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You're paying interest on that mortgage? If your expenses are covered and you have the extra cash to pay it off, most experts agree that any "tax savings" aren't worth carrying a mortgage; most even advise you to pay toward the principal and get rid of it early if at all possible (I did).
But, once THAT'S done, what do you do with extra money? Yeah, it's a good problem to have.
Ok, I did not literally mean $0 in cash, total. I meant that there might be liquid assets elsewhere in addition to the $200k, but they are not part of the analysis since whatever happens to them is independent of your decision to pay the mortgage off or not.
Obviously having $0 remaining would be bad, this is not under dispute.
I figured that's what you meant as I have a sense about your thinking from the investment forum. I was speaking more generally when I responded to you as the discussion is all over the place at different points. I should have been more specific in my response and context of what I was responding to. There is another level to this discussion about how much is enough with a pension and SS covering expenses and we won't dare discuss that here.
You're paying interest on that mortgage? If your expenses are covered and you have the extra cash to pay it off, most experts agree that any "tax savings" aren't worth carrying a mortgage; most even advise you to pay toward the principal and get rid of it early if at all possible (I did).
But, once THAT'S done, what do you do with extra money? Yeah, it's a good problem to have.
I have not had any "experts" advise me to sell off a low interest mortgage. I recently completed an annual financial review and my advisor did not even consider that possibility. If I had wanted to pay off my mortgage earlier, I could have paid cash. I briefly considered a 15 year mortgage but it is likely that interest rates are going to be low for quite a few years. That is not likely to be the case for the entire 30 year mortgage.
Now I have the best of both worlds. The cash I did not spend on the mortgage is growing faster than the cost of the mortgage. So my mortgage costs are covered and I am getting additional returns on top of those costs.
When you are on the home page for FIREcalc, look near the top, you'll see several tabs. Click on the tab called "Spending Models". Near the top, you will see a selection for inflation options: PPI, CPI, or a specified annual rate. Choose the specified annual rate option, and enter 0.0%.
I changed that from the default which I believe was 3% to 0% and I got exactly the same firecalc results. Just to be sure I increased the inflation rate to 10% and the results did not change. Something is definitely wrong with the model.
I have not had any "experts" advise me to sell off a low interest mortgage. I recently completed an annual financial review and my advisor did not even consider that possibility. If I had wanted to pay off my mortgage earlier, I could have paid cash. I briefly considered a 15 year mortgage but it is likely that interest rates are going to be low for quite a few years. That is not likely to be the case for the entire 30 year mortgage.
Now I have the best of both worlds. The cash I did not spend on the mortgage is growing faster than the cost of the mortgage. So my mortgage costs are covered and I am getting additional returns on top of those costs.
I think a lot has to do with your mortgage's interest rate. If you got it at the low values we had recently then investment interest would be higher than your mortgage interest so it's a better deal. On the other hand I understand those that psychologically would feel better not having a mortgage
But, once THAT'S done, what do you do with extra money? Yeah, it's a good problem to have.
See, that's the situation! The tax benefit is only a small portion of the benefit of keeping the mortgage. Think about the liquidity and the inflation hedge AND the extra money! Spend some of it! No prize for prepaying your living expense for the next 100 years when you're only gonna be around 15-20!
I think a lot has to do with your mortgage's interest rate. If you got it at the low values we had recently then investment interest would be higher than your mortgage interest so it's a better deal. On the other hand I understand those that psychologically would feel better not having a mortgage
a lot just has to do with the fact many folks simply have goals of having a paid off home- period.
many ear mark money for different goals in life , when they have the money that goal is met and on to the next one.
what they don't do is stick the carrot on the stick , throw the money back in the risk pool and chase the elusive gain forever potentially blowing meeting that goal.
while striving for a goal investing aggressively and going for the gold is okay . if things go wrong it does not matter since they don't have the money yet any way so if they have to wait longer to meet that goal no problem.
but having the funds to complete that goal and getting trapped in a down turn or worse losing money after you made it to that goal may not be something some folks want to do.
Last edited by mathjak107; 04-22-2015 at 02:08 AM..
what they don't do is stick the carrot on the stick , throw the money back in the risk pool and chase the elusive gain forever potentially blowing meeting that goal.
..... in a down turn or worse losing money after you made it to that goal may not be something some folks want to do.
You spent years making substantial and risky investments in commercial real estate. Your words of caution make perfect sense for someone who has chased the carrot on the stick. Unfortunately your words are unlikely to be helpful to the vast majority of people. For a great many people, the idea of buying a diversified, balanced mutual fund seems way too risky. Most people are already way too risk averse for their own good. If they do invest, emotions are likely to take over and they panic at the first market correction. Then there is the outdated advice about putting investment money in bonds when you retire. That made sense in the good old days when most people barely lived to retirement age.
I changed that from the default which I believe was 3% to 0% and I got exactly the same firecalc results. Just to be sure I increased the inflation rate to 10% and the results did not change. Something is definitely wrong with the model.
That's unfortunate, and oddly I just tried exactly what you did and the calculator seems to work just fine for me. All I can say is there must be a bug in something somewhere.
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