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Started By
Message
Retirement: Owning home in full vs Not Owning in full
Posted on 7/6/25 at 10:07 am
Posted on 7/6/25 at 10:07 am
Context: our financial mindset has been to use other people’s money to make money. Invest for higher return than cost of capital (eg, mortgage) - enjoy positive return/cost spread. With respect to financial aspect of life, it has been a focus on wealth building and less about peace of mind of ownership in full (no mortgage) life-to-date.
Over working life of multiple decades, this has contributed significantly to the wealth build that has us now in position to retire
7-10 yrs early. Will retire at the end of the year.
The opportunity to have enough wealth to do what we want, when we want, with whom we want for as long as we want was always the goal. We have lived a very good life. We are blessed to be able to keep same lifestyle into and through retirement, until good Lord says time is up. This accounts for healthcare and spoiling future grandkids.
All to say, facing retirement, we have the same option:
1. To payoff home in full (cost = give up on avg 9% positive spread (12% return 3-5yr avg) on funds that would cover mortgage (2.8%). Is peace of mind worth giving up 9%? Transferring funds from retirement nest egg to payoff home does not impact retirement lifestyle (essential and non essential expenses).
2. To keep mortgage whereby P&I payments are comfortably accounted for in retirement expenses. Continue to enjoy 9% positive spread (cost: peace of mind, although always have the option to payoff in full at any moment as funds to do so are available and amount available more than covers market risk).
Welcome your thoughts and experience, as always…
Over working life of multiple decades, this has contributed significantly to the wealth build that has us now in position to retire
7-10 yrs early. Will retire at the end of the year.
The opportunity to have enough wealth to do what we want, when we want, with whom we want for as long as we want was always the goal. We have lived a very good life. We are blessed to be able to keep same lifestyle into and through retirement, until good Lord says time is up. This accounts for healthcare and spoiling future grandkids.
All to say, facing retirement, we have the same option:
1. To payoff home in full (cost = give up on avg 9% positive spread (12% return 3-5yr avg) on funds that would cover mortgage (2.8%). Is peace of mind worth giving up 9%? Transferring funds from retirement nest egg to payoff home does not impact retirement lifestyle (essential and non essential expenses).
2. To keep mortgage whereby P&I payments are comfortably accounted for in retirement expenses. Continue to enjoy 9% positive spread (cost: peace of mind, although always have the option to payoff in full at any moment as funds to do so are available and amount available more than covers market risk).
Welcome your thoughts and experience, as always…
13
Posted on 7/6/25 at 10:11 am to Artificial Ignorance
quote:
. To payoff home in full (cost = give up on avg 9% positive spread (12% return 3-5yr avg) on funds that would cover mortgage (2.8%). Is peace of mind worth giving up 9%?
Not every year is average. You don't want to have to count on investments in a year like 2022 or 2008 or for that matter the first half of 2020.
Better to reduce your expenses in retirement.
Posted on 7/6/25 at 10:15 am to Bestbank Tiger
quote:
Not every year is average. You don't want to have to count on investments in a year like 2022 or 2008 or for that matter the first half of 2020.
The retirement nest egg can withstand black swan events per modeling - even in P10 very worst case scenarios. I even assumed sustained market returns using 1933-1942 market returns - withstood!
Posted on 7/6/25 at 10:22 am to Bestbank Tiger
Yeah, I couldn't imagine being retired and having massive stock market exposure and watching it get cut in half.
That's what I lost on paper in 2008. Granted, if you didn't panic it came back in a year or two.
That's what I lost on paper in 2008. Granted, if you didn't panic it came back in a year or two.
Posted on 7/6/25 at 10:28 am to Artificial Ignorance
You OWN your home 100%. But you have a mortgage on it.
I would never pay off a 2.9% note. The bank on the other hand hopes you do.
I am retired and have a 3.25% note. I will not pay it off early for peace of mind. But it bothers my wife some. She can pay it off if I go before her.
I would never pay off a 2.9% note. The bank on the other hand hopes you do.
I am retired and have a 3.25% note. I will not pay it off early for peace of mind. But it bothers my wife some. She can pay it off if I go before her.
Posted on 7/6/25 at 10:36 am to ItzMe1972
quote:
I am retired and have a 3.25% note. I will not pay it off early for peace of mind.
Wouldn't you want to pay it off for peace of mind also?
Posted on 7/6/25 at 10:40 am to Double Oh
Wouldn't you want to pay it off for peace of mind also?
---
No, I have plenty of savings to do so. That's comforting.
But I like the returns of the market which far exceed 3.25%.
---
No, I have plenty of savings to do so. That's comforting.
But I like the returns of the market which far exceed 3.25%.
Posted on 7/6/25 at 10:41 am to ItzMe1972
The problem with a paid off house is rising insurance and property taxes. That never goes away. Especially in a place like Texas where people’s property taxes can be well over $1,000 a month.
Posted on 7/6/25 at 10:42 am to Paul Allen
The problem with a paid off house is rising insurance and property taxes
---
That's true whether it's paid off or not.
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That's true whether it's paid off or not.
Posted on 7/6/25 at 10:53 am to Artificial Ignorance
Owning home outright is immaterial financially. It’s just a balance sheet transaction.
If you are low interest debt, then it’s probably a poor financial decision. If it makes you more confident or comfortable, then the emotional side can enter the fold.
If you are low interest debt, then it’s probably a poor financial decision. If it makes you more confident or comfortable, then the emotional side can enter the fold.
Posted on 7/6/25 at 10:53 am to ItzMe1972
quote:
But I like the returns of the market which far exceed 3.25%.
I get that but if you pay off house you can take that mortgage payment and invest it and make even more money
Posted on 7/6/25 at 10:54 am to Paul Allen
quote:
The problem with a paid off house is rising insurance and property taxes. That never goes away. Especially in a place like Texas where people’s property taxes can be well over $1,000 a month.
Yup. Even if I pay off my house I’m probably looking at $2,500 a month between property tax and insurance in Texas in about 15 years.
Goal is to live here as long as we are working then down size and find a place with cheaper taxes in retirement.
Posted on 7/6/25 at 10:56 am to Double Oh
quote:
I get that but if you pay off house you can take that mortgage payment and invest it and make even more money
This is such a fallacy and doesn’t math. I get it’s a simple “concept” but it’s just wrong.
Posted on 7/6/25 at 11:00 am to ItzMe1972
quote:
I am retired and have a 3.25% note. I will not pay it off early for peace of mind. But it bothers my wife some. She can pay it off if I go before her.
All things avg (for quick math):
Opportunity cost of paying it off = a nest egg value hit of $750,000 at end of retirement. Stated differently, that decision cost $750,000 for us / our descendants.
And we keep option to payoff (or not) at any point (financial modeling shows can withstand black swan markets / ie, risked).
Posted on 7/6/25 at 11:04 am to Rize
quote:
Goal is to live here as long as we are working then down size and find a place with cheaper taxes in retirement.
Posted on 7/6/25 at 11:05 am to Artificial Ignorance
2.8% I wouldn't pay off early.
For now, you can even out preform that in a HYSA w no risk.
You might allocate enough to pay off or some portion to low risk and keep the rest invested for growth.
Peace of mind is having immediate access to capital without taking a HELOC.
Even of you do pay it off, all at once may not be most tax efficient versus spreading withdrwals over multiple years.
For now, you can even out preform that in a HYSA w no risk.
You might allocate enough to pay off or some portion to low risk and keep the rest invested for growth.
Peace of mind is having immediate access to capital without taking a HELOC.
Even of you do pay it off, all at once may not be most tax efficient versus spreading withdrwals over multiple years.
Posted on 7/6/25 at 11:17 am to Double Oh
quote:
I get that but if you pay off house you can take that mortgage payment and invest it and make even more money
What do you think the breakeven year is:
To payoff mortgage in full and invest monthly note
Vs
Keep mortgage and commensurate funds earn net positive 9% on avg.
I estimate the opportunity cost if payoff mortgage in full is $750,000. That is, what we will forego if we payoff in full (ie, 9% return on mortgage balance that we have invested right now) across avg retirement life span.
Break even = 185 months (15 or so yrs)
Peace of mind cost me 15 yrs of retirement to make up financial cost.
Think I will make it? I’m eating broccoli for lunch starting now! Kidding.
Posted on 7/6/25 at 11:38 am to Artificial Ignorance
Pay it off. You can crunch numbers til the cows come home, but you can't put a price on the freedom of being debt free
Posted on 7/6/25 at 12:04 pm to GEAUXT
quote:
can't put a price on the freedom of being debt free
Debt free costs $750,000
And restricts our financial ability by this $750,000 to help our descendants be debt free.
I do hear your peace of mind point and how invaluable that feels. Thx!
Posted on 7/6/25 at 12:13 pm to Double Oh
Let’s see some cash flow, NPV calcs to prove that.
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