Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Wednesday, August 12, 2009

Retiring with a Mortgage?

If we suddenly received a windfall payment (lottery, inheritance, gift, etc) and had more than enough cash on hand to pay down our mortgage, would we do so? Absolutely, YES. Apparently some people don't feel the same way. I can't understand that logic, as I really want to be free of all debt, but perhaps there are factors I haven't considered which would make it advantageous to carry the loan even if sufficient funds are available to retire it (for example, if real estate values are rapidly declining and you are planning on moving in the near future).

Yahoo Finance today linked to a study published by Boston College which discusses this topic. I have to admit feeling somewhat vindicated after reading their conclusion: it doesn't make sense to carry a mortgage if you have sufficient assets to pay it off, unless (there is always an exception) you are interested in leveraging your property to invest in the stock market. Personally, I wouldn't want to wager my house on such a speculative investment, but I suppose there are some out there who might consider that a reasonable option.

Of course, it doesn't make sense to be "house poor" either -- that is, owning your home outright but lacking any meaningful amount of savings. I have to admit, there are times I'm tempted to raid our savings account to put a bigger dent in the mortgage balance, but I'm sure the day after I made such a decision, we'd have to come up with a bunch of cash for some unexpected expense.

8 comments:

Louise said...

I agree with you. If I got a sudden windfall I would pay it off the mortgage, the idea of retiring with a mortgage to pay is a worrying thought!

RainyDaySaver said...

Why anyone want to continue paying interest on a mortgage is beyond me. Credit card debt (which I hope to have eliminated by the end of the year) and the mortgage would be the first to go, closely followed by our car loan.

ashley said...

Yeah, it doesn't make sense to me to retire without paying off your debts! Most people could easily say they'll save the money to continue paying off their mortgage, but would they really do so with no income coming in?

Anonymous said...

If you are paying more interest on the mortgage than what you are receiving on your savings then there is certainly an argument to clear the mortage, but with that comes a certain amount of risk. What will you do when you pay off the mortgage? How will your day to day life change?

Money Funk said...

What a great mission you two are completing!

Would I pay off the mortgage...No, because I could use it as a write off and two it's good to keep the mortgage for credit purposes. But I would pay of 1/2 to 2/3rds of it for the lower payments.

Money Funk said...

Okay, so comments above of mine... I was commenting about what my husband was telling me about PIFing the mortgage. I forgot to mention "retiring" with mortgage.

He then said, "I would only PIF it if I was retiring". LOL. So, there you have it. Yes, PIF the mortgage with windfall if retiring. :)

The Executioner said...

Anonymous, I've answered your question in some form in prior entries, but basically, paying off the mortgage will rid us of installment debt, freeing us from the voluntary servitude of full-time employment. In the shorter term our life may not change much, but longer term plans will probably call for something which is popularly referred to as "semi-retirement"...that is, working fewer hours, or seasonally, since we won't have monthly debt obligations and plan to live very simply/frugally.

Money Funk, once our mortgage is paid, I hope never to borrow money again, so the credit rating is not important to me. And if everything works out, our income should eventually be low enough where we'll get more benefit from the standard deduction than we would from itemizing, which means the tax benefits of paying mortgage interest would be nil. But in general, I think those tax benefits are a pipe dream, since you must spend 70% to deduct 30%. Doesn't make sense to me...

The Executioner said...

A timely, relevant article:

http://finance.yahoo.com/focus-retirement/article/107534/retiring-pay-off-your-mortgage.html