The Economy: Maintain a mortgage or pay it off?
 

Given the state of and the perceived direction of our national economy, what are your suggestions to those of us who are considering whether to pay off our mortgage or to keep a mortage, assuming we currently have a decent fixed rate interest rate, around 6%+/-.

Everything else being equal, which direction would our economy tend to push us:* Pay it off or keep it?* I presume if we kept a mortgage our funds would be invested somewhere.* Where? :dontknow:

Another assumption: You are within a year of retirement or in early stage of retirement.

Re: The Economy: Maintain a mortgage or pay it off?
 

You could always do the math and make assumptions - like: The 6% interest is really 4.5% after you subtract the mortgage tax savings. Then can i make more than 4.5% after taxes if I invest the usual mortgage payment? Maybe yes, maybe no.

The way i look at it is that we should do a little of everything since we are not professionals. I pay down my debt more than is required. I put into my 401(k) and Roth as much as i can. And the rest i have fun with. Be careful who you listen to on this subject. Take everyone's advice (even those that will tell you they are a pro or know a pro) and mull it over. You are going to get answers all over the place. Money, Sex and Politics - tough subjects on a public Forum!

Just my 2 cents.

Re: The Economy: Maintain a mortgage or pay it off?
 

My question isn't related to the same old - same old.* I don't think we are in routine times.* I believe we are in a different economic situation from that which requires "financial decisions as usual."* I agree somewhat with Pat Buchanan's recent article* http://www.worldnetdaily.com/statica...icle59693.html
Given world events and growing economic challenges, is there anything different that you would do as regards paying off your mortgage or not?

Re: The Economy: Maintain a mortgage or pay it off?
 

That makes sense, barb.* I agree.** :agree:

I have to wonder about the advice of financial consultants' recommendation to not pay off a mortgage so we will invest money through them, espcially in these times.* A few years ago I might have taken such advice more seriously.* Now, however given the current economic scenario of record high oil prices, record high gold prices, record low dollar value, record high national debt, record losses by our largest banks and financial institutions, record housing foreclosures,*record low housing sales, record high credit card debt, increasing rate of unemployment, and worldwide instability brought about the Islamist terror machine :cus:, one has to wonder if we are in a period when we ought to reconsider our former ways of investing and not just do our financial planning as we have always done our financial planning.

Re: The Economy: Maintain a mortgage or pay it off?
 

:agree: That, too.

Re: The Economy: Maintain a mortgage or pay it off?
 

:agree:I think that the the freedom and lack of stress and worry that comes from being mortgage and debt free far outways the dubious possibility that you can make more money investing. Retirement is about relieving stress and staying healthy and happy ;D ;D
Steve

Re: The Economy: Maintain a mortgage or pay it off?
 

Paying off the mortgage is the "sure" thing, basically a fixed return investment.
Investing it will give you whatever the market brings, put it in China? I don't know..
I don't see spectacular returns given the multitude of problems (social security, Iraz, borders, trade deficit, budget deficit, etc)

I like (as noted above) being debt free and spreading my risk into real estate, which is different than stocks.

My intent, and I'm much like you, near/at retirement, is to minimize debt.
Good luck.

Re: The Economy: Maintain a mortgage or pay it off?
 

To pay off the mortgage or not to pay off the mortgage, that is the question. - one of them at least.

I would not carry a mortgage into retirement unless I had an absolutely dependable source of income to cover those monthly payments as long as needed or enough cash on hand to pay off the mortgage if I decided to do so. Some mortgages have pre-payment penalties.

Property taxes and insurance are bound to go up. At least a fixed rate mortgage would be a known. But where is the known that will generate the payment or the payoff? And if you do have that known for now, how well will it hold up as other overall living expenses increase? That is the real question.

Ask yourself how much risk you would be willing to put on the roof that is over your head. Decide if you have to bet the house and how you feel about that. Our generation is used to our real estate taking care of us. Now, not so much.

And I agree that this economy is like nothing we have ever seen.

The financial picture in retirement is more complex than at any other time. Sometimes you can simplify financial decisions a little by asking yourself, "Just what is the cost of sleep?"

For those who are interested in reading about retirement finance, I recommend "Kiplinger's Retirement Report." A year's subscription costs $39.95 but it will save you that much money, to say the least. This is not the Kiplinger magazine from the newsstand. This is a different format and every article is about retirement.

I am a big believer in learning as much as you can before making financial decisions, especially at this point in life.

Russ_Boston's response earlier in the thread said that it was just his two cents worth. But I think his advice is worth far more than two cents. I agree with him that we have to listen and learn but be careful with advice, even if that advice is from someone who claims to be professional.

Re: The Economy: Maintain a mortgage or pay it off?
 

If and when we can finally sell our present home, we will come to TV. Since we bought our present home long ago at a very low price, even in todays lower priced market, we will come out with enough money to buy the home that we want in TV. As I have said in the past, we will be forced by the current market to sell low but, we will then benefit from this market by buying low. After thinking it over and in keeping with this thread, we had decided to pay cash and have no mortgage but, due to the state of the economy, maybe it would be better to invest this money conservatively with our other portfolios and rent for awhile. This will give us a chance to know TV better, to keep an eye on the market and the economy and be in a better position to make a more intelligent choice somewhere down the road. All the while our portfolios will be growing. I really believe that this would be a good time to just sit back and wait and still enjoy all the benefits of living in TV with none of the risk incurred by perhaps buying the wrong house in the wrong place at the wrong time. I have been very impressed with some of the posts on this thread and I would sincerely value your opinions on my thoughts.

Re: The Economy: Maintain a mortgage or pay it off?
 

Reading the above msg about buying a home with cash v. using at least a partial mortgage reminded me of another factor to be considered. When you close, almost all of your closing costs are mortgage related. If you pay cash, you eliminate much of that expense. 040

In retrospect, I'm glad I banked a portion of the profits from my old home and financed about 1/2 the cost of this one. Dollar-wise, it's close to break even since I got a 6% fixed rate and have the extra money in savings and CDs ranging from 4% to 5%. There's a bit in Mutuals that have had their ups and downs. The aspect that made me most happy that I'd followed this procedure was the need for "unexpected" :cus: cash outlays. I had some massive dental expense :yikes: for which I was able to pay cash -- got a small discount for that. I spent a lot more on landscaping than I'd planned. Who the heck needs a putting green in his backyard? Seemed logical at that time. :hot: Put gutters all around the house. Tiled most of the house :bigthumbsup: (sans bedrooms). Painted the garage, drive, walks, and lanai and added a bit of siding to the lanai. :2cool: Had I paid cash for the house, I'd not have had the funds on hand to do most of this stuff, some of which was actually important.

An alternative, of course, is to pay cash for the house, save on closing costs, and get an equity loan or line-of-credit for those unexpected items. If I were better organized and self-disciplined, that likely would have been a better alternative. Ah well, mox nix.

Re: The Economy: Maintain a mortgage or pay it off?
 

Beartrack and Muncle,

From reading your posts, it looks like both of you are pretty good at asking yourselves that question I always ask myself when faced with financial decisions. "Just what is the cost of sleep?" Both of you seem to have hit upon something that works for you and might work well for others reading this.

Beartrack,

You asked for an opinion. And that is all this is. I am no expert or professional. I just like this stuff. ...But I gotta tellya...I really like the approach you are planning. First of all, renting and taking your time with the decision to buy is the classic advice for retirees planning a move.

And parking that tax-free capital gain in a conservative investment that you control while you get to know the territory sounds smart.

I don't see how the real estate market can shoot sky high again any time soon.

It sounds to me like your plan might just put you sitting in the catbird seat. :)


Muncle,

That half and half idea could be a great solution for a lot of people. You have a mortgage that you know you can cover so it costs you no sleep. CD's are not the most exciting investment, but I like them, too. Again, it's the cost of sleep and nobody is taking a commission on CD's. And you still have a little adventure in those mutuals.

I love it that you did some things to your house that you wanted to do to make it yours. Hey, at this point in our lives, we deserve to spend a little money on our feng shui.

The point of all this -- it's different for everybody.

And whatever any of you do -- CYA.

Re: The Economy: Maintain a mortgage or pay it off?
 

I must respectfully disagree. While the standard view of renting vs. buying is that any ROI is out the window each month with a rental, this circumstance is different. A few thousand bucks spent on rent for a retiree could yield one heck of a return by allowing the renter to be able to take the time to find the right home, in the right location, at the right price, especially in this market. And there is great value in being able to determine that TV is where you really want to live - and invest.

Re: The Economy: Maintain a mortgage or pay it off?
 

Muncie, Barb and Boomer, thanks, good responses all. Muncie your points are well taken and worthy of consideration. Barb, money is not the issue for us, just the quest to make the right decision and as Boomer suggests, that may take a little time. I must agree with Boomer's assessment of rent versus buy. I have been investigating annual rentals in TV and they are not as expensive as you suggest. in addition, the interest on the money from the sale of our current residence will more then cover the rent. So far I believe that this downturn is not going to change as quickly as downturns have in the past. And once again, as Boomer suggests, we may find ourselves in "The Catbird Seat" I think that this is the perfect climate to wait and see. I am looking forward to more opinion,s. As you can see, they are a big help.

Re: The Economy: Maintain a mortgage or pay it off?
 

Beartrack... good, thoughtful analysis; of course, the first obstacle is to sell your house up North; once that is done, you can easily find a long term rental (furnished or unfurnished?) in The Villages. The only contingency that you might want to build in to your rental agreement is a bailout clause that doesn't commit you to a full year. What happens if you find the "perfect" house at the perfect price one month after you arrive? All the financial gurus advise investors/buyers not to try to time a market bottom. By the time you spot the bottom, prices have already started to increase.

So, a cautious approach will certainly work, but, be willing to take the plunge if your gut says "this is the one".

Good luck to you.

Re: The Economy: Maintain a mortgage or pay it off?
 

Let's make a list here of US issues:

Worthless and crooked Politicians
Terrorism
Iraq
Social Security
Medicare
Budget Deficit
Trade Balance
Borders and Immigration
Nuclear Threats
Katrina and Disasters
FEMA

the list is endless

I think it's prudent to be very careful with investments the next few years.
I plan to minimize mortgages

Re: The Economy: Maintain a mortgage or pay it off?
 

Villages07,

That is great advice.

Again, it's all about the ROI -- and the perception of ROI is different for each situation.

Even though the rent for a short term would likely be higher, the return on the investment for those extra dollars a month could be huge.

But you are so right. You don't want to not be able to make a move when the move is what needs to be made. Thanks for filling in the blanks.

Re: The Economy: Maintain a mortgage or pay it off?
 

I know the original question here had to do with mortgages and we have covered it from lots of directions, but I am looking forward to reading more opinions.

I have to say though that my own bottom line for a mortgage at this age boils down to one pretty simple thing: Never borrow money that you don't have.

Re: The Economy: Maintain a mortgage or pay it off?
 

Sold our home up north and bought in TV with equity from the sale. No mortgage for the first time in our married life. Wow what a great feeling. We only have the usual taxes & insurance payments. Even payed the bond upon closing. No mortgage and peace of mind is the way to go.

Staying "young in TV!!!

Re: The Economy: Maintain a mortgage or pay it off?
 

Regarding the question about renting before buying, I believe home ownership should be viewed as a long term investment, and the oddities of the current market won't have a real effect on the outcome.
What I am trying to say is this: If you rent in TV for a few months as a way to make a decision on what neighborhood you like, what house you want, etc, you may be doing the right thing. Although agonizing over this decision may be a waste - it's almost a place where you can't go wrong - and minimal study worked for me. We visited TV with the intention to buy if we liked it, and assumed we could sell if we decided later we didn't. We did buy, and I doubt we'd ever sell it as it's a great home in a great neighborhood. I can rattle off 10 things I like about my neighborhood as I'll bet almost anyone else can about their's.
So if you rent for say 1 or 2 months as a way to assure yourself it's the right place for you, it could be a good decision.

However, if your intention is to rent for a long time waiting for the bottom of the slump to come, I think it's a mistake. A years worth of rental at $1500/month is $18,000, $2000 per mo is $24K. You'd need the market to drop $18K to $24K more to make that decision a good financial decision. Depending on the house you ultimately wind up buying, it would be a minimal 10% additional drop on a Patio Villa priced at $180K today, or 5% on a Designer with a view ($360K). It's a gamble that may or may not pay off.
Buying that same house now allows you to avoid throwing that $18K to $24K away, allowing you on paper at least to say you saved that money.

In time, your house will be worth more than it is today. No question about it. Prices will rise. Nothing about the current economy will change that overall fact. Certainly, there have been dips in both home prices and the overall economy before. But over some time it will rise.

Two real estate adages always worked for me:
1) There are 3 important factors in real estate decisions: location, location, location.
2) The time to buy is now.

So do your part to improve the economy now - buy that house in TV! ;)

Re: The Economy: Maintain a mortgage or pay it off?
 

Thanks Steve,

One thing that you didn't take into consideration though, is the money from the sale of our current home. I have had offers of less then $1500 a month for a really nice 3 bedroom well maintained home in TV. But I'll use your figure of $1500 a month or $18,000 for the year. Lets take a figure of $300,000 from the sale of our existing home, @ 5% in a year that would be $15,000 without compounding which would add some more to the final figure. Hypothetically, I would be renting for an entire year for approx $2,000. If I decided to rent for another year then based on compounding I would be living rent free and if I continued to rent I would not only live rent free but, I would have a surplus. I also would not have to worry about the turnover from the developer or assessments or increases in amenity fees. All this is based on only 5%. Traditionally my portfolios have done much better then that. I can not imagine that we would want to rent for that long but, this is a very plausible scenario. ( if one really wants a better nights sleep )

Re: The Economy: Maintain a mortgage or pay it off?
 

Good Point Beartrack.
Right, I didn't take that into consideration! My reasoning - I will be using the proceeds from my house sale to pay off TV mortgage! My analysis was flawed by my already made decision! :redface:
My apologies. Yes, in that scenario, you could live rent free. Another thought though, your $300K would be tied up and unusable for anything else, right? You'd need to not touch it for it to continue producing that rental expense. You could buy a reasonable house in TV for quite a bit less than $300K today, say $225 for a nice CY Villa? (Do they rent for $1500?). Buying in that scenario would give you no mortgage and $75K to squander, and theoretically, your house would appreciate making your investment most probably worth more at the end. Your $300K investment to make rent wouldn't really grow (using these very simple numbers).
But is certainly is a personal decision that needs to have your individual situation factored in, along with your desire to sleep well!

Re: The Economy: Maintain a mortgage or pay it off?
 

Steve,

I really enjoy this back and forth with you. Good stuff ! Probably because we are both from New York and everyone knows how calm, patient, low key and laid back we New Yorkers are. Fortunately for us, we do not need the proceeds from the sale of our home for living expenses. We fully intend to buy a home in TV. But, TV is so different and so large, we are finding it difficult to decide how to approach buying right now. In addition there is this crazy housing market. I think that by renting long term, with an escape clause, will give us the time we need to let the dust settle and make a better informed decision.

Re: The Economy: Maintain a mortgage or pay it off?
 

Beartrack:

How did you know I was from NY? ;D

Re: The Economy: Maintain a mortgage or pay it off?
 

SteveFromNY,

You said that patio villas are now priced at $180,000. Are they selling at $180,000?

Re: The Economy: Maintain a mortgage or pay it off?
 

Sorry Boomer, I was just using $180 as an example. I couldn't tell you for sure what they are selling at.
Although, if you know a specific address that did recently sell (and it's in Sumter county), you can get all kinds of details about sale prices and taxes from the Sumter county tax site.

Re: The Economy: Maintain a mortgage or pay it off?
 

StevefromNY,

Just a wild guess !!!!! :dontknow:

Re: The Economy: Maintain a mortgage or pay it off?
 

New patio villas are selling for less than $140,000!

COLONY
VNH706048
2 Bed, 2 Bath • Hand Trowelled Ceilings • Double Pane Windows • Frame with Vinyl Siding • Blinds • Ceiling Fan(s)
$137,132

COLONY
VNH706047
2 Bed, 2 Bath • Hand Trowelled Ceilings • Double Pane Windows • Frame with Vinyl Siding • Blinds • Ceiling Fan(s)
$137,327

COLONY
VNH706052
2 Bed, 2 Bath • Hand Trowelled Ceilings • Double Pane Windows • Frame with Vinyl Siding • Blinds • Ceiling Fan(s)
$137,459

COLONY
VNH70605
2 Bed, 2 Bath • Hand Trowelled Ceilings • Double Pane Windows • Frame with Vinyl Siding • Blinds • Ceiling Fan(s)
$140,294

COLONY
VNH706028
2 Bed, 2 Bath • Hand Trowelled Ceilings • Double Pane Windows • Frame with Vinyl Siding • Blinds • Ceiling Fan(s)
$140,616

COLONY
VNH706017
2 Bed, 2 Bath • Hand Trowelled Ceilings • Double Pane Windows • Frame with Vinyl Siding • Blinds • Ceiling Fan(s)
$140,631

New ranch homes sart at less than $140,000
http://www.thevillages.com/specialof...ngs-200801.htm