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Old 08-03-2017, 08:33 AM
 
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I'm less than three years away from being eligible to retire from my current job and I'm also retired from the military. I've accrued a nice nest egg in my 401K and recently met with a retirement benefits planner to help me develop a sound strategy utilize these funds after I retire. One option that he suggested was setting up an account to pay off my mortgage with funds from my 401K. He stated that I can commence monthly payments using this plan at age 59 1/2 without penalty but the funds would be subject to federal income tax. there is no state income tax in the state that I currently reside. Or I can wait until I retire at age 62 when my income will be much less and I'll be eligible for social security. The funds will still be subject to federal income tax but my liability will be much less because I won't be working. The balance of my mortgage is about $95K. Has anyone used this mortgage payment strategy themselves and if so did you find it beneficial? If not what are some of the financial and tax perils that I may be over looking? Thanks!


Mel
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Old 08-03-2017, 08:36 AM
 
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why do they want you to pay off the mortgage ? it may not make sense if the rate is low enough and the money you would use is invested and doing well
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Old 08-03-2017, 08:39 AM
 
Location: Idaho
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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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Old 08-03-2017, 08:43 AM
 
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yep , getting mortgages can be a problem when you retire. especially if you delay taking ss .

most buyers of mortgages from the banks will not take asset based loans , only income based.

we would like to go the other way . we want a mortgage in retirement if we buy a co-op next year . if we pay cash , once that money goes in to equity buried in the house there is no way we can make use of it except by taking higher priced loans .
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Old 08-03-2017, 09:31 AM
 
Location: Grove City, Ohio
10,138 posts, read 12,398,078 times
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Quote:
Originally Posted by mathjak107 View Post
yep , getting mortgages can be a problem when you retire. especially if you delay taking ss .

most buyers of mortgages from the banks will not take asset based loans , only income based.

we would like to go the other way . we want a mortgage in retirement if we buy a co-op next year . if we pay cash , once that money goes in to equity buried in the house there is no way we can make use of it except by taking higher priced loans .
We sold our southern home to relocate in the north and when we did the cost of our house cost went up by double so I took out a mortgage.

Luckily I was still working, in fact I still am and will continue for another year until I hit 70 at which time I will take social security, so my income said I could easily handle the mortgage.

What I don't get is why banks/mortgage companies take such a dim view of retirement income. The way it worked for us is if you count our social security benefits and a couple small government pensions our retirement income is literally a couple bucks more than what "take home pay" I earned as a full time employee.

While our gross income might drop our social security and pensions will be exempt from federal and state taxes and is it not "take home" that matters?

As far as a mortgage goes I feel I have reached the bullet proof stage of life. If I lost my job tomorrow for some reason I would simply say "thank you" and start collecting benefits if I needed to. Compare my situation with a thirty something with wife and two kids.... I can easily handle the loss of a job forever where most thirty somethings couldn't for very long.

I asked the question, the mortgage broker was a personal friend so I could be more open, if I quit even though I had enough in savings to live on for a year and a half prior to taking SS benefits, and I was told the underwriters would probably have a problem with that.

Simple answer was to get a mortgage before quitting while not detailing your plans.
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Old 08-03-2017, 09:42 AM
 
Location: Idaho
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Originally Posted by nicet4 View Post
...

Simple answer was to get a mortgage before quitting while not detailing your plans.
I submit for consideration a minor correction . . .

Simple answer is to get a mortgage before informing your employer you are going to quit.

.
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Old 08-03-2017, 09:48 AM
 
Location: Philadelphia/South Jersey area
2,879 posts, read 1,408,873 times
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Quote:
Originally Posted by mathjak107 View Post
why do they want you to pay off the mortgage ? it may not make sense if the rate is low enough and the money you would use is invested and doing well
pretty much my thought. right now I'm up about 9% on my investments. my rate on my mortgage is 4%. I reevaluate every few years.
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Old 08-03-2017, 09:59 AM
 
Location: Florida -
8,767 posts, read 10,857,014 times
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Another aspect of paying off one's mortgage in/before retirement is that getting a HELOC has become a complex and difficult process. Thus, if OP wants to keep funds available at a low interest rate, it would be better to NOT first put those funds into a mortgage.

I was thinking that I would use HELOC funds (perhaps 20-percent of my home value) - to help my daughter with a new home (rather than withdrawing high tax rate funds from deferred income funds). In the past, it seems like HELOC's were virtually a signature loan process (we have a paid off mortgage and 800+ credit rating).

Wow! - Was I ever surprised when I found that a HELOC has now become a 60-90-day process - requiring as much documentation and detail as a first-time buyer - and involving a higher than prime interest rate with very limited loan terms. (I decided to go another direction and avoid this hassle).
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Old 08-03-2017, 12:53 PM
 
71,759 posts, read 71,853,273 times
Reputation: 49307
Quote:
Originally Posted by nicet4 View Post
We sold our southern home to relocate in the north and when we did the cost of our house cost went up by double so I took out a mortgage.

Luckily I was still working, in fact I still am and will continue for another year until I hit 70 at which time I will take social security, so my income said I could easily handle the mortgage.

What I don't get is why banks/mortgage companies take such a dim view of retirement income. The way it worked for us is if you count our social security benefits and a couple small government pensions our retirement income is literally a couple bucks more than what "take home pay" I earned as a full time employee.

While our gross income might drop our social security and pensions will be exempt from federal and state taxes and is it not "take home" that matters?

As far as a mortgage goes I feel I have reached the bullet proof stage of life. If I lost my job tomorrow for some reason I would simply say "thank you" and start collecting benefits if I needed to. Compare my situation with a thirty something with wife and two kids.... I can easily handle the loss of a job forever where most thirty somethings couldn't for very long.

I asked the question, the mortgage broker was a personal friend so I could be more open, if I quit even though I had enough in savings to live on for a year and a half prior to taking SS benefits, and I was told the underwriters would probably have a problem with that.

Simple answer was to get a mortgage before quitting while not detailing your plans.
the rules set by fannie and freddie for buying mortgages require them to be income based on income streams not under your control
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Old 08-03-2017, 01:02 PM
 
Location: Close to an earthquake
890 posts, read 678,635 times
Reputation: 2390
Quote:
Originally Posted by jghorton View Post
Another aspect of paying off one's mortgage in/before retirement is that getting a HELOC has become a complex and difficult process. Thus, if OP wants to keep funds available at a low interest rate, it would be better to NOT first put those funds into a mortgage.

I was thinking that I would use HELOC funds (perhaps 20-percent of my home value) - to help my daughter with a new home (rather than withdrawing high tax rate funds from deferred income funds). In the past, it seems like HELOC's were virtually a signature loan process (we have a paid off mortgage and 800+ credit rating).

Wow! - Was I ever surprised when I found that a HELOC has now become a 60-90-day process - requiring as much documentation and detail as a first-time buyer - and involving a higher than prime interest rate with very limited loan terms. (I decided to go another direction and avoid this hassle).
I'm a HELOC fan with a $300,000 line and no balance but I want to get a new one before retiring since the current one has an expiration date. Thanks for the update about how much more work there is to get one. I don't recall how much work my current one was. Since I'm self-employed, I'm sure I had to go through the hoops. I'm experienced with this extra work and everything is in PDF documents easily transmitted to my bank.

Being debt free, I like the feeling but am not closed to having a loan one day if it serves some valid purpose.
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