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This is the process we used to get to where we are at now.
When we retired four and a half years ago and moved, my wife wanted to pay cash for our new house and I wanted to pay 20% down and get a 30 year mortgage for the balance. We compromised and paid 50% down and got a 15 year mortgage for the balance.
I took the amount of the mortgage and opened a separate investment account with it. Every month I take money from that account to pay the mortgage. As of right now, there is enough in the investment account to pay off the mortgage and have $70k left over.
What we did isn't for everyone, but it is working for us.
When I paid off my mortgage it felt liberating, but I never imagined how beneficial that decision would be until we lost our house in the 2017 Tubbs Fire. One of the categories homeowners insurance pays out on is your cost of housing after a loss of use, in our case a maximum of ~$80,000 for up to 2 years. This stipend is meant to help pay your mortgage while you're rebuilding or relocating so you don't default. The check is made out to both the lien-holder and you. By having no mortgage I received a check payable to me only which I was able to put towards a rental which included all furnishings, so we were able to essentially live rent free until we relocated... something to consider if you live in the fire-prone west.
For most who take a mortgage and invest their money that stipend would be small compared to what those invested dollars in even a simple index fund would have brought in yearly over and above the mortgage payment .
That stipend is like spending 2 dollars and winning a dollar in comparison
Earlier there was a heated debate here on whether you should pay off your mortgage before you retire. I found this article that offers good food for thought.
Now let's share your experience and thought process on how you reached your decision.
My now late husband and I who were 34 and 29 respectively when we married in 1986 both wanted to be home owner's ASAP after getting married, so with both having managed to save some $$ before getting married, passed on the big wedding and took money gifts instead from our parents we were able to purchase in cash land in 1989. After saving additional $$ over the next year we were able to start and complete construction on our home at the end of 1990. Our construction mortgage interest rate was 11% and we were lucky to transition from that to a 15 year fixed rate mortgage at 9%. Although we did refinance at a rate of 6.75% that was still high compared to what the rates are today, so with lots of OT and being frugal we managed to pay off our mortgage in 1998.
Three years after paying off our mortgage my 49 year old husband died suddenly from a heart attack. And believe me I was very thankful that I did not have a mortgage to pay after my husband died because it would have been very difficult for me initially to afford to be able to keep my home paying a mortgage on top of all my other home ownership expenses with my income alone. But with 20 work years ahead of me at the time my husband died and working in a job with a progressively increasing salary, not having a mortgage to pay as the years progressed allowed me to not only keep up with my rising other home ownership expenses I was also able to start seriously saving for my own retirement. And that home expense burden became even lighter when my now many years SO moved in with me to share living expenses.
On the 29th of this month it is still hard for me to believe that my late husband will be gone 20 years. I and my SO are still living in the home I built with my late husband and currently doing some cosmetic updates to get it ready to list for sale this coming spring as we plan to relocate following sale to a 55+ community in Florida. I am fortunate to live in a nice development walking distance to the bay in a desirable coastal R.I. town which pretty much always has a low inventory of homes for sale and virtually no available land left to build on, so according to my agent I should expect after commission and other fees paid walk away from the sale with a profit somewhere around 2 x what I paid for my home. Since the new home I plan to purchase in Florida will cost about 70% of the profit I will make from the sale I will pay for it in cash and invest most of the remaining 30% profit. Sure, money is pretty cheap to borrow right now, but my SO and I are now in a different place in life including financially than we were when younger and gainfully employed with progressively increasing working incomes, and for that reason I do not want to take on the long term debt of a mortgage especially after not having one for 23 years.
We have 3 paid off houses including the one we're living in. I think it's preferable to not have notes on things but we would be wealthier now if we had kept a mortgage and invested that money. However, I still prefer not having a note, less risky.
Nightengale212 raised a valid point regarding historical experiences.
Our first mortgage in '79 was 10.75%. We moved in '81 and obtained a partial assumption of an underlying Land Contract at 11% which was a bargain, enough so to justify the risk associated with it! We escaped that potential financial snake's pit two years later with a 12% refinance on the same home. Then a sub 10% refinance, then a sub 6% refinance, then a 3% refinance where we are now, and I may have missed a link in the chain.
Regardless, many of us in retirement likely have vivid memories of the sky high mortgage rates in our early adult years. It might be these memories which drive the ambition to never have a mortgage payment, even at the expense of 'leaving money on the table' by not leveraging these funds for additional income and/or savings.
We have 3 paid off houses including the one we're living in. I think it's preferable to not have notes on things but we would be wealthier now if we had kept a mortgage and invested that money. However, I still prefer not having a note, less risky.
This is the sort of mix of emotion and logic that I just cannot understand. We somehow have decided or feel that having a debt is bad even when we can be a long way ahead investing money we borrowed. I suspect part of the dislike of debt comes from decades ago when mortgage rates were really high. I even had a 10% mortgage on my first house. Under those circumstances it made sense to borrow as little as possible and pay it off as soon as possible. That is hardly the case when investments return 6-8% or more and mortgages are in the 3% range. Personally I feel much better being several hundred thousand dollars ahead due to the low interest rate debt.
Car loans are another interesting phenomenon. Some people just have to pay cash even when the loan would be at a very low rate. My last purchase was an expensive heavy duty pickup truck. I had an insurance settlement after my old truck was totaled in an accident and I had moved additional cash into my checking account to cover the full purchase price for a new truck. We negotiated the best price and then the dealer found we intended to pay cash. We got a slightly better deal if we took the low interest rate loan, which we did. We could have paid off the loan the next month or at anytime but instead continue to make way more money on the invested money. It can feel good having debt!
Yep, not many people remember the interest rates of the 80s. Our first house mortgage at the time was at 13.5% with a 15K balloon payment due in 5 years. We had little cash to put down, so the selling agent advanced us the money as the balloon. We did a cash-out Refinance before the payment was due, but it still was in the 10s. Younger people think 4% is a huge mortgage interest rate; it's really not when viewed in perspective.
You can always get another mortgage.............you can't always pay one off!
One thing the baby boomers failed at was the debt payoffs at retirement that their parents had done previously. So their parents had a paid of house, paid off car and a pension plus social security. Boomers had 1-2 mortgages, leased cars, 401K that may or may not be fully funded and spending that would make a rapper wince. So they are choking in retirement!
This is the sort of mix of emotion and logic that I just cannot understand. We somehow have decided or feel that having a debt is bad even when we can be a long way ahead investing money we borrowed. I suspect part of the dislike of debt comes from decades ago when mortgage rates were really high. I even had a 10% mortgage on my first house. Under those circumstances it made sense to borrow as little as possible and pay it off as soon as possible. That is hardly the case when investments return 6-8% or more and mortgages are in the 3% range. Personally I feel much better being several hundred thousand dollars ahead due to the low interest rate debt.
Car loans are another interesting phenomenon. Some people just have to pay cash even when the loan would be at a very low rate. My last purchase was an expensive heavy duty pickup truck. I had an insurance settlement after my old truck was totaled in an accident and I had moved additional cash into my checking account to cover the full purchase price for a new truck. We negotiated the best price and then the dealer found we intended to pay cash. We got a slightly better deal if we took the low interest rate loan, which we did. We could have paid off the loan the next month or at anytime but instead continue to make way more money on the invested money. It can feel good having debt!
Those memories of struggling with debt in our early years are still too strong, even after many years. The feeling of relief with being out from under house, car and credit card debt is worth more to us than any possible profit from a loan.
Last edited by jean_ji; 11-06-2021 at 09:02 AM..
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. she's the 74
