Pay Off The Mortgage ?

[Stoplight]

So here's my question : Should I take ~$180K out of my mid-six figure TSP balance and pay off my current mortgage, or leave the money in the retirement account and pay the monthly mortgage expense ($1,068) for the next 15 years ? Should I stagger that over a few years, to avoid getting in to a high tax bracket ?

Relevant facts :

Current mortgage balance is ~$150 K ; I assume I'll need to pull enough to pay the income taxes on the "income", thus the $180 K number

Mortgage terms are 3.25% ; 15 years (refinanced in Jan '12)

Crunching the numbers, this seems like a real "no-brainer"...

- I pay off the house, and it's mine forever ! (no idea where the real estate values and the economy are going from here !)
- I don't pay enough interest now to make it worth itemizing my tax deduction
- If we run out of money down the road, do a reverse mortgage or home equity loan

HOWEVER ! I'm too Old School...I still have this nagging issue with pulling that much out of our retirement nest egg...this is money that can never be replaced, now that we're both retired !

So any and all opinions are appreciated !


Stoplight...

 

[mayday]

I believe you can only borrow 50,000.

 

[mayday]

You should be able to make over 3.25% a year and recoupe what you pay in mortgage costs. I would'nt borrow from my TSP retirement.

 

[ILoveTDs]

Stoplight

I don't know your personal situation, and many none financial variables would go into the decision you are discussing. With that said from a purely financial position in my opinion the answer lays in how good of a stock manager you are.

I think before you make this decision you should take a day or two (you have the time being retired) and OCD out a spreadsheet and determine as close you can your true PIP as far back as you can go up to 10 years. Past performance does not guarantee future performance, but it is a damn good indicator.

If your average PIP is higher then 3.25%, I'd keep paying the mortgage. If someone wanted to lend me 1 million at 3.25% and my past 10 year PIP was 8.2%, I'd be 90%+ confident I could make at least 5%+ average per year over the next 15 years and would take a FREE 1.75% on that 1 million all day long. If you have done worse that 3.25% I would pay off the mortgage. On a side note if you do OCD out your PIP; you will be tempted to throw out 2008 as an out layer (that will never happen again), don't do it every year counts and 2008's happen.

That's my purely financial input, but again a lot more goes into this decision then finance - $1,000 will have an impact on your quality of life. $1,000 a month will change how frivolous you are with hobbies, entertainment, travel etc.. all of which will have a impact on how much you enjoy your retirement. You will get bored at starring at the TV and TSPTalk (sorry tom). My point is financially do what is going to make you the most money, BUT ULTIMATELY DO WHAT IS GOING TO MAKE YOU HAPPY!!!!

 

[clester]

I think it's a gamble to pull the money out. You lose some flexibility. You may need cash at some point and it would be locked up in your house. You have a good interest rate, so if anything I would just try to pay a little extra each month.

I thought about something like this just to get it out of the TSP or stock market. The taxes and penalties would be huge.

 

[nasa1974]

stoplight, I wouldn't do it. Yes you could pay off your mortgage but remember that you will pay taxes on that one time withdrawl. If you leave that $150K in TSP you have a better chance to make more than 3.25% and if you start a monthly withdrawl now from TSP and add that to your current mortgage payment you can pay it off early but still make more than 3.25% and pay less in taxes. So you pay the mortgage off in 10 years. You are still ahead of the game.

 

[Kaufmanrider]

Ultimately, it is a personal decision. Lot's of good responses so far. Personally, I have floated the idea of cashing in my TSP (I'd also pay the 10% early withdrawal penalty) and use the cash to buy some land. The question for me is would I have more spendable income with our without a mortgage payment (and with 72T payments and without).

Again, the decision is yours. But as suggested, think it over for a few days, do the math a few times, discuss with the spouse. Make your decision and don't look back.

Good luck.

So here's my question : Should I take ~$180K out of my mid-six figure TSP balance and pay off my current mortgage, or leave the money in the retirement account and pay the monthly mortgage expense ($1,068) for the next 15 years ? Should I stagger that over a few years, to avoid getting in to a high tax bracket ?

Relevant facts :

Current mortgage balance is ~$150 K ; I assume I'll need to pull enough to pay the income taxes on the "income", thus the $180 K number

Mortgage terms are 3.25% ; 15 years (refinanced in Jan '12)

Crunching the numbers, this seems like a real "no-brainer"...

- I pay off the house, and it's mine forever ! (no idea where the real estate values and the economy are going from here !)
- I don't pay enough interest now to make it worth itemizing my tax deduction
- If we run out of money down the road, do a reverse mortgage or home equity loan

HOWEVER ! I'm too Old School...I still have this nagging issue with pulling that much out of our retirement nest egg...this is money that can never be replaced, now that we're both retired !

So any and all opinions are appreciated !


Stoplight...

 

[PessOptimist]

As stated it is a personal decision.

Some experiences about paying off a mortgage. I will pay mine off later this year. I asked a few questions of my lender and it turns out that even if your balance is $0 you still have to apply to pay off the mortgage. Fees may apply. Once you have been given permission to pay it off, you have to ask for a new title deed from the mortgage company and file it with your county or other local entity.

Failure to apply to pay off the mortgage may lead to forclosure. Failure to get a clear title deed may lead to not being able to sell the place.

My parents did the traditional "burn the mortgage" thing when they paid the house off. Later when Dad went to sell it turned out he didn't own the place, the bank still did. It took several months to get that straightened out. Fees did apply.

 

[Stoplight]

Thanks to All for taking the time to offer up your thoughts ! So far, tallying the votes, there's not a lot of support for paying off the mortgage, but there are a lot of "It Depends !" votes ! That pretty much mimics the debate going on in my brain, but y'all have stated the facts to consider much more eloquently than the debate in my brain ! Many Thanks to you all for weighing in !


Mayday

I'm not talking about a loan from my TSP...I can start taking my balance out now ! BUT...gotta figure the HOW to withdraw the balance that makes the most sense in accomplishing my goals, and minimizing taxes !


ILove TDs

Excellent analysis !!! I'm not very good as a stock manager, though...so far, the Wife's IRA has lost .20 % in cash value, but that doesn't include the dividends that her stocks have paid...

In any case, you're dead on with "ULTIMATELY DO WHAT IS GOING TO MAKE YOU HAPPY!!!!"...that's the bottom line, isn't it ?


Clester

"You lose some flexibility" struck home ! I'd be trading a fairly liquid investment that I can hit more or less as needed for a fixed investment that would take some doing (and cost !) to access the cash...

Nasa1974

The tax implications of taking that big a chunk from my TSP bothers me, too ! Spreading it out over the next few years reduces the yearly tax burden, but does it make sense to spread it out, or just bite the bullet and take it all at once ?

Kaufmanrider

Another good contribution from you !

PessOptimist

Thanks for some other tidbits to consider...the fees associated with paying off/closing out a mortgage


It's interesting to see there are no outright "Yes, pay it off !" votes...that's what the pure $$ numbers seem to recommend ! Just proves that a decision like this is more than the dollars and cents ! But, so many variables are based in the "What If's" ! That tracks with the debate going on in my mind, too...

There's no hurry to make a decision, so I'll take all y'alls advice and think about my options some more...reminds me of the Tech I worked with before I retired...he called situations like this : "Mullin' material" ! I guess I got some "mullin' " to do !

Again...many thanks to ALL !


Stoplight...

 

[PessOptimist]

Thinking some about this. My comment so far was just that when you pay it off it ain't really paid off, fees be damned.

FWIW, we left it alone, at 6.35%, and paid LOTS of extra principal. Assuming your mortgage allows that. We effectively turned our 30 year mortgage in to a 14 year mortgage. That may be a way for you. Take whatever you tax situation can handle out of TSP and pay down principal.

Another unexpected thing that happened in our case. We had some storm damage to our roof. The insurance company sent a contractor and a check for the work, made out to ourselves and the mortgage company. This puts another layer of bureaucracy in the mix but also puts another inspection in place. Contractors around here are not known for the quality of their work. Nor for their hiring practices.

For what it's worth I vote for making extra principal payments. You may find you can do it and not touch the TSP.

Yeah, I know owning the house is cool. I am looking forward to it.

PO

 

[fireman1953]

I am looking at a similar decision in the next 2 years. I plan to retire at the end of next year and am debating on whether or not to withdraw enough to pay off my mortgage. But my numbers are much smaller. My mortgage is 6.45% but will only have a balance of $30,000 for another 4 years (at retirement). The payments run about $790 a month. I will start withdrawing from the TSP once I retire (my choice), so that would be that much less I would have to take each month and then I plan to reduce it further when I start drawing full SS.

 

[Stoplight]

That may be a way for you. Take whatever you tax situation can handle out of TSP and pay down principal.

For what it's worth I vote for making extra principal payments. You may find you can do it and not touch the TSP.

Yeah, I know owning the house is cool. I am looking forward to it.

PO

Thanks, PO ! Thinking about it, you've nailed 2 of the points that keep floating to the top for me...I don't have to pay it all off at once, and thus avoid a big tax hit on a one-time withdrawal; and owning the house is cool

At this early stage of retirement, I'm not sure how my retirement income vs expenses is going to track...I need for my basic pension to get resolved and stabilize before I can do any serious look at whether or not I can make extra mortgage principal payments and NOT touch my TSP (or the Wife's IRA)....it's frustrating !

The big issue for me becomes "how to I withdraw/rollover my TSP ?" I'd really like to have more control over where my money is invested than the TSP offers, so I really want to roll everything out of TSP and in to something more "flexible". That includes the withdrawal options...I don't want to be locked into monthly payments ; I want to tap my funds as needed, and in the amount needed, and pay the appropriate taxes on that amount ! If I don't NEED any of my TSP funds in any given month, then I don't want to withdraw any of them ! Seems like the TSP withdrawal options aren't really set up for that kind of flexibility...


Stoplight...

 

[PessOptimist]

Please disregard anything I may have said about the insurance claim. It is turning out to be a Bureaucratic nightmare.

We are paying off the mortgage early to get out from under that part of it. The rest of it includes a large check from the insurance company and requests from the contractor to sign said check over on a promise to maybe do the work. Caveat Emptor? More later in another thread.

 

[Sensei]

I just got my annual letter from the county assessor, telling me that my condo in LA is worth 5% less this year than it was last year. This has been going on since the worm turned in 2008. I've owned the place since 2004, and have a tenant/friend paying me almost as much in rent as I pay in mortgage and HOA each month. So I'm not in too much of a bind. I never looked at the place as a long term investment - thought I'd sell it within 5 years. I guess as long as my friend is renting the place, I'll sit pat.

Any reason anyone can think of to pay down the principal early? I don't have a lot of expendable income - pretty much investing what I don't spend each month in TSP, stocks, and education savings accounts for my two kids. I could probably throw an extra hundred a month at the principal, but would I really see a difference in the long run, or would that extra Benjamin serve me better DCA'ing into dividend stocks?

 

[KneednDough]

Hey Sensei,
$100 a month doesn't sound like it would do much, but over the life of the loan it would put a sizeable dent in the amount of interest you paid over the life of the loan. All depending on how much you owe, interest rate, etc. of course.

I have been considering refinancing my home and found an awesome calculator that you can apply an additional principal payment each month, one time, or annually. It will show how much you paid in imterest, and breaks it down month by month. Check it out and play with the numbers.
Www.bankrate.com

 

[alevin]

Once you have been given permission to pay it [mortgage] off, you have to ask for a new title deed from the mortgage company and file it with your county or other local entity.

Failure to apply to pay off the mortgage may lead to forclosure. Failure to get a clear title deed may lead to not being able to sell the place.

My parents did the traditional "burn the mortgage" thing when they paid the house off. Later when Dad went to sell it turned out he didn't own the place, the bank still did. It took several months to get that straightened out. Fees did apply.

Hi PO, mortgage company filed release of mortgage lien with the county after I received permission to pay off and paid filing fees to mortgage company.

Mortgage company didn't say anything about me needing to have them send me new title deed to file with county to show my full clear title to property. What steps did your dad have to take to get new title deed from the mortgage company?

 

[goforit]

heres a question i have been asking myself but can't come up with good reasons only bad. should i after i pay off my current TSP o

 

[goforit]

heres a question i have been asking myself but can't come up with good reasons only bad. should i after i pay off my current TSP o

ok try this again i have 60k left on 4.75% loan retire 55 house paid off 54 i am 48 now. i have 300k +/- 25k in TSP my payment on loan is 1300. lo9ans today interest from TSP 1.75-2% my mind is thinking of cash flow in as oppose to out. and when i retire IF the loan is not paid off i can always call it a lump sum. what do you think

 

[SkyPilot]

Is the 4.75 fixed or ARM? If it is fixed, I would be inclined to pay it off according to schedule. That is pretty cheap money, and leaves your investments free to beat that rate pretty easily. In any case, you seem to be doing pretty well, and the enemy of "Good" is often "Perfection"...

 

[Frixxxx]

Is the 4.75 fixed or ARM? If it is fixed, I would be inclined to pay it off according to schedule. That is pretty cheap money, and leaves your investments free to beat that rate pretty easily. In any case, you seem to be doing pretty well, and the enemy of "Good" is often "Perfection"...

Remember your principal on the loan is what your paying most of now. If you can, get a schedule to see how your payments are balanced. You get a tax break on all interest. But less money working or your retirement to pay off your house doesn't really add up. Even if you have only eight years left, you could double your TSP in that time rather than just dealing with a fixed asset, which probably is underwater or close to value.