Questions to ask yourself:
  • Is a possible $4k/yr. worth encumbering the house further?
  • What if one of you dies? You are down to one SS check.
  • What about pension income if one of you dies?
  • Your income could be cut by one-third to one-half, or more, with a death - unless either of you has a good life insurance policy in place to offset this loss.
Also, any investments would be taxable - another consideration if you need to sell. Profits can result in more of your Social Security benefit being subject to tax.

You are wise to give a lot of thought before either taking on additional debt or incurring cost of the reverse mortgage. RM's can be very expensive. Mathjak has written extensively on that.

Last edited by Ariadne22; 01-27-2015 at 12:29 AM..
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Old 01-27-2015, 06:57 AM
 
Location: Mount Airy, Maryland
10,461 posts, read 5,928,514 times
Reputation: 16156
I think the OP is simply asking how he can tap into the equity of his home. The more I read about reverse mortgages the worse they seem with very expensive fees upfront.
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Old 01-27-2015, 07:50 AM
 
Location: Coastal Georgia
37,105 posts, read 45,631,484 times
Reputation: 61722
Quote:
Originally Posted by DaveinMtAiry View Post
I think the OP is simply asking how he can tap into the equity of his home. The more I read about reverse mortgages the worse they seem with very expensive fees upfront.
Yes, or whether I should. My gut feeling on Reverse Mortgages is, there's no free lunch.

What I mean is we paid 245000, in 2010, and the property value dipped by about $5000. So in 4 years we are back to the purchase price value, but therefore have not made any gains on the money invested in our house. Since $150k represents a lot of our net worth, we can't afford to make poor choices about how best to grow it.
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Old 01-27-2015, 07:52 AM
 
Location: Coastal Georgia
37,105 posts, read 45,631,484 times
Reputation: 61722
Quote:
Originally Posted by Ariadne22 View Post
Everything I've ever read on this board indicates that reverse mortgages are a very expensive last resort - however, should one of you die, the other might be allowed to remain in the home.

Also, you may or may not actually have $150k laying stagnant, depending on the value of the home. Be that as it may, lender will still require equity of 20-25%. Assuming house is valued at $300k, mortgage of $225-$240k may be doable. So, if you already owe $150k, most you'll get out on a refi will be $75-$90k. Refi costs will reduce that another $3k, easily.

Assuming you already have or will set aside sufficient cash reserves for 3-5 five years' needs and know what you are doing, then, yes, for now the market should provide better returns in the area of 7-9% in reasonably conservative funds. Keep in mind we are in an aging bull market; although, for the near term, a downturn does not appear imminent, there will be corrections here and there. Cash reserves will carry you through the inevitable down times coming in the next 3-5 years, so you won't be forced to sell invested assets at a loss.

Cost/Benefit Analysis:
$3,150 - Cost of Add'l borrowed money 3.5% x $90k = $3,150
$7,200 - Stk Mkt @ 8% x $90k

$4,050 - Gain Annually - maybe

Questions to ask yourself:
  • Is a possible $4k/yr. worth encumbering the house further?
  • What if one of you dies? You are down to one SS check.
  • What about pension income if one of you dies?
  • Your income could be cut by one-third to one-half, or more, with a death - unless either of you has a good life insurance policy in place to offset this loss.
Also, any investments would be taxable - another consideration if you need to sell. Profits can result in more of your Social Security benefit being subject to tax.

You are wise to give a lot of thought before either taking on additional debt or incurring cost of the reverse mortgage. RM's can be very expensive. Mathjak has written extensively on that.
Thank you. That's very helpful.
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Old 01-27-2015, 07:56 AM
 
Location: Coastal Georgia
37,105 posts, read 45,631,484 times
Reputation: 61722
Quote:
Originally Posted by newenglandgirl View Post
I don't understand the OP's situation, either. On a $300,000 home, what does a mere "$5K too much" mean?

In some areas of the country, like mine, owning a home IS an investment. The value goes up without fail in certain locations. If yours isn't a good location (i.e., mediocre at best), why ever spend that much on a home?
We're in a highly desirable neighborhood, and know the value will go up, but it is not like the old days, when it was a sure thing. If you don't know that RE values plunged after the bubble burst, then you have not been paying attention.
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Old 01-27-2015, 08:34 AM
 
Location: The Triad (NC)
28,496 posts, read 62,167,040 times
Reputation: 32177
Quote:
Originally Posted by gentlearts View Post
we paid 245000, in 2010, and the property value dipped by about $5000.
So in 4 years we are back to the purchase price value...
That's certainly unfortunate, but in the larger scheme of things during these years it ain't so bad.
Is there any indication this trend is beginning to reverse in your area?
Is there any indication price stagnation/loss will be continuing?

Quote:
...the money invested in our house.
Was used to allow a more affordable mortgage amount on the home you prefer.

Presumably you also looked at less expensive properties that your $150,000 buy in
could have bought outright but you chose else wise. Have the other reasons for choosing
that particular house/area remained constant?

Buyers remorse is also common.
Do you think you would be happier in one of those less expensive areas/homes?

Quote:
Since $150k represents a lot of our net worth,
we can't afford to make poor choices about how best to (get income off of it).
Indeed. income producing investments - Google Search
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Old 01-27-2015, 09:10 AM
 
Location: Coastal Georgia
37,105 posts, read 45,631,484 times
Reputation: 61722
Quote:
Originally Posted by MrRational View Post
That's certainly unfortunate, but in the larger scheme of things during these years it ain't so bad.
Is there any indication this trend is beginning to reverse in your area?
Is there any indication price stagnation/loss will be continuing?


Was used to allow a more affordable mortgage amount on the home you prefer.

Presumably you also looked at less expensive properties that your $150,000 buy in
could have bought outright but you chose else wise. Have the other reasons for choosing
that particular house/area remained constant?

Buyers remorse is also common.
Do you think you would be happier in one of those less expensive areas/homes?


Indeed. income producing investments - Google Search
No, it could certainly be worse. This area is most definitely turning around, since we live in a small city that is booming, both commercially and residentially. We are not at all worried that the house will appreciate, but only that the equity might earn more quickly outside of the RE.

No, we did not look at more affordable properties, since this was the price range we were comfortable with. Our goal was to downsize with a small mortgage, rather than to pay cash and use up that much principal. We are still happy with the house, neighborhood, city and the cost. It is just that I want to be vigilant with our investments to make sure I am maximizing.

Not sure what you were asking in your second paragraph?
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