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In that case I would agree. If you are choosing between paying lump sum then you are right. But given the tendency of most folks at or near retirement age it is advisable they look at there home as a near cash asset. Unless you need the cash reserve of the house it would be more advantageous to keep that asset whole and in tact. In time of need a reverse mortgage or an outright sale of the house can provide needed income in relative safety.
I agree with this. Everyone's situation is different. In our case, without getting into our personal lives I believe (as does my husband) that it would be best for us to own our home outright. We love this home and don't intend to move; however if we did need to sell we are in an area where it would be easy to do so. Again, we will have some other money, as well as SS and a pension payment, and depending what happens with his parents who are well off (now in their mid 80s) stand to inherit a good bit from them. Also not everyone is a savvy investor; we are not, and at this stage in our lives do not wish to start gambling with our money. For those of you who like to invest and are good at it or have other reasons for keeping a mortgage - great. Different strokes for different folks.
...... Also not everyone is a savvy investor; we are not, and at this stage in our lives do not wish to start gambling with our money. For those of you who like to invest and are good at it or have other reasons for keeping a mortgage - great. Different strokes for different folks.
I hope your income is entirely from social security and/or pensions. If any significant portion is from 401k/403b, IRAs or similar, you need to invest!!! That does not mean some sort of risky speculation or "gambling." You need to learn the basics of establishing a diversified portfolio of investments which includes stocks or more likely stock funds. Without investments the size of your income will shrink and even the current low ~2% rate with have a huge impact within years.
For years I worked hard and largely ignored my 401k. Late in life I realized that paying attention to investments had a bigger potential return than my salary. Ignorance and lack of attention cost me a lot. If you are in that situation I suggest learning the basics of investing immediately. There are lots of resources.
I hope your income is entirely from social security and/or pensions. If any significant portion is from 401k/403b, IRAs or similar, you need to invest!!! That does not mean some sort of risky speculation or "gambling." You need to learn the basics of establishing a diversified portfolio of investments which includes stocks or more likely stock funds. Without investments the size of your income will shrink and even the current low ~2% rate with have a huge impact within years.
For years I worked hard and largely ignored my 401k. Late in life I realized that paying attention to investments had a bigger potential return than my salary. Ignorance and lack of attention cost me a lot. If you are in that situation I suggest learning the basics of investing immediately. There are lots of resources.
jrkliny I don't think you can have a portfolio of 401k/403b or IRA (Roth or traditional) that isn't invested in something. It is a matter of comfort level with that person. gypsychic's income stream seems to be at a comfortable level to them and I would counsel them not to count the inheritance in their portfolio having a mortgage free home makes them comfortable.
gypsychic you don't need to be a savvy investor. You just need to have someone who 1) is fee only and 2) you are comfortable with assist in any investment choices you might want to look at. This is quite important that you have that comfort level with them. Recommendations from friends you trust are valuable. Reputable companies are out there and with new regulations out there on full disclosure it makes it a bit harder for them to get away with telling you something not true.
jrkliny just a point here. The original question is whether or not to carry or even pick up a mortgage in retirement using the age of 70 as a point on the map. If we were talking about someone 40 years old than that is one thing. But at 70 a long debt like a mortgage is harder to get for one. Another point is that the mortgage itself is more or less a losing proposition given the time line the investment of the mortgage would need to have for it to pay off. If they are at the point now and they still have a mortgage of X dollars they have to consider what to do. If they might not be able to afford that in the future regardless of income generated by investments the volatility of the equities market and even a mixed fund might cause them to miss a payment in a downturn. Over time it is good but short term it is a risk that some folks are not comfortable with when you are 70+
I knew a couple in their early 70s took out a huge HELOC and renovated their house with top knotch everything. We're talking imported italian tile type renovation. Anyway, she ends up unexpectedly dying and he is stuck in this huge house alone that he can't sell for more than he owes. I guess it will be his kids problem eventually.
How is that a problem? He is in a house that he renovated to his taste. Do you really think his intention was to flip it?
but since gains are questionable as to what they will be the only given is interest paid less tax deduction .
that is a loss that needs to be made up with gains since you are paying 25k in interest to save 14538..
like nicole pointed out average returns are one thing , but the sequence of those average returns can really hurt you if they are in a poor order , far more then an average return would indicate.
so you need to have two things play out to beat that mortgage rate , you need a high enough average return but you also need it in the right order of gains and losses when pulling it from a portfolio to pay out . .
It's interesting to me how discussions of portfolios seems to devolve to the get-rich-quick schemes touted by investor web sites. There's a huge disconnect between investing now and a retirement portfolio. Bond funds will certainly take a bath as interest rates rise, but a retirement portfolio should have bonds maturing on a regular schedule. You collect the face value, and don't give a squat what the bond market is doing. Many value stocks continue to issue steady dividends no matter what the stock market is doing. The paper value of the stocks is only marginally related to your income. Rental properties continue to provide a nice retirement income, particularly if you have held them for 20 or 30 years.
At some point, owning a home normally becomes a liability. If I am lucky, I will have another 15 years here before I have to move to assisted living. I will have to make that move before I get too old and feeble to care for myself, or it will be beyond my capability. A sudden downturn in health, like a stroke or heart attack, would make it a nightmare, so I'm hoping and planning not to put it off too long. Meanwhile, no mortgage means cash flow keeps up with both living expenses and property maintenance. I will probably end life as a renter, and have planned to retain adequate assets to fund that.
in effect you do have to sell to tap the equity or you can only put the house up as collateral to take a loan , the same as any other loan . you need to make payments on a loan paying more back then you got . .
even a reverse mortgage is a loan . it just has a balloon payment due at the end and you already signed the house over in advance with a deed in lieu so they do not have to foreclose when you don't pay the loan , they already have the deed , in effect you pre-sold it .
it is very difficult to really get your money out of a home without incurring expenses . in fact before you can even reverse mortgage it you need at least 2x the value most of the time . at 65 that is not likely to happen any time soon just buying so counting on that is really not a good choice , you may not qualify until 80 or older .
in poll after poll the majority of seniors say what let them retire on the income they did is not the appreciation accumulated in the home but it's cost cutting ability and the ability to improve cash flow and that is where we stand too with our reason for buying .
if it was maximizing gains i would not buy at all and just rent and keep the money in the risk pool in various investments as we had been doing but we not interested in keeping the carrot on the stick and doing that anymore . .
we are hoping a combination of delaying ss , cutting costs in the long term by buying a co-op and perhaps an spia make us less dependent on the whims of the markets through retirement .
we already have all the exposure to market and interest rate risk that we want to take on . .
Nope you are NOT in effect selling the house. You are selling an income stream. Even with a reverse mortgage you still own the home and only have to pay for the use of the money you use. If you use less than the value of the home that equity and the home is yours.
Yes it does cost to get YOUR OWN equity out of your house. That's why it is foolish to make EXTRA payments on a low interest rate mortgage. Your future reduced expenses are ONLY because you tucked todays money under your mattress/home.
Yes, you do make payments but are you really saying you'd rather have 360 monthly payments at 3.5% or THE LUMP SUM CASH TODAY? This really is the question. Most people obviously agree that a dollar today is better but then when they have to make the choice their FEAR makes them make the wrong decision.
For every $3,000 of social security you could put over $600,000 in your pocket. Your break even point is over 16 years when you are pushing 87! Even if you only spent $300,000 and invested $300,000 over 16 years I'm thinking you'd have to be a poor investor not to come out ahead.
You need to look at my example again. I am not paying $25k in interest. I used the $25k as an example of the high progressive tax rates. Moving from $50k to $75K means a 31% tax rate on the additional money. Using a mortgage deduction to reduce the taxable amount will save 31% for every dollar deducted.
I understand about sequence of returns. You are the one who came up with the low ball estimate of 1-2% returns. Something more reasonable for the average would be more like 3-4% or even a very conservative 2-3%.
BTW, did you buy or are you still renting? According to Zillow, my house has appreciated almost 40% in 2 1/2 years. I can hardly believe the market has moved that well. In fact I don't. 20% is probably more accurate. Of course, that has nothing to do with a decision on mortgaging or buying. As the owner, I win either way.
With an income like that, you are just gaming the system. You have far more money and assets than you will ever need. "Whoever dies with the most stuff wins." With a little planning, you will be able to pass on the entire wad tax free. Since you don't account for the extra taxes you would have to pay on the income from the borrowed money, you obviously don't intend to ever use it.
Nope you are NOT in effect selling the house. You are selling an income stream. Even with a reverse mortgage you still own the home and only have to pay for the use of the money you use. If you use less than the value of the home that equity and the home is yours.
The reverse mortgage is providing you an income stream not the other way around and you can only take it for less than the value of the house.
Quote:
Originally Posted by honobob
Yes it does cost to get YOUR OWN equity out of your house. That's why it is foolish to make EXTRA payments on a low interest rate mortgage. Your future reduced expenses are ONLY because you tucked todays money under your mattress/home.
True getting your equity is an expense. It might be that you have to sell at a lower value due to unforeseen circumstances. That is why it is not a growth investment vehicle. Making extra payments is a personal choice and one that goes along with that person's risk tolerance. I agree that instead of making extra payments that the money be invested.
Quote:
Originally Posted by honobob
Yes, you do make payments but are you really saying you'd rather have 360 monthly payments at 3.5% or THE LUMP SUM CASH TODAY? This really is the question. Most people obviously agree that a dollar today is better but then when they have to make the choice their FEAR makes them make the wrong decision.
I still will not call it fear. I call it risk tolerance. That is the difference between our approaches. You want to shame them into making your suggestion the norm for them. I would rather have them understand the risks involved and make an informed decision.
No I am not in the industry. I just know a bit more about human nature than you obviously do.
Quote:
Originally Posted by honobob
For every $3,000 of social security you could put over $600,000 in your pocket. Your break even point is over 16 years when you are pushing 87! Even if you only spent $300,000 and invested $300,000 over 16 years I'm thinking you'd have to be a poor investor not to come out ahead.
But think on this. A person collecting SS at 2k per month while living on other investments and pensions if they have them can put that money aside easier if they are not worrying about making mortgage payments. It is a lot easier if you are only paying upkeep and taxes on your property. Even better if you are renting it out and using that income stream as well. No mortgages opens up a whole new world to those who would prefer not to invest in equities where the value of the stock goes through violent swings. A well balanced portfolio will provide that growth and safety and a home can be a part of that portfolio.
You are not wrong in saying that you can make a ton of money in investing in equities. But you are wrong by calling people out on that.
a reverse mortgage is pre-selling the house . you are taking an equity loan with a balloon payment due at the end which you have already decided to give up the house instead of pay but you still get a bill .
in fact you already handed the deed over to get the reverse mortgage which is held by a 3rd party , it is called a deed in lieu .
at the end of the agreement either your heirs or you if you break the terms gets a bill for the balance and a chance to pay the loan off . if not they already have the deed and do not have to foreclose . the house becomes theirs without foreclosure for non payment .
you can call it what ever you want but all you did is take a heloc with a balloon payment due at the end and you have a choice of a lump sum or they send you a piece of your borrowed money monthly . it is a loan ,the same as any other loan . only the terms are different as to when and how it is paid .
Last edited by mathjak107; 05-07-2016 at 03:11 PM..
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