I will have an unexpected "windfall" of $95,000 come my way in a few weeks (from a bond that was called.) I have a $182,000 mortgage (for another 20 years) which cost $1200/mo. (House might be worth $600K on good day... used to be worth about $800K!) We're comfortable with the monthly payment and we don't have any need for the bond money (since it was unexpected.) We have no other debt. I also can't think of anything to invest it in right now. (Yeah, I could buy more stocks at bargain prices... but I've already done that and have all the market risk I want at age 60.)
Is there a good argument for using this money and paying down our mortgage? We'd like to sell out and move in the next five years... probably to New York (City) or somewhere on the East coast if possible. Or would you suggest an annuity? Or what would you suggest?
I figure there are some excellent financial minds here so why not ask?
I will have an unexpected "windfall" of $95,000 come my way in a few weeks (from a bond that was called.) I have a $182,000 mortgage (for another 20 years) which cost $1200/mo. (House might be worth $600K on good day... used to be worth about $800K!) We're comfortable with the monthly payment and we don't have any need for the bond money (since it was unexpected.) We have no other debt. I also can't think of anything to invest it in right now. (Yeah, I could buy more stocks at bargain prices... but I've already done that and have all the market risk I want at age 60.)
Is there a good argument for using this money and paying down our mortgage? We'd like to sell out and move in the next five years... probably to New York (City) or somewhere on the East coast if possible. Or would you suggest an annuity? Or what would you suggest?
I figure there are some excellent financial minds here so why not ask?
Thanks,
Al
I would only make this decision if you believe that home prices have fallen as much as they can in Northern California. I would wait until the current financial crisis is over or at least stabilized and until after election, because then you will know if the market has reached a bottom or not. So wait a few months and evaluate is my advice.
You should only invest the money if you feel that investing it will yield a greater ROI than the expected appreciation of your home
You already stated it in your post: Your home "used" to be worth $800k, and now you think it's worth $600k. Equity in a home earns zero rate of return. You should have the largest mortgage you can afford for the longest period of time possible, and maximize the tax benefits of having such (although right now you're kind of stuck, until you move). Keep your money safe.
Besides, property values are expected to drop in the NYC area because of the financial market pressure. You may decide to "get in" to a piece of property in advance, and use the income stream from renting it out to offset a mortgage.
The only factor you left out was what interest are you currently paying on your mortgage?
Oh yeah. I forgot. It's 6.5% fixed for 30 years with about 19 left to go (I think... my wife pays the bills. I get a generous allowance for Gin, Jack Daniels, Heiniken, computer stuff, books, CDs, an occasional lottery ticket, and my somewhat expensive mistress.)
Al
(OK, so I lied about the mistress. It's still a good idea... works well in French marriages (in France, that is.))
Oh yeah. I forgot. It's 6.5% fixed for 30 years with about 19 left to go (I think... my wife pays the bills. I get a generous allowance for Gin, Jack Daniels, Heiniken, computer stuff, books, CDs, an occasional lottery ticket, and my somewhat expensive mistress.)
Al
(OK, so I lied about the mistress. It's still a good idea... works well in French marriages (in France, that is.))
You will not beat that after taxes by investing . However If you havent maxed out you sep IRA or 401 k each year they max around 45k a year depending on your income you may be able to do better than 6.5% because of the tax deferral.
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Do you have a sep IRA or a 401k plan?>
Last edited by Paradigm : 09-28-2008 at 02:45 PM.
Reason: Automerged Doublepost
You will not beat that after taxes by investing . However If you havent maxed out you sep IRA or 401 k each year they max around 45k a year depending on your income you may be able to do better than 6.5% because of the tax deferral.
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Do you have a sep IRA or a 401k plan?>
Would recommend against this. If you don't like my reco #1, then save the money so you can do a Roth conversion of taxable assets (IRAs, 401(k)s, etc.) in 2010, and use the "windfall" to pay the taxes when due.
How liquid are you? Putting the money into the house means getting out means either selling or line of credit.. both have a cost.
Do you need the money now? couple different things come to mind, tax exempt bonds or an immediate annuity if you need it now, maybe a combo of both.
If you can wait, what about a Roth/Sep/simple in combination? All are low cost to admin and you could establish them to minimize your tax impact.
It's just gonna depend on what you need the money to do and how soon?
Liquidity is not an issue. I have enough quick cash for an emergency. A Roth is good, but it's only a few grand a year, like an IRA. I don't have a SEP but that is a possibility I suppose.
I don't know what I'll do (probably nothing in the near term except a CD to Treasury) but you folks did a good job in talking me down from paying off half the house. I keep telling my very expensive wife that the house is a tax deduction... but she sees an extra, say $600 a month of "income" if we could pay down half the house and then re-fi at a good rate. But it seems like a lot of trouble just to "make" $600 a month. Our income is fine for our needs at our age. We don't buy stuff... we're trying to get RID of stuff.
One thing I'm happy about is that I don't have any WaMu bonds. A relative of mine had a $50,000 bond... and lost it all last week as Chase would not assume the debt of the bank and the bond was not insured. I always thought that when one bank bought another it had to assume the prefered debt... which are bonds (as opposed to common stock.) Not true, obviously.
She want's a "bailout" too! However over the past 4 years she got a good return on the bonds... but not enough to match her principal. The bonds are in her IRA so she can't write off the loss (so she tells me.)
Thanks for the good advice. As the old saying goes... "May you live in interesting times." Do we have that... or what? !!!
There is only one bright side to all of this. I find the golf courses are less crowded. (And you folks say I'm not a capitalist!!!!!!!!!!!!!!!)
I did not find this on my own, regretfully, I cannot remember the name of the poster who did find it. However, it was someone from this board or its predecessor.
The context of the original link (which again, I got here or at the predecessor site) was Buy Term Invest The Difference. He was on the side of whole life, coupled with stocks and bonds, a well-rounded financial holding. (I kinow insurance is not an investment so I am trying to dance around with my choice of words).
I did not find this on my own, regretfully, I cannot remember the name of the poster who did find it. However, it was someone from this board or its predecessor.
The context of the original link (which again, I got here or at the predecessor site) was Buy Term Invest The Difference. He was on the side of whole life, coupled with stocks and bonds, a well-rounded financial holding. (I kinow insurance is not an investment so I am trying to dance around with my choice of words).
No, how that publication was promoted was from Doug Andrew/Missed Fortune types. It is not BTID. It does talk about the fact that home equity has a zero rate of return, and compares against alternatives. A good report for Al to read, though!
No, how that publication was promoted was from Doug Andrew/Missed Fortune types. It is not BTID. It does talk about the fact that home equity has a zero rate of return, and compares against alternatives. A good report for Al to read, though!
The original poster from whom I obtained it (by viewing it in a post) used it in the context in which I stated.
I prefer to COLLECT INTEREST vs. Pay interest. If you prefer this you should pay the house down and off. The reason you get tax deductible benefits of a mortgage are because you are paying someone else interest.
I will have an unexpected "windfall" of $95,000 come my way in a few weeks (from a bond that was called.) I have a $182,000 mortgage (for another 20 years) which cost $1200/mo. (House might be worth $600K on good day... used to be worth about $800K!) We're comfortable with the monthly payment and we don't have any need for the bond money (since it was unexpected.) We have no other debt. I also can't think of anything to invest it in right now. (Yeah, I could buy more stocks at bargain prices... but I've already done that and have all the market risk I want at age 60.)
Is there a good argument for using this money and paying down our mortgage? We'd like to sell out and move in the next five years... probably to New York (City) or somewhere on the East coast if possible. Or would you suggest an annuity? Or what would you suggest?
I figure there are some excellent financial minds here so why not ask?
Thanks,
Al
Al, I gather you are 60 from your post. I am 65. I wish I had listened to the advice many gave me when I was your age or younger: enter retirement with your house paid off if at all possible.
I was riding high (about 35,000 feet!) fat, dumb, and happy, when I retired. I had a small fortune in my 401(k)... that was BEFORE 9/11/01. As a matter of fact, it was March of 2000. I could not have retired at a worse time. I got the triple whammy of the dot.com bubble burst, the Wall Street debacle (Enron, WorldComm, hedge fund manager scandals, etc. etc. etc.), and THEN the WTC terrorist attack. My exposure was too much... credit cards, home equity loan to remodel, motorhome, race car, too many other toys to mention.
I envy your wise approach. Yes, start liquidating "stuff" as you say, and if you have any lien against your home, pay it off first, then reduce your home mortgage. You indicate you have no other debt... great!
Plan for the worst and hope for the best! I am not a doom-er, but the present national economy just may yield a severe recession, if not a depression-like era. Think how you may have to live if worst comes to worst. You sell insurance... why? to protect against calamity! Protect your assets against the worst calamity you can think of and THEN, AND ONLY THEN invest the rest.
May God bless you.
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To be truly independent, an agent should not be dependent on a government bureaucrat for contracts or commissions.
Left out that you are saving a guaranteed 6.5%on $95K. If you do an amortization of 182K for 20 years over the next 5 years you will pay Roughy $55,188 In Interest. On 95K you will pay $28,807. SO by refinancing your mortgage to 95K you have a guaranteed return of $27,500 on your investment. NO BRAINER! no other place you can get that Rate of return guaranteed.
The value of your house is irrelevant, only look at what you are paying in interest, sorry MR. Bill give us some numbers to back up your statements, your advice is not very good.
left out that you are saving a guaranteed 6.5%on $95K. If you do an amortization of 182K for 20 years over the next 5 years you will pay Roughy $55,188 In Interest. On 95K you will pay $28,807. SO by refinancing your mortgage to 95K you have a guaranteed return of $27,500 on your investment. NO BRAINER! no other place you can get that Rate of return guaranteed.
The value of your house is irrelevant, only look at what you are paying in interest, sorry MR. Bill give us some numbers to back up your statements, your advice is not very good.
I agree, especially with the statement that the value of the house being irrelevant. However, if his outstanding mortgage is $182,000, and he uses the $95,000 to reduce that mortgage, the remaining balance would be $87,000.
Now recalculate the ROI.
The main point is what I said earlier: protect your home. What happened in the '30s was that home values plunged below the mortgage value, and without an income to make the payments, the banks foreclosed. The more foreclosures, the lower the market value of the remaining homes. It is the MORTGAGE that is the issue, not the value of the house. In a global recession, it is quite likely that your home's market value will drop dramatically, but your mortgage won't. If you can weather a recession without outside income, this is not a problem... but if you need income to make mortgage payments, you are at the mercy of the bank you have your mortgage with. Here is where fortunes are made and lost. Bankers have the upper hand, and that's where the money ends up.
Last edited by retread : 09-28-2008 at 08:21 PM.
Reason: addification
Pay down the house?
(And you folks say I'm not a capitalist!!!!!!!!!!!!!!!)
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