Are you that worried about paying off your house before retirement?

[RLGL]

I retired then a re fi for 30 yr

 

[highland145]

I retired then a reverse mortgage for 30 yr

fixed.

 

[zinfamous]

I'll have to repo your rocks.

better rocks than knees.

 

[gururu2]

No matter how much money you have, the math is the same. With low mortgage rates, paying a home off early is generally an emotional decision, not a logical decision.

Not sure I agree with that. Getting an average of 4-6% back on a 300k+ stock/fund/bond investment over 2-5 years is not certain. If you are talking about investments held over 10-20 years where higher averages are favored, then you can invest once the house is paid off...

 

[highland145]

better rocks than knees.

Can't do much with a couple of metal implants.

 

[jlee]

Not sure I agree with that. Getting an average of 4-6% back on a 300k+ stock/fund/bond investment over 2-5 years is not certain. If you are talking about investments held over 10-20 years where higher averages are favored, then you can invest once the house is paid off...

What about over 30 years, like a typical mortgage? :hmm:

 

[vi edit]

What about over 30 years, like a typical mortgage? :hmm:

You are thinking like a single and/or kidless person.

Sometimes it's nice to have that payment out of the way in the event that a spouse wants to quit work or retire. Or you have a huge college bill coming up and you want that monthly payment out of the way.

Yes, it may be more financially more advantageous in a statistical model. But there are definite month to month considerations to be made that are more than just "emotional".

 

[AdamK47]

No kids. My yearly gross income is higher than the principle balance on a new mortgage. It will be paid off in around five years.

I then plan to put as much away in extra investments in order to retire early.

 

[jlee]

You are thinking like a single and/or kidless person.

Sometimes it's nice to have that payment out of the way in the event that a spouse wants to quit work or retire. Or you have a huge college bill coming up and you want that monthly payment out of the way.

Yes, it may be more financially more advantageous in a statistical model. But there are definite month to month considerations to be made that are more than just "emotional".

That would be why I said it is generally an emotional decision. Most people say they "like the feeling of having no debt" or "I like not having a payment" -- there are certainly exceptions, but I stand by my original statement.

 

[child of wonder]

Not worried. Plus with the low interest rate I'll put extra into my retirement savings.

Someday when the balance is below $100k I may pay it off simply to eliminate the monthly payment.

 

[dullard]

Our savings account could more than cover it, but it would destroy our just in case fund. My wife insists we keep almost a year of her salary in reserve. She's right, but it's hard to swallow paying almost a grand in just interest each month.

I'm surprised that no one challenged you on this yet.

Lets assume a few things.
1) You pay $1000 in interest in a month.
2) You have a 4% interest rate.
Thus, your mortgage value is $1000 / 0.04 * 12 = $300,000.

So, claimed that
A) Your savings account has over a $300,000 sitting around at near 0% interest,
B) That you think you need a $300,000 just-in-case fund,
C) That your wife makes almost $300,000 a year.
and with all that,
D) $1000 is hard to swallow.

Something doesn't add up. If you are that high of a roller (which is possible), then you don't need $300,000 sitting in savings account. You need to invest it and set up a just-in-case loan with your personal banker.

It isn't that you need to save 1 year of salary, it is that you should have a goal to save ~6 months of spending. If $1000 is truly a problem amount for you, then your spending probably isn't that high. Your just-in-case amount is probably 10x to 100x more than you'll ever need. Almost all emergencies (except for lost jobs) are $3000 or less (new engine, new furnace, cheap new roof, paying your medical deductible, etc). You don't need $300,000 for that. And if you do, then you really need proper insurance, not $300,000 sitting around. Job loss insurance surely costs less than the ~$25,000/year you are losing by not investing that $300,000.

Or you goofed on your last line.

 

[Vdubchaos]

Wait, you guys actually believe you will have retirement?

I don't see myself retiring....

 

[dullard]

Jumpem, you need to decide if you want a happy, stress-free life or a chance at a few more dollars.

I personally did the math for myself, and did a life-style analysis and decided that I want to have no cares in the world rather than have a chance at a few extra dollars.

Far too many people worry and have major stress (personally and with their spouse) over money issues. Having the house paid off in full basically eliminates all of that. All you need to worry about for the rest of your life is a few thousand in property taxes and enough food to survive. That is a very low bar to eliminate most of your stress.

Yes, a ~3% return on your mortgage investment is a bit worse than a possibility of a ~8% stock market gain. But, all sound investment advice suggests that you diversify and have some stable-value eggs in your basket (such as a bond). Treat the extra money you put into your mortgage as your guaranteed ~3% bond return portion and invest the rest in stocks. You'll do better than bonds right now and have peace of mind that is priceless.

Plus what does the stress cost you? If you are have no idea how you'll get out of debt, does that harm your health? Does it harm your relationships? If so, does it lead to costly divorce, or risky investments (such as investing in lottery tickets)? Just because you have a chance at a bigger return in stocks, doesn't mean you'll be financially better off either.

So, I say, have the house paid off before you retire.

 

[Jeffg010]

I paid off my house about 3 months before the 2008 stock market crash. I had a pretty hot stock that I pulled the money. I was 35 at the time.

Here is my take on paying off early. Since I paid off early it has been easy mode. Before the payoff I was living close to pay check to pay check with me putting as much into my 401k as I could. My house payment was 515 a month. I was only making about 40,000 back when I was paying on the house. If I ever lost my job my back up plan was to pull that stock money. So far I been lucky and never lost my job.

I love easy mode basically I don't have to ever worry about not having any money for enjoyment. Even if I lost my job I could pretty much get a low paying job and be just fine. I'd have cut cable and all fun times out but you got to sacrifice when things get tough. That 515 a month is nice to have to do what ever I want for the month. Yes I put money into my 401k so I already am saving for retirement. I would tell any one that can payoff early to do it. The problem is 90% of people can't do it.

 

[TheSlamma]

Nope. Already paid off.

This.

Paid it off when I was 34. No inheritance, no trust fund.

 

[dirtboy]

Paid off a brand new home by 38... bought it when I was 36. No inheritance or trust fund.

 

[edro]

Working on refi now.
3.5% 30yr fixed

No, I'm not worried about it at all.

 

[IronWing]

Wait, you guys actually believe you will have retirement?

I don't see myself retiring....

Pay more attention to people who are at or past retirement age who are still working. Most people who reach that age simply run out of steam and ought to retire.

 

[jlee]

Wait, you guys actually believe you will have retirement?

I don't see myself retiring....

Spend less, save more?

 

[11thHour]

I luckily won't have this problem, but I worry more about health issues, which can be unpredictable and terrifying, even for people that have taken great care of themselves (which I have/do.)

 

[BurnItDwn]

I am 35, plan to have house paid off in another 10ish years or so.
That said, Its a small house, and has no garage, and not a very big lot, so no place to build a garage.

If the fiancee ever goes and gets a job, then we can pay it off quicker, but, just with my income, we should be able to pay it off by my early 40s.

Of course we may decide to relocate in the next 5-10 years....

 

[11thHour]

If the fiancee ever goes and gets a job....

I'm not going to go there and will trust it's not like it sounds and you are with the right fiance! lol

 

[CLite]

Not sure I agree with this. That 3% interest is tax deductible, which means that it is really ~2%. It is pretty easy to do better than 2% in the market (even this market, provided you have long term goals), so in my view its better to put the extra cash you would throw against the mortgage into investments. Particularly when one takes into account compounding returns.

I know that this requires one to believe that the stock market will eventually return to normal. But to be honest if it doensn't we are all f*cked no matter what we do. So I choose to see the glass as half full and take one bet that has a chance of paying out.

Because it's tax deductible paying off 3% mortgage is "relatively" equivalent to getting 3% return in the market. If the interest was not tax deductible (i.e. car loan/student for higher incomes) then paying off 3% is equivalent to getting 4.5% return in the market, assuming a 50% all-in tax bracket. Also, AMT makes paying off 3% mortgages a bit more attractive than an equivalent 3% gain in market.

Regarding OP, we are maxing our pre-tax stuff (HSA/401k), but won't have the house paid off. 401k is a far better vehicle than 529 because aid applications don't consider 401k in your worth but they will loot your 529 for all that's in it. If you can max 401k and put into a 529 then that's even better, because at that point you won't get aid anyways.

 

[BurnItDwn]

I'm not going to go there and will trust it's not like it sounds and you are with the right fiance! lol

Its complicated.

She was gainfully employed working for the same company since she was like 20. Then, after 10+ years, company goes out of business, and the ex-owner flees the country since they had been embezzling money. She has no references, and there are not very many places with similar jobs in the area.

We make enough with my income that we can maintain a comfortable lifestyle, go on vacation every year, and still have money left over to save for retirement. Also, It is really really nice coming home and smelling the dinner in the oven which will soon be served

Anyhow, she will go and work at some point, just going to have to deal with a big pay cut vs her last job, or she needs to go back to school and get some kinda certs or degree.

 

[TXHokie]

Wife is SAHM cracking the whip on the kids so they get into IB advanced high school program and will graduate with 1 yr of college credit and cut colleges to a short 3 years plan. They will fund their college with scholarships (thus the whip) and we'll cover room and board. If all goes well, when the last of 3 kids graduate from college, I will also make my last mortgage payment and wife and I will ride into retirement sunset.

Plan is solid until I trip and fall and break my hip. Plan B involves my term life insurance that expires also when the last kid graduate from college.