Did you pay off a mortgage at a reasonably young age and live mortgage free? How did that impact retirement? (50+, community)
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Paid off a 30 year mortgage in 14 years by age 43. Interest was 8%. Didn't want to get caught up in refinancing so used the high interest rate as motivation to pay it off quicker.
So glad to have done that. My health insurance costs (sole proprietor) are now the size of a mortgage.
Since this is the retirement forum, this needs to be echoed. Max out your contributions now while life is simple and very singular (not married).
On the flip side, we are no longer in times where people work for the same company for their entire career. If the bottom drops out of the economy and you find yourself unemployed with few job prospects, a paid off house with relatively low ownership costs can save your bacon. I was unemployed for 14 1/2 months 7 years ago when the economy collapsed. I was able to retrench to my paid-for vacation home and live a pretty good quality of life off my unemployment check and didn't have to hit savings. Fast forward 6 years. My primary residence is paid for and remodeled to be relatively maintenance-free for the rest of my life. If something really bad happened with my career and I couldn't find work, I could go quite a few years off my emergency fund. Worst case, I could sell my vacation home and semi-retire on a much more stripped down income than I ever imagined. In the new economy, nobody is really 100% safe and it's brutal trying to find work as a 50-something or 60-something. My 5%-er high tech job could vanish at any time. I have to contingency plan for the worst case.
Since I experienced unemployment 7 years ago, I hadn't been doing my usual max out of my 401-K contributions so I could get my housing straightened out. I'm now doing the $24K 'catch-up' Roth 401-K and banking a bunch of my take-home pay. My 401-K and IRA accounts from before that have done just fine in the stock market run-up. I decided that it was more important to have the house I was going to live in for the rest of my life paid for and remodeled to my liking before focusing on a big push to top up my retirement war chest. I sleep better at night knowing I have zero debt and could go years living off my emergency fund if I needed to. Was it the optimal way to maximize my net worth? No. I would have been much farther ahead putting $24K/year into my 401-K, making the mortgage payment on my 15 year note, and dialing back on the remodeling.
I just turned 29 and am looking at buying my first home over the next year. I work in Indianapolis but don't want to live in the inner city. I'm looking at reasonably priced condos and small SFHs in the better parts of the city and suburbs and am finding quite a bit I can afford, but I can go to small towns outside of Indy and probably save considerable amounts of money. I'm currently renting a 2BR and with rent, water/sewer, and electric, I'm up to $1,000/month. It's a decently kept but very dated apartment, and it's money down the drain. There are smokers/animals beside me and I want neither, and I want something on one level, with a basement possibly for optional use. There is a possibility of me getting married but can't foresee any kids.
I have been thinking of buying with a small mortgage ($50k-$110k or so) and trying to pay it off as fast as possible (hopefully by 40-45). This would give me the ability to be completely debt free for ten to twenty years prior to retirement, and to contribute a considerable amount.
Did you pay off a mortgage early and find it helpful or that the money was better allocated elsewhere? Even if it was better allocated elsewhere, did you find the peace of mind of being debt free worth it?
I paid off my mortgage when I was 48. It brought a lot of peace of mind, and of course the money I was putting into the mortgage payments can be otherwise invested.
It's a balancing act. I could have paid off my mortgage sooner but I didn't want to strip down my other investments, and have too much of my net worth invested in my house. So I took a more balanced approach of paying down the mortgage gradually, while adding to my other investments at the same time.
Getting the mortgage paid off was a big step in preparing for my eventual retirement. That was nearly 5 years ago and I am still working, but my net worth has increased very nicely during that period.
Why any same person would submit themselves to the whim of a group of neighborhood busybodies is beyond me.
They can help home values by keeping appearances up and uniform, etc, but this condo was only $90k, and would probably really go for much less. It's in a very affluent zipcode, and the condos are somewhat older, but the development is very well kept and the inside of the one I was focused on had been updated and was very stylish.
You're getting snow removal, trash removal, and lawn maintenance, in addition to the tennis courts, clubhouse, and pool areas. I suppose if you took advantage of all the social aspects, it might be worth it, but it's still a big expense to swallow.
Homes have maintenance costs so do not assume they are cheaper. Interest is low now so I would not rush to pay off a mortgage. Probably 30 year mortgage.
Start your retirement savings now. Do not delay and do not pay off the house before you start saving. You want your savings to have a lot of years to earn money.
You want as little in the way of fixed monthly payments as you can in retirement.
4% is low. 0% is lower.
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Originally Posted by BeerGeek40
Mathjak you're one of the posters I most respect on here but we'll agree to disagree on this one.
MOST people won't have the discipline to continue to pay extra on a 30 year mortgage.
Most people buy as much house as they can afford. The trick is to buy a bit less than that, so you have extra in your budget to comfortably pre-pay if that makes sense in your overall retirement strategy.
Quote:
Originally Posted by southernnaturelover
Set up auto draft with the extra principle coming out every month, that way it happens automatically without thinking about it too much. I had mine set up like that, and got it paid down enough last year that I could go ahead and pay it off.
Exactly. Make it automatic so you aren't taking that money and spending on eating out too often and too many coffees at Starbux.
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Originally Posted by ncole1
I don't agree. A 15/15 ARM has a lower interest rate than a 30 and makes more sense for those wanting a 15-year payoff. Getting a 30 year mortgage with the plan of paying off in 15 is a waste of money when a 15/15 has a rate 0.5% lower.
A 30/15 balloon is another option. The difference between a 30/15 balloon and a 15/15 ARM is that if you went though a time where you dropped back to the minimum payments and thus will have a small balance remaining in 15 years, with a 15/15 you just keep paying, whereas with a 30/15 you must find a home equity loan or credit line to roll over the remaining amount owing. Unless you're unemployed though, getting a loan/line shouldn't be too difficult.
You have zero idea what interest rates and lending standards will be 15 years from now, so there could be all kinds of problems with your recommended approach.
Quote:
Originally Posted by reneeh63
If you want to pay a house off early, that's great. And it's definitely better to go small rather than to stretch yourself too much because you can't count on huge appreciation on real estate these days.
But DON"T do it at the cost of under-funding your 401(k) EARLY in your career. You lose out on years of compounding if you wait until the house is paid off to make big contributions to your retirement. It may FEEL simple to concentrate on paying off a house...but it may not be the smartest thing to do in the end. Life is about balance and sometimes you have to balance multiple priorities at the same time.
Best advice in the thread. If you aren't funding your 401K - at a minimum to get 100% of any employer match, but better to fully fund to the permitted extent, you shouldn't even be thinking about paying off your mortgage.
Missed quoting Mathjak - agree 100% that taking the 30 year and paying it off early is the best approach. The built in flexibility to make the lower payments *if you need to for some reason* is well worth a small difference in interest rates. Life has a funny way of throwing curveballs.
Why not to get a 30 year mortgage:
1) rates higher than 15 or 20
2) you are signing your entire working career away to a soulless bank
3) Are you sure that the stock market is going to continue the unbelievable recent returns forever? I'm not. Just wait until the baby boomers finally start retiring in big numbers and start cashing in. And/or, wait until interest rates finally go up. We are long overdue for a stock market correction.
1) rates are in fact higher on a 30 rather than a 15 0r 20. But if you go with a shorter loan you're committed to a much higher monthly payment. if one goes with a longer mortgage/lower monthly payment and invests the difference they'll come out ahead.
2) all housing costs money - if you wanna live in a van down by the river you can always sell the house.
3) I'm sure that my best opportunity to grow money, while not guaranteed, is to invest in something like rental property or the stock market. I may lose half (the market is never gonna go all the way to zero) in a wicked correction, but the upside to the stock market is that I will likely double, triple, or quadruple my money over time. But that's only if I'm invested. Long story short - I'm betting that it will continue to run the same course that it always has, and see drops as opportunities to buy rather than see them as hardships.
The boomers will in fact be retiring soon, and will pull capital out the market. But the Millenial generation is as big as the boomers, and will likely replace the capital coming out to the boomers.
WHO says we're overdue for a correction? Are they scheduled?
When the PE on the sp500 gets above 25 it'll be overvalued. That may NEVER occur.
I get all of the debate about keep a mortgage for the tax benefits, but for me, there was a tremendous psychological value in not having that hanging over my head. I paid mine off when I was 55 (almost 60 now) and don't have any regrets. For others, it may be more advantageous to keep a mortgage. Plus, I funneled that payment into savings/investments.
I get all of the debate about keep a mortgage for the tax benefits, but for me, there was a tremendous psychological value in not having that hanging over my head. I paid mine off when I was 55 (almost 60 now) and don't have any regrets. For others, it may be more advantageous to keep a mortgage. Plus, I funneled that payment into savings/investments.
Part of the point of the thread is the psychological comfort/fall back in the event something goes wrong. Let's say you lose your job and your income is drastically reduced. Having no mortgage payment and keeping housing costs to utilities, insurance, and taxes could very well keep you afloat. Also, if I had a paid for condo and rented it out, I could probably make at least a little money off of that, as well as having a paid for place back in Indiana if I decide to move off.
There are plenty of other places I'd rather be than central Indiana but this is probably going to be one of the best values for my dollar I can find. Even the small towns around Indianapolis are commutable to the job hubs on the various sides of the city. The economy here is pretty strong, the cost of living is relatively low, and it's not prone to natural disasters, etc. Places which are cheaper are generally very remote and have no job opportunities or amenities at al. I'd rather be in the South or Florida but chances are my income would go down $20k-$30k vs. a northern state like Indiana.
After going through the recession back home in Tennessee, I watched a lot of folks who lost their jobs in local factories get foreclosed upon because they went from a $15-$20/hr job with lots of overtime down to $10/hr or even less working in retail, fast food, or call centers. Perhaps watching everyone lose it all kind of scarred me mentally and skewed my perceptions.
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