Bad Advice, Retirement and your Mortgage

[musclemoney]

Everyone in this thread needs to buy or borrow a copy of the book "Missed Fortune."

The author goes into great detail on why you do not want to give the bank YOUR money for them to control, and gives great detail (with illustrated numbers) on where to put it, and how it all comes together. Basically, with his strategy YOU control YOUR money, not the bank. Then with the interest compounded, I believe he points out how to pay off a 30yr fixed note in about 16 years without you mising much of the money you would have given the bank instead.

I've heard of people making double payments for years, have good equity, and get disabled, or the primary bread winner loses their job, etc., Then the bills get paid late a few times, and when they go to the bank to get a loan (isn't that nuts right there!?! A loan on the excess money they paid in!!!), the bank simply says no. That's scary!

And yes, I hate banks! I was in an Investment Advisors division of a regional bank before going Independent, and saw what really goes on inside.:eek:
Makes me want to take a bath. Reminds me of that scene in "Ace Ventura Pet Detective," where Ace finds out the female he fooled around with was really a male in drag. :eek:

 

[Instynct]

Quote from musclemoney:

I believe he points out how to pay off a 30yr fixed note in about 16 years without you mising much of the money you would have given the bank instead.

Is he refering to turning your conventional 30 yr mortgage into a HELOC and borrowing from that HELOC for living expenses while putting your entire paycheck, dividends, interest, and all other income towards paying down the house?

 

[musclemoney]

Quote from Instynct:

Is he refering to turning your conventional 30 yr mortgage into a HELOC and borrowing from that HELOC for living expenses while putting your entire paycheck, dividends, interest, and all other income towards paying down the house?

No.

I'll have to dig the book out to get to the details on the methodology.

 

[piezoe]

Quote from Cutten:

Is mortgage interest tax-deductible in the USA? If not, then paying off the mortgage is a great idea. If so then it is more borderline. However, paying off a mortgage does have the benefit of earning the mortgage interest rate *risk-free*, and reducing your overall debt burden, which gives you a cushion in case of emergencies. Finally, there are the peace of mind benefits, the forced saving etc that are useful for many people.

Mortgage interest in the US is deductible for those who itemize their deductions rather than take what is called the standard deduction.

 

[nutmeg]

"... that one should practically never pay off a fixed-rate low interest mortgage early." "... it has to do with inflation and the inexorable devaluation of currency over time."

--------------------------------

Why pay it off ever? Why have any equity? There's always an inflated dollar around the corner? Beating inflation with debt or money vs money ie rate of return vs inflation (whoever comes up with those inflation figures anyways?) as opposed to increasing earning power to beat inflation is academic cocktail party chatter. When you cannot afford your home when you retire yet out ran inflation (but it is not paid off), not much consolation.

 

[romanus]

Quote from Hurricane:

Making extra mortgage payments is equivalent to make a risk free investment.

A single family residence is anything but riskfree.

Quote from Hurricane:
The feeling of satisfaction and security that this provides.

The feeling of satisfaction can be largely attributed to not having to make a significant monthly payment anymore. That's about it as far as the satisfaction goes. The equity in the house is not a liquid investment and therefore is anything but secure.

 

[Jayford]

One advantage of having the thing paid off I haven't seen mentioned here. A reverse mortgage. If you never plan to move out of the place, and have no one you need to deed the place to upon death, the house will pay you.

Gotta be 55+ of course.

I won't do it, but I bet it works for some people.

 

[rallymode]

Satisfaction of having no mortgage aside, making extra payments or not is essentially a bet on where rates are going. Given the current economic environment i think a low rate fixed mortgage is the cheapest inflation hedge you can have. Even if you are taking a hit on the short end (risk free rate < mortgage rate[after tax]) a few years from now you might just be happy you kept the biggest mortgage you could. You can think of your monthly yield loss as a premium you pay to hold a hyperinflation call option.

So the question is would you rather be long or short that option?

 

[QQQBALL]

Quote from Hurricane:

Making extra mortgage payments is equivalent to make a risk free investment. If your interest rate is low enough that you have better risk free alternatives, than clearly the math says to stretch out the payments.

But what you haven't mentioned are the intangible benefits of paying off your mortage. The feeling of satisfaction and security that this provides.

absolutely. what most dont realize that by paying down your mortgage, a larger portion of the monthly payment goes to principle reduction. when i had a mortgage, my yield was like 200 bps above the mortgage IR, b/c the mortgage got paid off so fast.

life gets real simple when you dont have a home mortgage. you can then turn compound interest around in your favor. if yo wanna lever-up, do it with income producing properties/
investments.

 

[TGregg]

Quote from piezoe:

On Yahoo today (Front page of Financial home page) there was an article purporting to give advice on whether a retiree should pay off their mortgage. The advice given was not to pay it off if your could earn more on your savings than your mortgage rate.

This is OK as far as it goes. . .

Not in an election year. Better to stop paying and let Uncle Sucker pick up the tab:

http://news.yahoo.com/s/ap/20080625/ap_on_go_co/congress_housing

More FREE MONEY! Woo hoo! I'm gonna rent a U-Haul, drive out to DC and ask my congress critters to fill it up with cash for me. High time I put both trotters in the trough like most of the rest of the country.