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The term HELOC is not interchangeable with the term "second mortgage." A "first" or "second" mortgage only refers to the loan's claim position, not its terms. HELOCs and home equity loans are often referred to as "second" mortgages because there is usually another mortgage against the property when they are taken out. Indeed, HELOCs and home equity loans generally carry higher mortgage interest rates because it's assumed that they will be in second position, and therefore riskier to the lender. If you were to default, the lender in second position would not see any money until after the lender in first position had been repaid. However, it is possible to have a HELOC in first position if there is no other mortgage on your home when you take it out."
Retirees with fixed income and a paid for primary home will often use a HELOC for the down payment on a second home. Especially of late with lower interest rates. At least formerly lie
we did that when we bought our first investment property since a bank would not loan an investor money to invest in a co-op in 1987 after the market crash
OP, we are about same age, except that I am no related to militaries.
I shall (plan, at least) to retire at legal age for full benefit, that will be 66.5.
Though I do not have a "nice egg" because of the late start in the country, I shall liquidate my IRAs as of the 2nd week of January and dump it all into current mortgage. With final goal to kill it completely by the time I retire.
Small amount you have I'd have killed right away, without any plans shmans. Just kill the sucker. You save by saving interest you pay and you gain by natural property value growth. What is likely much higher return than what you have from you egg anyway.
Unless you are in some sort of magic know how on investing and have very good vesting into your retirement plan ( I do not) then you likely have piddly return on it, as chaotic as investments are as it is.
All I know is our properties GROW in value like on yest and investments can't climb out of red in years. So forget investments.
There is probably a difference in retiring with a existing mortgage and using investments to pay the balance off while staying in place v transplanting on retirement and selling your existing homes proceeds to pay cash for new one. That is a clear choice. Invest the proceeds or pay cash for the new one. We elected to pay cash.
My fee-only financial advisor strongly urged me to keep a mortgage in retirement. His reasoning is that the 403(b) funds pay more interest than what the interest rate of a mortgage would be. That makes sense.
However, due to my stupidity/ignorance, since I told my employer that I was going to retire, a mortgage company could not use my employment income to qualify for a new mortgage. I ended up withdrawing funds from the 403(b) to pay for the new house, (part of it, anyway). There will be a huge tax hit next year, but I had strongly considered being mortgage free in retirement anyway, for the peace-of-mind.
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RE: My fee-only financial advisor strongly urged me to keep a mortgage in retirement. His reasoning is that the 403(b) funds pay more interest than what the interest rate of a mortgage would be. That makes sense.
Of course he did.
He wants more money in your brokerage account that his company will charge a fee on.
Also he isn't taking the risk of losing his house. You are.
It doesn't make sense.
Pay off the mortgage.
we did that when we bought our first investment property since a bank would not loan an investor money to invest in a co-op in 1987 after the market crash
Banks are always willing to loan you an umbrella.....when it's not raining!
Based on the first three or four answers I don't think they understood what your advisor was suggesting. He has a good idea. It is to pull out approximately your mortgage and put it in a special account. This is probably something that will pay interest but not lose. You then set up your payments from this account. It then allows you to balance the rest of your nest egg and draw for necessary and discretionary expenses.
One more thing. Why does everyone seem to want to keep paying interest on borrowed money. It's okay to have a HELOC but pay the mortgage either in normal or accelerated time.
I understood what the advisor was suggesting, but I still don't see the benefit of the special account. Leave the money invested where it is and just draw money from it for the mortgage. I'm just thinking there is some benefit to the advisor here with the extra account. An extra, separate account really is unnecessary, unless there is a guaranteed interest rate that would make it worthwhile, which would surprise me. Maybe it's a question of which type of risk a person is willing to tolerate.
RE: My fee-only financial advisor strongly urged me to keep a mortgage in retirement. His reasoning is that the 403(b) funds pay more interest than what the interest rate of a mortgage would be. That makes sense.
Of course he did.
He wants more money in your brokerage account that his company will charge a fee on.
Also he isn't taking the risk of losing his house. You are.
It doesn't make sense.
Pay off the mortgage.
Even if your mortgage is paid off, you can still lose your house. If you don't have enough money to pay property tax, if you owe HOA money, they can still auction your house off. This happened during the housing burst.
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