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Paying Off the Mortgage Early

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By Ann Coleman (TMF AnnC)
March 7, 2001

Q. Does paying off my mortgage early make sense? I've heard it isn't a good idea, but I've also heard you can save a fortune in interest. --R.M., via email

A. You can save a fortune in interest. The question is, what does that cost you?

You've probably heard all the arguments about the value of the mortgage interest deduction and how mortgage interest rates are lower than probable investing returns, yada, yada, yada. Obviously that hasn't convinced you. It hasn't convinced a lot of folks. So let's run a real-world scenario that doesn't even consider the mortgage interest deduction, assumes a moderately high interest rate (which would motivate one to pay the mortgage off faster), and assumes a mediocre return on invested dollars. In other words, we're stacking the deck in favor of paying the mortgage off early. Let's see what happens.

We'll compare two neighbors with identical mortgages of $100,000 at 8% for 30 years. The scheduled payments are $733 per month. Fred, at 601 Motley Drive, runs some numbers and finds that by paying an additional $300 a month on his mortgage he can save over $103,000 in interest and pay the house off in 13 years. That sounds almost too good to be true. He jumps all over that plan.

Philip, at 603 Motley Drive, never ran the numbers, he just made his mortgage payments as scheduled. He also put $300 per month into a tax-efficient S&P 500 index fund that he read about on some website. He earns an average return on his index investment of 12.0% per year. (That's a smidge below the S&P 500's average return over the last 50 years and well below its average return over the last two decades.) At the end of 13 years, when Fred holds his mortgage-burning party, Phil's index fund account is worth $111,000 -- several thousand more than what Fred saved in interest.

But now Fred can start putting $1033 a month into savings, right? Putting $1033 a month into an index fund for the next 17 years, and earning an average of 12.0% per year, gives Fred an account worth $683,000 by the time Phil makes his last mortgage payment. Nice.

But... wait a minute. Phil kept socking away his paltry $300 a month. By the time his house is paid off, his investment account has grown to over $1,048,000. Both guys own their houses free and clear, both have paid out exactly the same amount every month for 30 years, but Phil comes out way ahead.

Now what? Phil's million-dollar investment account could pay for one heck of a mortgage-burning party. Wanna throw your own big bash? Do the math on your mortgage by using the online calculators in our Home Center.

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But... wait a minute. Phil kept socking away his paltry $300 a month. By the time his house is paid off, his investment account has grown to over $1,048,000. Both guys own their houses free and clear, both have paid out exactly the same amount every month for 30 years, but Phil comes out way ahead.

I disagree with this on several points. This writer lives in a dream world.

First is, that bankers and mortgage lenders are very smart people. They don't do dumb things. THey also tend to make a lot of money.

Now, if they are willing to loan you money, at 8%, and you figure your are going to make 12%/yr, and that the market is going to return that year after year, then:

Why would any banker in the first place loan you money? They could take the same money the might loan to you, put it in an index fund, and by your math, be %400,000 ahead, for sure, in 30 years. Or, put another way, they would lose $400,000 if they lent you the money. Ask yourself that. If they could be 100% sure of even 9%, they would be better off doing that...still making 1%/yr on their money.

They loan you money since they know they will make 8% guaranteed. Each year, every year, year in and year out. Depression, recession, dot.com fever, war, famine, pestilence, matters not. They will make their 8%.

Second, future trends are not guaranteed. As many dot.goners will tell you, the market that went up, up and up is now going down, down, and down. Those who bought stocks in the 1920s didn't even see break even until the 1950s!.....(and that was the index that took upteem years to recover.)

Third, try telling that to the Japanese. The Nikkei is at a 15 year low....that means, that people who have been putting money into Japanese stocks, over the past 15 years, are behind. Big time. The market is going up? The Nikkei index is where it was 15 years ago. Where is the 12% per year in your plan there? That comes out to zero or less percent gain, depending upon when you invested. If you had been investing all along, you would be down about 20-30% on all the money you had been putting it....it went up, and you bought, and it went down. Guaranteed? Ha!

Can't happen here? Says who.....1929 happened....1973/74 happened. 2001 happened....

Fourth, there is no telling where the market will be in 3, 5 or 10 years. You claim in 13 years, you will have seen 12% annualized growth. But the numbers say the SP500 does 10.8% in the past. Run those numbers. It could be six percent. Run that.

Fifth, paying down 8% interest is guaranteed 8%. 100% sure.

Sixth, the average American family moves every five years. If you move after five or ten or 15 years, you now have more equity.....rather than put 5% down, or 10% down, now you can put 20% down on the next house, and get 1/4 or 1/2 pt lower rate, and not have PMI of another couple tenths. If you have to tap your savings, 20% of the gains disappear to Uncle Sam to get your money. If in IRA,401K, 40% of it can disappear in tax and penalty.

Unless the money is tax deferred, IRA/401K, then Uncle Sam is giving you a free ride for many many years. You get to save another 28% or 31% or whatever your tax bracket. That makes sense.

Again, if you have XXXXX dollars extra a month, they all don't have to go to paying down mortage or buying stock. You can certainly divvy the money up.

Just don't fall in love with the idea there is no risk in the equity markets. There is, which is why there is slightly higher return.

You can evaluate just about any investment based upon the risk.

if you look at junk bonds paying 13.5%, when rock solid corporate bonds are paying 7%, and an investor wants a premium of 2% for the risk he is assuming, then the market figures 7% plus 2%, or 9% should be the expected return for a large basket of 13.5% junk bonds, and that means they assume that 1/3rd of those junk bonds will go worthless and they won't collect. That is, they will only see 2/3rds of that 13.5%, or 9%, long term. That is the expected norm over a large holding of various junk bonds, over a long period of time, averaged out. They also could get wiped out....in a depression....100% loss....

The same with the stock market. If investors want a 2% premium for taking the risk of buying equities, and treasuries are paying 5.5% now, then the market is really telling you it is expected a 7.5% return. That is a far cry from 10.8%. (note: corp bonds might be paying 7.5%, but they have some risk - treasuries have zero risk held to maturity)

Now what would happen to your friend if the next 13 years in the US happened to be exactly what happened in Japan 1985 to 2000?









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Ann's assumptions aren't valid.

He earns an average return on his index investment of 12.0% per year. (That's a smidge below the S&P 500's average return over the last 50 years and well below its average return over the last two decades.)

The average annual return is useless for determining total returns. Using the average annual return will cause you to overestimate the total return, sometimes severely.
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Hmmm. Telegraph says it better. I made the decision to pay extra on my mortgage. I only have a 7% interest rate, but that is a guaranteed 7% in savings if I pay it off early. I am, of course, still putting money into my IRA and 457 plans. If I wanted to put every extra penny into my mortgage I could pay it off extremely early. If I wanted to put every extra penny into my investments I could possible be a millionaire at an early age.

Let's see. It's a given that by paying extra on my mortgage I pay it off early. It's not a given that by investing extra I will have a larger pot at the end of the rainbow.

I'll stick with my extra amount each month on my mortgage plus my monthly investments in the stock market.

Mark :-)
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Let's see. It's a given that by paying extra on my mortgage I pay it off early. It's not a given that by investing extra I will have a larger pot at the end of the rainbow.

Different people have different comfort levels for the risk/reward tradeoff. It is obvious that the frequent posters have polarized into two different camps: the "guaranteed return" from accelerating mortgage payments, and the potential of greater returns from investing over that same period of time.

Some decide one way with their money, some decide the other way, some do some of both. But having a board dedicated to that topic is unlikely to change anyone's mind.
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Fifth, paying down 8% interest is guaranteed 8%. 100% sure.


This is the only portion of your post I have an issue with, and that is because it presumes your investment in the house itself remains stable and does not falter over time. As this happens to also be your basic premise of caution in stock investments (no guaranteed growth), I see a pretty wide crack developing in the foundation of your argument.

Naturally, the reverse is also true: if the value of your home goes up over time, you'll have made money on that investment as well. However, the equity you earn is not dependant on the money you owe, and therefor you'd still reap this gain even with minimal payments over an extended mortgage.

I say all this in defense of putting your money into the stock market rather than your home, but to be completely honest I fall on the otherside of the argument. While this may not be entirely rational (I'm convinced it's more financially sound to let the mortgage linger) I feel the satisfaction and basic freedom that comes with being mortgage-free is a lot more difficult to measure, and is certainly more important to me and my family. Not having to pay the bank every month is something you can count on, regardless of market highs and lows.

Cheers,
- Unwise

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If my house is paid for I can live in it without fear of anyone taking it away from me.

If my house is not paid for, but I have money in the stock market and ALL my investments lose money (the value in my house is down as well as my investments) I can still live in my house. Can I still afford my investments? Perhaps.

Now let's assume I lose my job. I can still live in my house. Can I still afford my investments?

If I have a mortgage and investments and they both decrease in value and I lose my job, do I have to worry about losing my house? Yes, I do.

It's all in the risk/reward, as stated before.

I don't like to gamble with the possibility of living on the streets, especially when the market is acting like it has lately, but I know others that aren't worried......yet.

e
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If I have a mortgage and investments and they both decrease in value and I lose my job, do I have to worry about losing my house?

I would label this as "it depends." A couple of ways I reduce risk are: a fully funded emergency fund that has the equivalent of 6 months of living expenses, and having 25% of my taxable investments in bonds so it isn't as volatile as an all stock portfolio. I would also label it as unlikely that a diversified large caps stock portfolio would go all the way down to zero, thought a deep drop isn't unheard of (e.g., DJIA drop of 80% from 1928 to 1932).

A multi-year period of no income and stock market decline at the same time could cause me to lose my place to the mortgage company.

But then again if I don't have the money for property tax because I paid down my mortgage and don't have liquid assets, and I don't have a job so I cannot get a loan, I could lose my place to the county tax collector.

Either way, there can be risk involved, whether the mortgage is paid off, or whether the money is used for a diversified portfolio. Which way really has more risk? I really don't know.
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I could lose my place to the county tax collector.

I believe the Homestead law came about because of this. I don't know if it covers both, State and Federal. Does anyone know?

GS
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"I believe the Homestead law came about because of this. I don't know if it covers both, State and Federal. Does anyone know?"

This, I believe, is a state law for most states, if it exists. Not all states have it.

In Texas, until recently, you couldn't even get a home equity loan since it was nearly impossible to reposess a house.....for nonpayment of mortgage, second mortgage, or civil suit award....once you bought it, it took forever to take it away, and it was protected in bankruptcy(up to a certain limit)...they couldn't move you out of it.....and a civil award couldn't confiscate your house until you moved out of it. Even in bankruptcy, your house (up to a certain value) was a protected asset.

If you don't pay your taxes, your house can/will be sold at tax auction if you don't pay up.....but even then, usually the new owner can't easily move you out....(if you have filed for homeonwner exemption with your local tax agency when you bought it).

If you don't pay your taxes....federal or real estate....you can lose your house. Other than that, it is still hard to take a house away for any other reason in TX and states with strong homeowner protection.


No federal law that I am aware of.

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If my house is paid for I can live in it without fear of anyone taking it away from me.

Well, the local government can take it , if you don't pay your taxes. For the following comparison, lets assume this won't happen.

If my house is not paid for, but I have money in the stock market and ALL my investments lose money (the value in my house is down as well as my investments) I can still live in my house. Can I still afford my investments? Perhaps.

Now let's assume I lose my job. I can still live in my house. Can I still afford my investments?

If I have a mortgage and investments and they both decrease in value and I lose my job, do I have to worry about losing my house? Yes, I do.

It's all in the risk/reward, as stated before.

I don't like to gamble with the possibility of living on the streets, especially when the market is acting like it has lately, but I know others that aren't worried......yet.


I fully understand (and mostly agree with) your sentiment. BUT ... liquidity is a major issue in calculating the probability of surviving an adverse event as described above.

There are 2 scenarios:

Scenario 1 - House paid off -

OK, so you had a mortgage of $150k and a net worth of $300k. You decided to pay off the mortgage. Now you have no mortgage and $150k in net worth, mostly invested in stocks, BUT the Nasdaq went down 63% and your portfolio went down about 50%. Now you have a portfolio of $75k, of which $15k is liquid and can be used for expenses when you get laid off. Your minimum expenses are $3k/month, you can survive for 5 months.

Scenario 2 - Keep the mortgage -

Same mortgage of $150k, payment about $1k/month. Same net worth of $300k. Now, you would like to pay off the mortgage, but would prefer to have liquidity in case some sort of crisis comes up. So, you keep $150k in cash, perhaps in a tax-free money market fund, and the other $150k in stocks. Whoops, Nasdaq goes down 63%, your portfolio goes down 50%, down to $75k, and you get laid off. Your minimum expenses are $4k/month (same as the guy above plus the mortgage payment). You can survive for 37 months using that $150k in the tax free money market fund.

Which scenario is more conservative ? Which is safer ?
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"Which scenario is more conservative ? Which is safer ?"

If you had a 'paid for' house, you could easily get a home equity loan for a considerable portion of the house, worse come to worse.

Now, a smart person would have have just paid down the house...but had at least six months, and probably a couple years of living expense set aside...

Again, it is not one or the other to the exclusion of the other.


What happens if you had put all your eggs into 'tech'? Priceline.com, Teligent, CMGI, Iridium, Pets.com, and other 'sure winners' - that did drop 99 to 100%....???? now you aren't down 63%, but 99%...

Or what happens if you had put all your money into Nasdaq? Or anything, that could go down 80%, and stay there for five years????

Obviously, for most people, they don't put all their eggs in one basket, but spread the risk. As you pointed out, having a house, but not affording food doesn't do much....

When you have a mortgage, remember who really owns the house....miss 3 or 4 or 5 payments, and the lender will let you know quickly..... and if your house is 'down' by 30 or 50% (and it happened in Dallas in 1984, and Washington DC in 1991), then they sell your house, and you still owe perhaps tens of thousands of bucks to them since your loan was underwater.




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If you had a 'paid for' house, you could easily get a home equity loan for a considerable portion of the house, worse come to worse.

Not so! If you don't have a source of income (e.g., if downsized or too ill to work), it could be hard to impossible to get a home equity loan.

On the other hand, if I need to liquidate a portion of my mutual funds, I can call or get on the web and request redemption of a certain dollar amount, and they don't do any income verification.

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<<"Which scenario is more conservative ? Which is safer ?">>

If you had a 'paid for' house, you could easily get a home equity loan for a considerable portion of the house, worse come to worse.


Do banks give home equity loans to people who don't have jobs ? Also, in a major liquidity crisis, almost nobody gets loans at all.

Or what happens if you had put all your money into Nasdaq? Or anything, that could go down 80%, and stay there for five years????

Go back and see my description of scenario 2. You hold enough cash to pay off the mortgage, but you hold it rather than the mortgage bank holding it.
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"Go back and see my description of scenario 2. You hold enough cash to pay off the mortgage, but you hold it rather than the mortgage bank holding it"

If you are holding that much cash, you aren't making 12% on your money, no way......and that was the premise of your argument. Even assuming you could get 12%, and 10.8% is more typical, on your stocks, in your scenario, you have to be holding lots of 'cash' or equivalents...and we are not talking mutual funds.....they aren't cash, and they can drop 80%. They have dropped 50% in 2 years ('73-4)

To start with, you would have to have $150,000 in cash for your $150,000 mortgage, but we assume you had zero, and started either putting extra money into investments, or into paying more on the mortgage.

Your argument fails since you first claim you are going to get 12% on your investment, then tell me you are going to hold enough cash to pay it off.....and cash or equivalent is paying about 6% now.

Even if you get to your $300,000 in investment level, nearly half would have to be in cash after 13 years, since you have one heck of a big mortgage balance yet. And at half cash, you aren't going to making 12%, so you never wouldhave gotten to $300,000 in the first place.

In fact, if you held cash, so you could pay it off, then you would likely be getting a taxable 6 or 7% on your 'cash' holdings, while forgoing a sure 8%. That loses you about 3% a year. Hmmmmmm.....

Huh? You can't be 100% in stocks at 12%, and then claim to have 'cash' to pay it off. Something has to gvie.



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<<"Go back and see my description of scenario 2. You hold enough cash to pay off the mortgage, but you hold it rather than the mortgage bank holding it">>

If you are holding that much cash, you aren't making 12% on your money, no way......and that was the premise of your argument. Even assuming you could get 12%, and 10.8% is more typical, on your stocks, in your scenario, you have to be holding lots of 'cash' or equivalents...and we are not talking mutual funds.....they aren't cash, and they can drop 80%. They have dropped 50% in 2 years ('73-4)


Now I am confused. I wasn't discussing rates of return, but rather relative safety of holding a mortgage and holding the same amount in cash, or paying off the mortgage.

Aha ... I just went back to the original post and see the discussion on rates of return. I was discussing something alltogether different. (i.e. relative safety of having liquidity versus a paid off mortgage)

In my case, I like my 6.625% mortgage and I also like the safety of holding at least that much in cash in a tax-free municipal money market account as well. This gives me more flexibility than having a paid off mortgage and only 6 or 12 months of cash in an emergency fund. To each his or her own !
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In my case, I like my 6.625% mortgage and I also like the safety of holding at least that much in cash in a tax-free municipal money market account as well. This gives me more flexibility than having a paid off mortgage and only 6 or 12 months of cash in an emergency fund. To each his or her own !


The basic discussion started whether it was wiser to put extra money into paying off your mortgage OR investing the money in the market at 12%.

You have indicated, above, that you would put your extra money into a tax free muni fund, that is likely giving you 4-5% at best interest, while paying a 6.25% mortgage....fine....

But that sure shoots holes in the proposition that was put forth that says by investing in the market, getting 12% per year on your stock investments, rather than paying down your mortgage by an extra $300/month, you would be way ahead after 13 years.

You obviously don't believe that if you are in muni MMF.

I prefer to have 20% of my assets in CDs/Bonds/MMF, and the rest in equities. (that gives me cash >>>>>> more than a six month cushion....)....maybe ten-12 years?????

I paid off my house in 7 years($150,000 mortgage , and also put 25% into other investments, and retired at 52. Saved 30-35% for 16 years...that did it.

more than 25 times required annual income as noted on the retire early board......

then again, I didn't buy a 1.4 million dollar house....





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If my house is paid for I can live in it without fear of anyone taking it away from me.

Obviously you live in a state with low or no property taxes. Others of us aren't so lucky.

If there's hyperinflation, and our house gets assessed at $10 million, even a 1% property tax would bankrupt us, unless I had a job paying that much..
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If you had a 'paid for' house, you could easily get a home equity loan for a considerable portion of the house, worse come to worse.

I have a hard time believing that any lender is going to lend to me when I don't have a source of income.
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If there's hyperinflation, and our house gets assessed at $10 million, even a 1% property tax would bankrupt us, unless I had a job paying that much

Why don't you look at the opposite scenario...if there was hyper deflation, your 1% property tax could be paid for out of pocket change. Everyone would have the spending power of a millionaire....Minimum wage would go to 2 cents an hour.......Then dollars would be 'readjusted'.....Turn in $1000 old dollars and get 1 'new dollar'.

And an asteroid could strike your house, flattening it, and missing mine. Or purple aliens could decide to zap your house, and not touch mine.

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I have a hard time believing that any lender is going to lend to me when I don't have a source of income

Reverse mortgages...done all the time.....

and retirees have pensions and SS......SS guaranteed by the gov't as a source of income.....

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I have a hard time believing that any lender is going to lend to me when I don't have a source of income.

Doesn't seem like it should happen but it does. I have a good friend that bought her home when she was "between" jobs. Recently she left her current employer and was still able to get a home equity loan.

I'm sure this isn't the norm, but it does happen.
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<<In my case, I like my 6.625% mortgage and I also like the safety of holding at least that much in cash in a tax-free municipal money market account as well. This gives me more flexibility than having a paid off mortgage and only 6 or 12 months of cash in an emergency fund. To each his or her own !>>

The basic discussion started whether it was wiser to put extra money into paying off your mortgage OR investing the money in the market at 12%.

You have indicated, above, that you would put your extra money into a tax free muni fund, that is likely giving you 4-5% at best interest, while paying a 6.25% mortgage....fine....


telegraph, you are right regarding the original discussion.

I still believe that my scenario is "safer" for someone in the intermediate stage of still working and not having accumulated the full amount necessary for a "safe" withdrawal of 4% during retirement. But, for someone already retired, a paid off mortgage makes more sense since it reduces the amount needed for a safe 4% withdrawal.
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"
I still believe that my scenario is "safer" for someone in the intermediate stage of still working and not having accumulated the full amount necessary for a "safe" withdrawal of 4% during retirement. But, for someone already retired, a paid off mortgage makes more sense since it reduces the amount needed for a safe 4% withdrawal"


This is where you really come down to whether you believe the advise and calculations of those who advise putting the extra money into the market rather than paying down your mortgage. Clearly, someone who was 100% convinced of the superiority of paying into investments vs paying down a mortgage wouldn't have any qualms about having a mortgage at any point in their life! makes no difference!


If you take their advice as gospel, ie, you can put your extra money into investments returning 12%, and after 13 years you are ahead of someone who is paying off their mortgage, and after 30 years, be way ahead. If you truly believed that, you wouldn't even consider putting more than six months emergency fund aside, and plowing everything into the market. It is essentially a test of faith. Do you really really believe the market is going up 12% a year?(annualized) - for the next five, ten, 20 years?

If you start putting that money into a MMF, then you are really getting the worst of both worlds. First, you are actually falling behind year after year....not even breaking even likely....and inflation is eroding your MMF value at the rate of inflation, say, it's value is disappearing at 3.5% per year (or put another way, the cost of living is going up 3.5% per year). If you are getting 4.5% interest, that is effectively a 1% growth rate in your money.

You aren't getting the benefit of 12% return.

If you believed this scenario, truly, you would have put your money in the market, and after 30 years, been 'way ahead', and have your mortgage paid off, and still have more money that otherwise.

Also, if we take this scenario, rather than having paid down your mortgage (let's say just as you retired), you still had a balance, but follow this argument your extra payments would have clearly grown much faster than the equivalent reduction in mortgage, then even if retired, you would be ahead. You don't need a 4% withdrawal rate on money to fund your mortgage...if it is going to be paid up in another 10 years, you only need 10 years worth, and it is term certain, ie, no ifs ands or buts....so you need the equivalent of 10 years mortgage payments in investments, well, actually less since you are probably still planning 12% returns, so you would only need like six years worth of payments since your money would be growing all the time.

That said, one can sleep a lot better with some assets not in equities......how much depends upon how risk tolerant you are, what your other financial resources are, what your earnings capabilities are, and other factors which are very individual.



However, being retired, and not having house payments is a nice feeling. Being retired with another 20 or 30 years worth of house payments is not so nice. In that case, you do need 25x your annual prinicple and interest payments. For most people, retiring at normal age means another 20-30 years of living.

For most people, hopefully they will be close to having their mortgage paid for by the time they retire, and have the remainder they need for the next five years NOT in the market. Any money you absolutely need for the next five years should not be in the stock market, but part of your CD/bonds/ allocation of your investments.

Most of the planners assume you will live to 90 for men, 94 for women.


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Reverse mortgages...done all the time.....

There are some restrictions. From http://www.reversemortgage.org/Revmtg.htm is this quote:

To qualify for a reverse mortgage you must be at least 62 and own your own home or condominium.

So this isn't an option for most of us who are under 62.
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I still believe that my scenario is "safer" for someone in the intermediate stage of still working and not having accumulated the full amount necessary for a "safe" withdrawal of 4% during retirement. But, for someone already retired, a paid off mortgage makes more sense since it reduces the amount needed for a safe 4% withdrawal.

Not everyone relies on their investments for their retirement--some of us have decent pensions. My pension plan's payout would be equivalent to getting a pay raise the day I retire, so I wouldn't need 25 times my annual mortgage payments to be able to safely handle the mortgage. In fact, I wouldn't need any of my investments once I retire in order to afford my mortgage.

Of course, different people's situations are different; I just happened to luck out working for an employer that offers a great retirement plan and have already put 20 years of duty into that plan.
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e: Brilliant post. As a long-time contractor in the IT business, I've had years where I made over $250K and years where I made (literally) $0.

Having said that, I cannot fathom why someone would choose the amply demonstrated instability of the market over the pleasure/confidence of looking up at your roof from the comfort of your bed and realize that you don't have to pay a banker any more for the pleasure of sleeping in your bedroom.

Jobs come and go. Investments are great ... until they're not. But a mortgage ALWAYS remains ... until you pay it off.

RAB
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First is, that bankers and mortgage lenders are very smart people. They don't do dumb things. THey also tend to make a lot of money.

Now, if they are willing to loan you money, at 8%, and you figure your are going to make 12%/yr, and that the market is going to return that year after year, then:

Why would any banker in the first place loan you money?


Because it's virtually guaranteed profit, and predictable. The banker borrows the money from the Fed or from people's passbook accounts at low rates, and lends it at higher rates. If you don't pay your mortgage, they take your house away. The stock market may return more on average, but it's not predictable. Sometimes you'll lose money for two years in a row--like now!

Many mutual fund managers are at the mercy of the quarterly figures; if they don't beat their benchmarks each quarter, people will pour money into funds that do. This can lead to shortsighted decisions that are bad in the long run. However, an individual with a long term focus can ignore the short term gyrations. The banker is in a similar bind to the fund manager. He needs predictable returns, not huge returns some years and losses in others. This is because of banking regulations, people's expections for their bank/S&L/CU, and responsibility to any trusts they administer.

Finally, the banker makes lots of money using other people's assets. Individuals make their money using their own money (investments) and time (work), with very little leverage. Your home is one of the few leverage vehicles available. There are margin loans for stocks, but you don't always decide when to sell--if the stock drops, you have to come up with money to cover the margin call, or else the stock can be sold even if you don't want to do so. (And because the stock dropped, it's like being forced to "sell low.")
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