Author Topic: Hit my FI number, NOW can I pay off the mortgage??  (Read 1855 times)

4tify

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Hit my FI number, NOW can I pay off the mortgage??
« on: February 22, 2020, 10:31:44 AM »
I'm just on the cusp of hitting my FI number, which if I were to quit working now includes continuing to make monthly mortgage payments. I'm in a HCOL area & so have always invested rather than pay down the mortgage early (as seems to be generally advised by the FI community). I'm not 100% ready to quit working, so in the meantime as I surpass my FI number, I'm wondering if it wouldn't be a good next goal to pay off the mortgage (or a big chunk of it until I do pull the trigger and then possibly refinance to cut monthly payment??).

Here's the breakdown:

NW $1.65M
Outstanding mortgage: $425k, @ 3.375%
Monthly mortgage & HOA (could always go up!): $2752
All other expenses: $2748

I feel I can live comfortably on this, but if I eliminate the mortgage entirely I'd be just that more flush & able to cut my withdrawal rate almost in half.

Thoughts??

former player

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #1 on: February 22, 2020, 10:50:57 AM »
Congratulations on getting to FI.

The thing about being FI is that you have choices.  You can stop working, or you can continue working and invest/pay down your mortgage/give to charity/make political donations/etc/etc.

Personally I FIREd with a small mortgage but paying it off has been great for peace of mind and means that if necessary I could live on a very limited income indeed.  Don't discount your personal feelings in this - you have earned and invested your way to being able to give them priority.

terran

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #2 on: February 22, 2020, 12:01:09 PM »
You CAN do whatever you want. You won't be kicked out of the club even if you make a mathematically suboptimal decision as long as you know it's suboptimal and decide it's still worth it emotionally. And with the current healthcare landscape it might not even be suboptimal. You'd have to do the math, but if you can reduce your spend and necessary withdrawals by paying off the mortgage you might end up better off by the improved ACA subsidies you could be eligible for.

4tify

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #3 on: February 23, 2020, 05:31:11 PM »
You CAN do whatever you want. You won't be kicked out of the club even if you make a mathematically suboptimal decision as long as you know it's suboptimal and decide it's still worth it emotionally. And with the current healthcare landscape it might not even be suboptimal. You'd have to do the math, but if you can reduce your spend and necessary withdrawals by paying off the mortgage you might end up better off by the improved ACA subsidies you could be eligible for.

Thanks this is a part of what I'm thinking about as well, which I forgot to mention.

Appreciate everyone's feedback!

FIRE 20/20

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #4 on: February 24, 2020, 06:41:35 AM »
When I did the math on my situation, paying off the mortgage after FIRE was a better option because of ACA costs plus federal taxes plus state taxes.  Not having a mortgage reduced my annual spending enough that all of those things became much less expensive.  That drop was more than I could reasonably expect from market returns.  I worry that in a few years the health insurance cost situation will change and it will become suboptimal again, but for my situation right now the best option is to reduce expenses because those drive the income I need to generate which drives up taxes plus ACA costs plus state income taxes.

WSUCoug1994

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #5 on: February 24, 2020, 09:36:24 AM »
I know that this can be a tense subject around here and I understand both sides of the equation but I found this article helpful

https://earlyretirementnow.com/2017/10/11/the-ultimate-guide-to-safe-withdrawal-rates-part-21-mortgage-in-retirement/

BlueHouse

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #6 on: February 26, 2020, 11:30:22 AM »
Gosh I hope you're still in the same situation as when you started this thread, @tmitchell   On 2/22, I also had just met a major milestone (lots of zeroes and commas).  But this week sent me back to the minor leagues again.  I woke up this morning thinking "Gosh, I wish I had paid off my house!"  oh well. 

One thing I did a few years ago was a free "recast" of the mortgage.  You pay down the mortgage and then have the bank re-amortize the loan.  Everything stays the same (interest rate, length of loan, etc) except the payment decreases.  This allowed me to pay down a significant amount of my mortgage so I'm no longer freaked out by my monthly payment and still keep the 30 year term to take advantage of the low fixed interest rate.  Now my mortgage payment is manageable even if I retire or lose my income. 

If the amount is what's bothering, maybe you should look into recasting (most banks allow everyone to recast one time for free). 


4tify

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #7 on: February 29, 2020, 07:23:40 AM »
Gosh I hope you're still in the same situation as when you started this thread, @tmitchell   On 2/22, I also had just met a major milestone (lots of zeroes and commas).  But this week sent me back to the minor leagues again.  I woke up this morning thinking "Gosh, I wish I had paid off my house!"  oh well. 

One thing I did a few years ago was a free "recast" of the mortgage.  You pay down the mortgage and then have the bank re-amortize the loan.  Everything stays the same (interest rate, length of loan, etc) except the payment decreases.  This allowed me to pay down a significant amount of my mortgage so I'm no longer freaked out by my monthly payment and still keep the 30 year term to take advantage of the low fixed interest rate.  Now my mortgage payment is manageable even if I retire or lose my income. 

If the amount is what's bothering, maybe you should look into recasting (most banks allow everyone to recast one time for free).

That's really interesting. I've never heard of "recasting" but I'll look into it, thank you @BlueHouse

Retire-Canada

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #8 on: March 03, 2020, 06:22:58 AM »
I'm about to FIRE at ~4%WR. I will re-amortize my ~$300K mortgage from its current 15 years left to 25 years. This lowers the monthly payment significantly which is nice for cash flow purposes. I am in no hurry to pay the loan off. If the markets were kind and I got down to a ~3%WR in FIRE I might be inclined to pay off the mortgage in so far as I would have "won" the investing game at that point and taking some of the "winnings" off the table could make sense. I might also not bother as I do like having the liquid $$ more than the idea of being mortgage free, but at ~3%WR it would end up being whatever I was feeling at the time when I made the decision. I don't see a wrong answer at that point.

If you are FI, continuing to work and want to pay off your mortgage I don't think that's crazy talk. OTOH if you wanted to keep the mortgage and invest the $$ instead that would be a fine option as well. You don't really benefit from paying down a mortgage until it's actually fully paid off so you could put the saved $$ aside for that purpose in as risky an investment as you feel comfortable with and then when you have the full balance available you could pay the loan off in one shot. If were to pay off my mortgage early that's what I would do essentially. That way I keep the liquid $$ as long as possible and generate a return from it until I am ready to be done with the loan.

talltexan

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #9 on: March 03, 2020, 06:54:53 AM »
I cannot help but believe you should recast the mortgage while you still have ample income from a job to report.

use2betrix

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #10 on: March 03, 2020, 07:01:26 AM »
When I did the math on my situation, paying off the mortgage after FIRE was a better option because of ACA costs plus federal taxes plus state taxes.  Not having a mortgage reduced my annual spending enough that all of those things became much less expensive.  That drop was more than I could reasonably expect from market returns.  I worry that in a few years the health insurance cost situation will change and it will become suboptimal again, but for my situation right now the best option is to reduce expenses because those drive the income I need to generate which drives up taxes plus ACA costs plus state income taxes.

This x100. Something that I think a lot of people donít take into consideration. Thatí extra $24k (or however much) someone may need annually for their mortgage can easily kick them right out of the ACA benefits club.

BlueHouse

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Re: Hit my FI number, NOW can I pay off the mortgage??
« Reply #11 on: March 03, 2020, 08:40:31 AM »
I cannot help but believe you should recast the mortgage while you still have ample income from a job to report.

Just my own experience:  Absolutely no paperwork was required on my part other than signing a single document saying "yep, re-work the numbers".  The only requirement is that at least $20K in payments has to have been made at some point, otherwise, there's no point in re-amortizing. 
I'm self-employed, so believe me, I know when someone's trying to check my employment status. 

My understanding of re-casts is that most banks offer ONE free of charge because many people take on a new mortgage before selling their other home, then when the other home closes, they want to roll the proceeds into the new home.   It's what they would have used for a downpayment, had the first home closed first.   So it is in the best interests of the banks to allow this practice, just to keep sales moving easily and so that no one is holding up a chain of sales because their house isn't sold yet.    So I think they intend for a recast to happen within 30-90 days, but I didn't do mine until a couple of years into mine.

I have Wells Fargo as my mortgage loan and they seem to allow unlimited free re-casts, but I think I'm done.  I've reached a payment that I'm comfortable with.