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I know there have been many threads about mortgages & I searched & read many of them, but my situation is a bit different.
I am soon to be 66, single, and in the past year sold the family home here in Silicon Valley for a huge profit and sent a big box of $$$ to the IRS. I am a nurse and in the past year I've decreased my hours substantially tho I am still employed at the same hospital where I have worked for over 35 of my 45 year career as a RN. I purchased a my dream home on a lake with cash from the sale of my home and have no mortgage. I have a long-term care policy, my medicare supplement paid for by the hospital throughout my retirement and I have a comfortable 403b. My plan is to retire completely in the first quarter of 2016, and claim 1/2 of my ex-husbands Social Security (he is older than me & already receiving benefits so "file & suspend" does not apply here) and let my SS accumulate to age 70.
I am with a fee-based financial planner that I like & trust and he is encouraging me to obtain a mortgage on my current home, now as I am still employed so would look better to underwriters. He feels that the money obtained from the mortgage could be better invested (by him) & used as a tax write off. Given the fees associated with the appraisal, closing, title insurance, etc... I am skeptical about the actual effectiveness of any return. The taxes that I will pay this year (associated with the sale of my home) would not be helped. And I am imagining very low income in the next few years, just the small amount of social security.
Am I missing something? Would a mortgage help enough to justify the associated costs and the number of hoops I will be required to jump thru? Many Thanks for shedding some light on this for me.
You wrote a very good post and I was giving you an A+ for knowing what you are doing. However when your financial planner suggests you should have a mortgage for tax savings he got an F and I would interview a few other planers. You said your planer is fee based. Assume he gets a percentage of your assets regardless of performance. Might look for an hourly fee planner or maybe use the planners at some on line brokerage or mutual funds. Might want to do a new post on financial planners costs etc.
I prefer not to have any debt payments in retirement. However from an investment standpoint a mortgage is not bad. You will be paying it off with inflated dollars. But I would never consider borrowing money (mortgage) to invest for your purposes.
Again reevaluate your relationship with your current planner. He does not seem to have your best interests at hart.
I can't thank all of you enough for putting words to my hesitation. All of your responses have been so helpful. Since I found CD I have mostly "lurked & learned" I've never started a thread & was hesitant to do so, but I am so glad I did.
I was planning to go along with the idea, because all of my other mortgages worked out so well. The last one one the family home was a high value mortgage and helped a lot on my taxes because I was in my highest earning years. But now with my income so low, I just fail to see the advantage. As many have pointed out why assume an unneeded risk at this point in life.
A consideration here in California is that owning a (high-value) home outright that could be flattened in an earthquake is quite literally "putting all of your eggs in one basket." That is the reason that I kept a high mortgage on the family home. But now with a less expensive home it seems more reasonable to assume that risk. No, I don't have earthquake insurance, it is VERY expensive.
Again many thanks for the help in clarifying my thought processes, I knew I didn't want to do it, and all of you helped me realize why.
You wrote a very good post and I was giving you an A+ for knowing what you are doing. However when your financial planner suggests you should have a mortgage for tax savings he got an F and I would interview a few other planers. You said your planer is fee based. Assume he gets a percentage of your assets regardless of performance. Might look for an hourly fee planner or maybe use the planners at some on line brokerage or mutual funds. Might want to do a new post on financial planners costs etc.
I prefer not to have any debt payments in retirement. However from an investment standpoint a mortgage is not bad. You will be paying it off with inflated dollars. But I would never consider borrowing money (mortgage) to invest for your purposes.
Again reevaluate your relationship with your current planner. He does not seem to have your best interests at hart.
You & many others have suggested that I "kick him to the curb" and that may still happen, it is "early days" in our relationship. He does get a percentage of my portfolio regardless of performance, but he is not in control of most of my assets because I have not retired, so my entire 403b is still with the hospital. I am watching him closely and may ask more questions here on CD as things develop.
He taught a 7 hour class on retirement finances (at the local community college) and I was very impressed with the content of his course, that is how I picked him. Essentially a 7 hour interview. We have been working together for almost a year and so far I have been happy with his planning. But that said, things can still change. Several other friends took his class and are using him as well and so far are pleased with his handling of their finances.
Being single, I really want to have my finances overseen by someone I trust in case my mental acuity begins to diminish and I am not aware of it. I have a living trust and everything in place. I also have 3 adult children who are college grads, married with families of their own & I don't want them to have to oversee my finances. (One son has an MBA in finance ) If one of them took over my finances it could lead to some squabbling among them and I'd like them to concentrate on their own lives.
I think there are two issues. First you have an advisor who wants you to take a mortgage so he can invest your money and take his fees. Second, is the choice of taking an unneeded mortgage in order to take advantage of the low rates. I avoid paying advisors to manage my money. Your returns are likely to be much better if you invest in low fee mutual funds. The issue of unneeded mortgages has appeared on this forum or the Investment forum on many occasions. Currently rates are under 4%. Historically money invested in a balanced portfolio has returned an average of 7-8%. So it is very likely that over a long span, you will see a substantial return. There are some arguments against this. First some people do not have much discipline in managing their money. If they have the extra money in their portfolio they feel like they can spend way more. Second there are many people who are expecting the sky to fall. These are the same people who missed out on the huge investment returns over the past 6 or 7 years. Finally there is a very common argument. A great many people "feel" better by not having a mortgage or any other debts. Personally I am very disciplined in my overall spending. I do not expect the sky to fall although certainly we will see ups and downs in the markets. Finally I do not make financial decisions based on feelings. Nor do I speculate. I started out really well with my mortgage investment. For two years I made back twice the amount needed to pay the mortgage. This year will be closer to break even. I suppose if investment returns seriously tank, I could reconsider and pay off the mortgage. That is extremely unlikely. In addition to my mortgage, I just financed a car. It is hard to pass on a loan over under 3%. I initially thought I would get a better deal with cash but after a lot of trying, I found that was not the case.
Even my ignorant, illiterate, emigrant grandfather always taught the value of having your money work for you. Right or wrong that seems to be one of the main reasons the rich get richer and the poor get poorer.
I can't thank all of you enough for putting words to my hesitation. All of your responses have been so helpful. Since I found CD I have mostly "lurked & learned" I've never started a thread & was hesitant to do so, but I am so glad I did.
I was planning to go along with the idea, because all of my other mortgages worked out so well. The last one one the family home was a high value mortgage and helped a lot on my taxes because I was in my highest earning years. But now with my income so low, I just fail to see the advantage. As many have pointed out why assume an unneeded risk at this point in life.
A consideration here in California is that owning a (high-value) home outright that could be flattened in an earthquake is quite literally "putting all of your eggs in one basket." That is the reason that I kept a high mortgage on the family home. But now with a less expensive home it seems more reasonable to assume that risk. No, I don't have earthquake insurance, it is VERY expensive.
Again many thanks for the help in clarifying my thought processes, I knew I didn't want to do it, and all of you helped me realize why.
See bolded. I am confused by this statement. If you are in an earthquake zone and mortgage a house, the bank would require earthquake insurance as part of the conditions of granting a mortgage. That being said, are you better off if you owe a mortgage and don't have a house anymore, or just don't have a house anymore with no debt against it? The mortgage company isn't going to say "Oh, there was an earthquake? Well, OK, don't bother paying us back the rest of the money you owe us!"
I would propose mortgage free is STILL the better financial situation, and is independent of the requirement for insuring said property against loss.
Choosing to not insure because the cost/benefit ratio of insurance in risk specific areas (flood zones, earthquake zones, lava zones in HI, etc.) is an assumed risk, insurance is used as the mitigation for that risk, buying or not buying insurance is a choice, but really isn't part of the mortgage/no mortgage decision process IMO.
The idea is that if my home appraises at 2M and is a 1600 sq ft home that is 60 years old.obviously the land (location) is the real value. So if my home is not paid off and then flattened (total loss, structure & contents) with no earthquake insurance, it is possible that bank issuing mortgage would jump at idea of "deed in lieu of foreclosure" Obviously that is not ideal, you'd want to rebuild and possibly there would be government assistance..but it might, possibly keep another option open. There are many possible scenarios... possibly could just sell the land, hard to say what such a disaster would bring. It is one school of thought here in the Bay Area where we are used to the "rocking & rolling." It would never be the primary reason to carry a mortgage but it might contribute to the decision.
I'm really trying to be sensible here & make good decisions for the sake of my children not having to worry about Mom. Sorry if I came across as a flake by bringing up the earthquake loss, it really is very remote and not a motivating reason for action, but alway a thought in the back of my mind.
I look at it the way that I have a portfolio with a variety of investments with varying degrees of risk and return: stock fund, treasury bonds, real estate, bank CDs, cash.
The real estate is my house and it is paid off. It has appreciated 30% since I bought it.
That is a good bit better than cash or bank CDs, but not as good as the stock fund nor the treasury bonds. So it looks like a reasonable part of my portfolio, and by happenstance, one that I feel I must have
So, write down your investment portfolio by type and value, and see how much is allocated in each bracket including your house as an item. Then decide if you already have enough high-risk allocated in your 403b and enough low-risk, liquid, and you decide if you think the house is medium or low risk.
To me a paid off house is, relative to the investments, low risk. I say that because I want to have a house, and the house I have will always be worth one house regardless of what the economy does.
That isn't true if you have a mortgage and a severe economic crisis occurs.
The idea is that if my home appraises at 2M and is a 1600 sq ft home that is 60 years old.obviously the land (location) is the real value. So if my home is not paid off and then flattened (total loss, structure & contents) with no earthquake insurance, it is possible that bank issuing mortgage would jump at idea of "deed in lieu of foreclosure" Obviously that is not ideal, you'd want to rebuild and possibly there would be government assistance..but it might, possibly keep another option open. There are many possible scenarios... possibly could just sell the land, hard to say what such a disaster would bring. It is one school of thought here in the Bay Area where we are used to the "rocking & rolling." It would never be the primary reason to carry a mortgage but it might contribute to the decision.
I'm really trying to be sensible here & make good decisions for the sake of my children not having to worry about Mom. Sorry if I came across as a flake by bringing up the earthquake loss, it really is very remote and not a motivating reason for action, but alway a thought in the back of my mind.
No, you did not come across as a flake. I just was confused as to why someone would conflate having a mortgage as some protection against loss in a natural disaster. Sounds like that may be common enough thinking in the Bay Area, and laws vary state to state locale to locale, so there may be reasons (legal ones) you may not even be aware off that has locals thinking this way.
It just isn't how I would think about the issue with my experiences in real estate, but I have never lived in any areas that have floods, quakes, etc., nor have I owned property in CA.
No, you did not come across as a flake. I just was confused as to why someone would conflate having a mortgage as some protection against loss in a natural disaster. Sounds like that may be common enough thinking in the Bay Area, and laws vary state to state locale to locale, so there may be reasons (legal ones) you may not even be aware off that has locals thinking this way.
It just isn't how I would think about the issue with my experiences in real estate, but I have never lived in any areas that have floods, quakes, etc., nor have I owned property in CA.
I can understand the thinking. If you owe the bank and the house is destroyed they take the hit when you default. When you own the house and it is destroyed and the area not livable and insurance companies going belly up you take the hit.
The idea is that if my home appraises at 2M and is a 1600 sq ft home that is 60 years old.obviously the land (location) is the real value. So if my home is not paid off and then flattened (total loss, structure & contents) with no earthquake insurance, it is possible that bank issuing mortgage would jump at idea of "deed in lieu of foreclosure" Obviously that is not ideal, you'd want to rebuild and possibly there would be government assistance..but it might, possibly keep another option open. There are many possible scenarios... possibly could just sell the land, hard to say what such a disaster would bring. It is one school of thought here in the Bay Area where we are used to the "rocking & rolling." It would never be the primary reason to carry a mortgage but it might contribute to the decision.
I'm really trying to be sensible here & make good decisions for the sake of my children not having to worry about Mom. Sorry if I came across as a flake by bringing up the earthquake loss, it really is very remote and not a motivating reason for action, but alway a thought in the back of my mind.
Excuse me but this appears to be a chronic case of the "disaster-phobia tail wagging the sensible-thinking dog."
And you could also get creamed by a diesel truck while driving on the freeway but you wouldn't not take that trip to visit a good friend for fear of that happening.
Also, and I'm not an attorney but know many things, when you refinance your home in California, the debt is not considered a purchase money mortgage. The significance of that is a lender that look beyond the property (i.e. your other assets) in satisfaction of the debt. Contrast this with a purchase money mortgage debt (i.e. the debt you incur to purchase your residence). In that case, the lender can't look past the property in satisfaction of the debt.
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) If one of them took over my finances it could lead to some squabbling among them and I'd like them to concentrate on their own lives.
