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My wife and I are both 51yo and are in the process of relocating to another state. We plan to make this move and work for 15 - 20 more years and then "retire", if possible, after one more move to where we feel it more to our advantage.
Originally, I was of the mind to get a 15yr mortgage and pay off the loan prior to our retiring in order to be mortgage free in our "golden years" then, recently, I had a thought, an epiphany if you will, and realized that if we are just going to move again and sell the house, why invest in a 15yr mortgage when we can do a 30 yr mortgage, take the difference(roughly $400 per mo) and invest it in something with a "potentially" higher yield?
With homes appreciating at roughly the same rate as inflation over the past 45yrs, would it not be wiser at this point in our lives, to fund something with a greater return in investment? Since we have earned substantial equity in our current home, unrealized at this point to be $125 - 150k, we can easily afford the 20% down on a decent home, put some cash reserve aside and still have $30 - 50k to invest elsewhere for income later on down the road
Does that make as much sense as it seems?
Thoughts?
P.S. I posted this in the personal finance forum as well.
A mortgage is a good deal from the stand point of inflation. You will be paying back your loan with inflated dollars. That would lean toward a 30 year mortgage.
The rub is you have to pay a higher interest rate.
If you can have the extra 400 deducted from your paycheck and invested in the stock market I think you would come out ahead.
You could use the saved money to pay off the mortgage when you retire or keep making monthly payments, if you do not sell the house.
I like having no payments but I think the math would indicate that you will be ahead with the 30 year mortgage and stock market investments. I would look toward several ETF index securities to minimize the stock market risk.
A mortgage is a good deal from the stand point of inflation. You will be paying back your loan with inflated dollars. That would lean toward a 30 year mortgage.
The rub is you have to pay a higher interest rate.
If you can have the extra 400 deducted from your paycheck and invested in the stock market I think you would come out ahead.
You could use the saved money to pay off the mortgage when you retire or keep making monthly payments, if you do not sell the house.
I like having no payments but I think the math would indicate that you will be ahead with the 30 year mortgage and stock market investments. I would look toward several ETF index securities to minimize the stock market risk.
Although I have not formed a solid opinion yet, I am considering REIT's or purchasing income investment property for the potential investment. We each currently have a 401k, IRA, and I have a personal stock portfolio that I manage. I want to diversify
We are due to retire in 18 years or so, and just recently refi-ed into a 15 year mortgage. We had been paying extra on our old 30-yr mortgage, and were due to pay it off in 22 years. We decided to bite the bullet to "force" is into paying it off earlier. We did it since we have no plans to move even once we retire.
We're relieved knowing that we'll have no mortgage payment for the 2-5 years before we retire.
My husband and I have considered a 15-year mortgage on a number of occasions. Instead, we've opted to stay with the 30 and send extra money toward the principle every month, for one reason: If one of us should lose our job, I want the comfort of knowing that I can make a smaller mortgage payment and not lose our house.
I took a totally different approach. I bought far less house than I could afford and paid off the small mortgage as quickly as possible. Since the house was so inexpensive, I could also afford to remodel it to my liking out of cash flow. I did this at age 51 1/2. 5 1/2 years later, I have a paid-for house nicely remodeled to my liking. I basically dumped all my disposable income into accelerating the mortgage and remodeling for those years. When I retire at age 65, my housing cost will be very low.
I think an awful lot of people fall into the trap of buying far more square footage than they really need. That drives up the cost of the house. It drives up property taxes & insurance. It costs more to heat & cool. Maintenance costs are higher. I have a very nice house in a great location. It's just very small.
With the 15 vs 30-year mortgage, one accumulates equity more quickly. Additionally, one can capitalize on today's lower interest rates to acquire more house -- or pay for the house one has more quickly.
Ultimately, the question probably comes down to what one will otherwise do with the 'excess, unencumbered' funds that one will otherwise pay on an accelerated mortgage. The likelihood is that they do not actually exist. Therefore, unless one commits to regularly invest the amount in an accelerated mortgage, the funds will simply be spent on daily living.
I think of an accelerated mortgage as an accelerated savings plan, with the added advantage of paying off one's mortgage sooner (But, how many actually stay in the same house for 15-30 years anyway?). We've used accelerated mortgages a couple of times to reduce our overall interest payments. In the process, we paid-off a couple of houses; the last one about 5-6-years prior to retirement, leaving us funds to do other things.
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