Actually, it sounds like you and your wife could benefit from sitting down and making some joint choices about your finances—how much should be going to paying down YOUR debt and mortgage and how much to help your S. Good luck.
Sounds like you have considerable anxiety about how long you will remain in your job, do it is especially important to consider finances post-retirement and when you will voluntarily or otherwise retire.
We still have a mortgage and will not pay it off if we retire soon. It’s 3% interest and in these last years is mostly principal. In fact, we are contemplating buying a second home and if we do we will not pay all cash. We would put down a sizable down payment (30-50%) and mortgage the rest. For us this would keep tax bills lower. Everyone’s situation is different.
We are not 55 yet, but we do have a mortgage. At 2.5% interest rate, my husband wants to keep that money working for us rather than sitting around as home equity. We have the means to pay it off tomorrow if we wanted to, but for now, DH doesn’t advise it. He’s never steered us wrong. But that’s because investing is his “thing” and he is really good at it.
“That’s why refinancing never made sense to me: you get a new mortgage with lower interest rate, but longer term, so that overal debt gets higher”
It really depends! One need to compare the present value of the options, the status quo and the refi. One of the factors that goes into the calculation is how long the homeowner is planning to stay in the house. Amortization calculators are available on the web, or I guess a person handy with Excel can do it in a spreadsheet. For example, for our kids, extending the mortgage term by 2 years and dropping the interest rate by 1.5% made a lot of sense. For us, it would make no sense.
In your age range, just bought a condo, big mortgage, long term. My investments make a higher percentage than my mortgage interest. With the mortgage, I am net positive. ETA - Upon my demise, my (now larger) estate will pay it off.
I took a 30-year mortgage to build a house when I was 23 years old. Twenty years later (and still single, now with two kids) I refinanced for another 20 and added a dormer addition and did some updating in the kitchen and bath areas. My goal is to have it paid off by the time D graduates from college, so just under 5 years from now. Unfortunately, keeping up with house expenses and two kids meant minimal retirement contributions so my equity is all I really have. I am now saving to build a garage on the property with a 600’ -800’ apartment to live in while I rent out the main house. I’d like to buy a small condo in a warmer climate and live in the apartment during the summer months. I’m also dumping as much money as I can now into my 401K and I’ve added a husband to the mix lol. So, 53 and nearly paid off and no other debt.
It is true every family’s situation is different. Somehow, we pay more attention to tax bills in the past but not any more in recent years. (Well…the fact that we contributed more into 401K could mean that we care about the tax bills as well. We have maximized our 401K contribution plus the catchup in the past few years. We just could not do this as well as accelerate our payments to our remaining mortgage simultaneously. Something has yo give.)
Re: “No one has to pay off the mortgage before they die.”
There are no lack of people who desire to pay off the mortgage before they retire, let alone before they die!
HIMom, My wife still has no “appetite” for anything related to financial. She never has. Not sure whether my S or she will have interests in this topic sooner. Both have no interests in it. (Both has no interests in the wedding cost that should be around the corner in the next 4(?) years either.) It seems it is only me who cares about this in my family. Also, before my S establishes his own family, all finance for three of us is in it together. This is just how it works in my family. But it is only me who would think ahead and who would think our S’s new family in the future and my wife/me should be separate from each other (financial wise and in other aspects) - not in the sense that we should “divide” our total assets and distribute it into two parts though. We will have little “dough” left for him except possibly for his wedding expenses.
Interest rates are very low right now - anyone with a rate above 4% should consider refinancing. You don’t have to limit your thinking to a 30 year fixed. If you are nearing retirement - consider refinancing to a 10 year or a 15 year loan. Don’t rule out hybrid ARMs either. Say you are sitting with a 30 year fixed at 4.25%. Many would be satisfied and stay put. But what if you knew you were retiring and relocating in the next 5-6 years. How about refinancing to a 7/1 ARM below 3%? And continue to pay the same pymt you were making on the 4.25% loan. You will build equity more quickly.
The fact that interest rates are so low right now also means paying off the mortgage is less of a priority. Nothing beats cash on hand - liquid savings. Being cash poor is a huge risk. If you do pay off the mortgage - it’s nice to have a HELOC just in case an emergency comes up.
We have moved and refinanced and still have a ways to go before paying it off. We’ll be 80. Financial advisor said we are OK right now since our funds are making more than the interest we are paying so leave the money where it is to work for us until things change. Still, we are paying it off a little faster than a normal payment.
I think you also have to consider the tax implications. If mortgage interest gives you enough to itemize deductions - that can be a big plus. If Congress ever overhauls the tax code and eliminates the mortgage interest deduction - that would alter strategy for many.
I do think there is a huge psychological benefit to having your house paid off by the time of retirement, however. So sometimes, peace of mind will trump financial analysis.
Re: “…minimal retirement contributions so my equity is all I really have.”
I think we have much more in our retirement account than in our equity.
Hmm…just a hypothetical question: Suppose that your family has, say, a modest amount of assets, 700k, when you retire. How much will you like the assets in each category? (Let us assume the house would be worth $350k if it is paid off, and currently the equity is $200k so $700 - $200k = $500k is your assets not tied to your house, and the majority of non-equity asset is in your (mostly tax deferred) 401K/IRA. And you have passed the age 59.5.
For example, will you raid your retirement account (and pay taxes too because almost all money in the retirement account is tax deferred) to pay off your remaining $150 k mortgage completely in this situation?
This is just a hypothetical example.
Yes, $400 is for principal and interest only, but we live in a fairly-low property tax state; our property taxes were less than $5000 last year. Our mortgage is at a 2.75% interest rate; we have enough money to pay off the mortgage outright, right now, but I’d rather keep that money invested in other things and keep some cash on-hand. I’m like singersmom - our investments are making more than the interest we are paying, and (like rockvillemom says) I’d rather have some liquid savings, too.
My mother has no desire to pay off that new mortgage on her condo before she dies - why should she?
A lot depends on what streams of income you may have to draw upon in retirement and where and how you’d like to live and expenses in retirement.
Equity in your primary residence isn’t all that helpful if you intend to remain there or somewhere similarly priced.
You need to figure out how much you will like spend/year in retirement and how you will have $$$ to pay it. For example, I you spend $40,000 a year in retirement and get $10k from your social security, $10k from spouse’s, 10k from pension, you will need 10k from investments, income, rentals somewhere else.
Hae read that 3% is the recommended safe withdrawal rate if you want your asset t say thru your retirement.
@scout59, I agree your mom at her age should not pay off her mortgage.
Re: “what streams of income you may have to draw upon in retirement.”
The money (the cash flow?) is sometimes a really funny business. Unless you have a significant assets to pass down to your heirs, it really makes no sense to sit on a paid-off or nearly paid-off $400k house while you are on a deathbed.
I think you also have to consider the tax implications. If mortgage interest gives you enough to itemize deductions - that can be a big plus.
That is one way to look at it … but I choose to look at this way: I might not have mortgage interest that allows me to itemize deductions, but I have the money I would otherwise pay in mortgage interest to put toward other things all year long (including savings).
I am 55; H is 56. We have our mortgage paid in full. A couple of our friends do, also.
My parents had their mortgage paid off at one time, but they moved to Florida and had a mortgage on their home in retirement. My dad’s company (Big 3) drastically cut his retirement benefits, and my parents had money worries in their final years. H and I are financially conservative, and we have vowed never to be in a similar situation. It’s a new world, and companies can pull the rug out under you in terms of pension payments, the government may cut social security payments or raise the age for Medicare coverage. I am not going to risk having to live in my kids’ basements.
Much depends on your appetite for risk (and your outlook on the future economy).
This only works in a non-recourse state. Otherwise the bank can come after his other assets (besides the house) to pay the mortgage. Most states aren’t non-recourse, and the laws around when a loan is non-recourse can also be limiting. He will also ruin his credit rating for some time after doing this, even in a non-recourse state.
This is a tough question. We have 25 more years on our mortgage. It has a high balance, but a low interest rate. It is a good (and one of our only) tax deduction. However, I have no idea how we can pay this off before retirement. We will accelerate it, but I don’t know how we could pay it off sooner than 12-15 years, unless we win the lottery or raid our retirement funds. Don’t want to move, either, so I guess we’ll just keep paying on the mortgage during retirement. We should probably downsize, but I can’t even bare the thought of another move, and we really love it here.
mcat2, near the beginning of the thread, you asked me: (but the thread has moved so quickly since then!)
No, I downsized and am renting an apartment in a different state from where I sold the house.
And she’s making the big financial decision to pay off your son’s school loans? I admire her selflessness but she is jeopardizing your retirement.She needs to know that your retirement should come before giving money to your son whose future earning power should cover his loans and more especially if he marries another MD.
Owning your home free and clear doesn’t make economic sense to some people. Besides property taxes, you have maintenance costs. It can mean a lot of untapped equity especially if the retirees don’t have enough liquid assets to live through retirement. I see nothing wrong with renting in one’s retirement if mortgage debt is a great concern.
My dad has several friends who opted to sell their homes which often had 7 figures in equity; they rent instead. This leaves them much more freedom to travel and frees up the equity to provide funds for them to live off, travel, etc. Lots of options to consider.
H and I refuse to be a financial burden to our kids and have made our financial choices accordingly.