Author Topic: Please convince me to keep my mortgage.  (Read 5627 times)

Unique User

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Re: Please convince me to keep my mortgage.
« Reply #50 on: April 27, 2019, 07:07:49 AM »
I'd sell the rental and pay off my mortgage for the ACA reason and because tenants drive me crazy.  I'd add the note of caution about the FAFSA also.  My daughter is graduating high school this year and even kids she knows that come from families with few assets/income don't get much.  That said, the presentation at Duke had a slide that said - families with less than $60k in income pay zero for Duke.  Anecdotally, it seems like really high achieving kids seem to get great deals from state schools or small private schools regardless of the FAFSA.  We know of one kid that got a perfect ACT score that is going to Alabama, she is getting free tuition for four years and I think free room & board for two.  Another got into MIT, but got substantial dollars from Virginia Tech so is going there.   

brooklynguy

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Re: Please convince me to keep my mortgage.
« Reply #51 on: April 27, 2019, 08:25:48 AM »
The ACA subsidies:  My family of five would qualify for between $5k and $10k per year of ACA subsidy by reducing our annual income by $23k.

Sol, you and I have been through this several times over the years, but I feel compelled to once again point out that, contrary to a popular mistaken belief on these boards (and perhaps an implication of your OP?), retaining your mortgage loan does not necessarily require you to show additional income in an amount equal to the required loan payments on a dollar-for-dollar basis.

The additional subsidy is also cash that they wouldn't have to withdraw anymore. Reducing your yearly cashflow by $28k-$33k while also reducing your yearly income by $23k sounds like a pretty believable scenario to me.

My reading of the OP in its entirety is that $23k constitutes the total annual required payments (principal + interest) on the primary mortgage loan, with the calculus working as follows:  paying off the primary mortgage loan eliminates $23k of expenditures from the cash flow, which translates into a reduction in paper income by $23k (by reducing the need for annual Roth IRA rollovers by $23k), which results in higher ACA subsidies.

mavendrill

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Re: Please convince me to keep my mortgage.
« Reply #52 on: April 27, 2019, 09:56:03 AM »
A few things on FAFSA because some people here seem confused:

FAFSA looks at income and assets to determine efc (expected family contribution): amount x.  Then schools /feds take cost of attendance and subtract x.  This is what they consider demonstrated need.  They will try to meet this need.  If your income is low enough to qualify, pell grants will be the first thing used (but these are pretty small).  Then will come Stafford loans.  Then some combination of plus loans (parent loans), work study, grants, scholarships, and creative loans.

Except at extremely rich schools, almost no one gets offered need based aid that doesn't have loans.  Cutting your fafsa determined efc is still potentially a huge benefit because:
If your efc is huge, you might get no offers
If your efc is tiny, you will get pell grants
If your efc is small or tiny, you will have a better chance of getting work study, grants, or scholarships.

No matter what (unless the school has a policy against it because of a huge endowment), need based aid will always include loans. 

To the OP:
It was mentioned, but FAFSA uses last full year's income and current assets. So if your child is a junior now, the sale of a property will appear as a huge income spike in your assets, and push your efc for their freshman year into the stratosphere.  (Potentially - it gets pretty complicated, so I'd hire an accountant who has expertise in the FAFSA  to discuss this situation AND it's impact on your taxes/FAFSA before pursuing it, if your eldest is a junior or senior).  If they are a sophomore or freshman, then it will work for you as you desire.

mavendrill

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Re: Please convince me to keep my mortgage.
« Reply #53 on: April 27, 2019, 10:14:28 AM »
One note to OP:
If FAFSA hacking is desired, and your personal morality is ok with this, one of the most potent FAFSA hacks is marriage.
If your kid gets married you don't count on their FAFSA.
So if you live in a state that allows cheap divorce a separate property in marriage, your taxes won't be disadvantaged by this, and their insurance (s) won't be impacted, a college marriage to a friend can save substantial money.  Obviously... You would want to talk to both lawyer and accountant first, and in many places this just doesn't make sense, and many people have religious objections to getting married for raw monetary reasons.  But the savings potential may be worth it if everything adds up.

seattlecyclone

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Re: Please convince me to keep my mortgage.
« Reply #54 on: April 27, 2019, 01:04:13 PM »
Back to your point, brooklynguy, here's my thinking on the matter.

You're right that an increase in withdrawals will not necessarily correspond 1:1 with an increase in income. Existing post-tax savings like cost basis in a taxable account and Roth basis will be freely withdrawable and will not count as income. The amount of such freely withdrawable cash is finite. To get more, you generally have to realize a corresponding amount of income. If I want to plan on getting ACA subsidies for years to come, I don't want to exhaust all my basis early on in FIRE keeping my income at an unsustainably low level. Instead I probably want to spread these tax-free withdrawals out pretty evenly until ACA subsidies are no longer a consideration (i.e. old enough for Medicare, or a significant change happens in the law).

Here are some rough numbers of where I'm at.
Taxable basis: ~$900k
Roth basis: ~$400k (hooray mega backdoor)
Mortgage balance: ~$550k
Spending (exclusive of health care, income tax, and mortgage): ~$50k/year
Mortgage payments (principal + interest): ~$35k/year

We have existing basis of ~$1.3M, and that needs to last the next 25 years until our Roth earnings also transform into freely withdrawable cash. This gives us the ability to sustain an income of $52k less than our outgoing cash flow for the next 25 years. With spending and mortgage of $85k, that implies an income of $33k prior to health care.

What if we sold some taxable stock to wipe out the mortgage? In our case this would mean eliminating around half of our taxable basis, bringing our total basis down to around $850k.  Divide that by 25 years and we can sustain income $34k less than our spending, or $16k prior to health care.

Paying off the mortgage eliminates the need for $35k of cash flow and reduces our income by $17k at first glance.

This isn't quite the whole story though. This $16k income if we remove the mortgage doesn't really seem achievable for a few reasons. First, the taxable account is going to throw off some dividends, perhaps $25k if we keep the mortgage and $15k if we don't. That sort of acts as a floor on our income. Then if we want to actually access our taxable basis we're going to need to realize some amount of capital gains income. Plus I'd be surprised if we never earn another cent from working ever, so that's more potential income. In short, the $33k number might be pretty achievable most years if we keep the mortgage, but there's no real way we're getting down to $16k by paying off the house. Therefore the reduction in income from paying off the house will be even less than the $17k number I calculated above.

That's okay though! My main income goal for the ACA is to stay under 200% of the poverty level (roughly $50k for our family of four). This will get us some pretty nice cost sharing subsidies, and premiums are already pretty reasonable at this level. Going from $50k to $35k would get us an additional ~$2,000 in annual premium subsidies, plus potential out-of-pocket costs would go down by a similar amount. That's not an insignificant amount of money, but I'm pretty comfortable with the costs anywhere in that income range. Get much below $35k and we'd be in Medicaid territory, which I have mixed feelings about.

Looking through all this I'm becoming a bit more inclined to keep the mortgage in our situation. Losing it won't change our income by a huge amount, I think we (over)saved enough that we're unlikely to run out of money even if we keep the mortgage and 2008 happens again, and keeping the mortgage seems like it will lead to a higher expected value in wealth down the road. Not that we need more money, but having it might open up some interesting charitable and/or investment opportunities that could be pretty rewarding to pursue.

brooklynguy

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Re: Please convince me to keep my mortgage.
« Reply #55 on: April 27, 2019, 05:00:16 PM »
Seattle, your thinking aligns with mine, and your rough numbers are pretty similar to my own, except that my spending is lower and is largely offset by a stream of rental income (which, for the time being, generates almost no paper income due to large depreciation deductions).  So I have the opposite problem of having to artificially generate enough paper income to avoid falling under the Medicaid threshold, which means that having the bit of extra income due to retaining my mortgage loan (and the corresponding investment assets) is actually helpful in my situation.  (Having foreseen that this would be an issue in retirement, in my last few years of working I chose to forgo the mega backdoor Roth in order to load up on extra taxable investments for the extra dividend income and ammunition for generating capital gains as needed.)

sol

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Re: Please convince me to keep my mortgage.
« Reply #56 on: April 27, 2019, 11:14:03 PM »
Isn't that a moot point unless the house appreciation is over 500k for a married couple? That's one heck of a capital gain.

In my case the house in question is a rental, so there is no capital gain exclusion.

If you woke up tomorrow with no mortgage, and someone offered you a $200k loan on the exact same terms (rate, duration, etc) as your current mortgage, would you take it?

I would seriously consider it, unless that loan came with the very weird and probably illegal caveat of the lender having the power to make you homeless if you miss a loan payment.  Mortgages are not like regular loans, because they are secured by your literal shelter from the elements.  It's like putting a kidney up as collateral. 

Along those lines, any chance you'd be willing to move into one of the rentals and sell your current house instead?

No chance, sadly.  It's a good idea, if I were merely optimizing for dollars, but there are very many other moving parts to consider and relocating my family is not on the agenda.
« Last Edit: April 27, 2019, 11:20:30 PM by sol »

sol

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Re: Please convince me to keep my mortgage.
« Reply #57 on: April 27, 2019, 11:18:50 PM »
Are you sure your little one(s) are going to schools that only require a FAFSA and not the CSS?

Nothing is for sure, but that seems very likely at this point.

getting under the 50k mark will mean more federal loans being available not free money.

Federal loans are still free money.  0% interest for as long as you're a student?  Yes please.

Also, the FAFSA is based on your income during your kid's junior year, so consider that in the timing.

I am acutely aware of the timing requirements, as I've had a spreadsheet that plots all of this out since oldest was about five.  He's currently a sophomore.  Hence the desire to sell the rental this year.

sol

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Re: Please convince me to keep my mortgage.
« Reply #58 on: April 27, 2019, 11:42:37 PM »
My recommendation is take as large of a loan against the equity in your investment as you can and use that to pay off your mortgage.  You will start showing less everywhere.

Several of you have suggested this course, and I can kind of see the attraction.  We have about $200k in extractable equity and we have about $200k left on the mortgage, so we could theoretically do a cash out refi back to 80% and still pocket $120k while increasing our monthly mortgage payment by enough to start showing losses on our schedule E.  Unfortunately, the $120k wouldn't clear our primary mortgage so then I'd be stuck making my full current mortgage payments AND the the new higher rental mortgage payment, and would be even more exposed to a potential downturn in the local housing market than we are already.  I would effectively be leveraging up, not down.

Part of my motivation for selling is to reduce the number of different kinds of risks that can still sink my plan.  My partner is more risk averse than I am, and she's keen to be rid of the mortgage and be rid of the rental.  She sees that has a win-win scenario, even if it's unclear if that would be a good financial move or not, because it removes the headache of being a landlord (which is mostly my headache rather than hers), and it cashes in on recent appreciation which is sufficient for our needs while foregoing future appreciation that might be stellar but that we don't really need anymore.  It's a risk-reduction move, taking the W and cashing in while you can.  Take the sure victory, right? 

Enigma's suggestion feels like doubling down after you've already won.  Even if you've got good odds, why bet it all when you don't have to?

sol

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Re: Please convince me to keep my mortgage.
« Reply #59 on: April 28, 2019, 12:03:37 AM »
Back to your point, brooklynguy, here's my thinking on the matter.

You're right that an increase in withdrawals will not necessarily correspond 1:1 with an increase in income.

Brooklynguy is definitely right, in the short term.  Because we have a variety of different retirement and non-retirement accounts, we have the ability to artificially manipulate our income in any given year.  We could probably live entirely off of savings for a year or more and show no income at all, regardless of what we do with this rental house.

But that's not a long term solution.  My three kids are so spaced out that I'm expecting to fill out the FAFSA for eleven out of fourteen consecutive years, starting in 2020 with a seven year stretch of doing it every year.  I can't suppress my rollover income forever.

And bg's advice to sell or refi the rental and then hold the money to make mortgage payments with doesn't help me with shielding assets from FAFSA.  As far as I can tell, only stashing it in the equity of my primary residence hides it from the FAFSA.  Anywhere else that I hold that money, even if it doesn't hurt me for ACA reasons, is going to hurt me on the FAFSA.  And despite six different people above telling me that the FAFSA is worthless because it gives you loans and not grants, the loans that the FAFSA gives you seem infinitely better than the one your mortgage lender gave you.  I would trade those dollar for dollar all day and all night.

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Re: Please convince me to keep my mortgage.
« Reply #60 on: April 28, 2019, 04:50:11 AM »

Part of my motivation for selling is to reduce the number of different kinds of risks that can still sink my plan.  My partner is more risk averse than I am, and she's keen to be rid of the mortgage and be rid of the rental.  She sees that has a win-win scenario, even if it's unclear if that would be a good financial move or not, because it removes the headache of being a landlord (which is mostly my headache rather than hers), and it cashes in on recent appreciation which is sufficient for our needs while foregoing future appreciation that might be stellar but that we don't really need anymore.  It's a risk-reduction move, taking the W and cashing in while you can.  Take the sure victory, right? 


I think this is Mustachianism at its best. Money is being used as a tool for your life, not the other way around. Plus both partners are being thoughtful of each other. I greatly admire your plan. Congratulations also on the deeper accomplishment of evidently living a family life based on thoughtful relationships.

You've got a safe win in hand, plus your partner wants you to do it? Awesome!

bluecollarmusician

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Re: Please convince me to keep my mortgage.
« Reply #61 on: April 28, 2019, 05:25:21 AM »
Hi, @sol

It's interesting to me that no one has mentioned your current low return on equity from the rental.  While I understand it has worked out very well as a speculative investment by the meteoric rise in RE prices, it seems that buying the property at it's value today would not make sense based on the rental return.  I understand that with depreciation, mortgage write-offs, expenses rentals still often work out better than just first blush, but from the look of it you are generating 5k a year on 200k equity (not considering those elements or capital gains.) Paying your mortgage in this case gives you a higher rate of return (guaranteed) and it also meets other goals you are outlining regarding ACA, FAFSA, deleveraging, and potentially giving you a bit more peace of mind.  It looks just like moving from an 80/20 (stock/bonds) mix to a 60/40, or whatever.  It's the sort of thing you would dowhen a bit more stability is more important for your situation rather than maximizing all future gains.

Considering the fact that you own another rental that is exposed to what has been a highly volatile RE market (so far in your favor, congrats!) I think this sounds like a great idea. 

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Re: Please convince me to keep my mortgage.
« Reply #62 on: April 28, 2019, 10:29:21 AM »

getting under the 50k mark will mean more federal loans being available not free money.

Federal loans are still free money.  0% interest for as long as you're a student?  Yes please.

I consider free money the kind you donít have to pay back. :) And being on the flip side of a 6.8% subsidized loan after college definitely feels like it wasnít free. But point taken.

Regardless, only some federal loans are subsidized. Itís also capped: Year 1 $3500; Year 2 $4500; Year 3+ $5500. So at my 6.8% interest rate thatís a saving of $3181 over four years or an average savings of $795 a year. Itís not nothing, but doesn't seem like it will tip the balance in your calculations of whether paying the mortgage saves more money in subsidies. Interest rates for federal loans are now 5.05%, so that makes the subsidy even less valuable. (And to be clear Iím not saying you shouldnít pay off the mortgage, as it sounds like ACA benefits alone might make it a good choice. I just donít think gaming FAFSA is all that beneficial; maybe a pleasant bonus if mortgage free is otherwise the best way to go.)

Keep in mind that you can get unsubsidized federal loans without showing any need, and the total cap for federal direct loans doesnít increase based on need. You can only have a combo of $5500 in fed loans Year 1 whether itís $5500 unsubsidized or $3500 subsidized + $2000 unsubsidized. So if you like the terms of federal loans in general, having need isnít going to get you more of them. I was wrong above since I didnít realize Perkins loans are no longer available.

The exception being if youíre not eligible for parent plus loans, then your kid gets more subsidized direct loans. I got this my last year, once I realized the rule. My parents had filed bankruptcy the year before I went to school and so we never applied for parent plus loans knowing they wouldnít get them and not knowing the rule that their rejection would qualify me for more federal loans. My cousinís father who is on disability, very low income and no assets, successfully applied for parent plus loans. So Iíd be very surprised if you were rejected for parent plus loans and qualified your kid for more sub loans. Seems like your credit has to be completely trashed.

A few years ago, the need based Perkins loans were great, actually low interest, unlike direct loans, and subsidized, although also only available in super low amounts. But that program doesnít exist anymore. All thatís left for federal loans are direct loans. Pell grants, fed loans, work study, none of the programs are as helpful as they used to be in covering tuition compared to say the 90s.

sol

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Re: Please convince me to keep my mortgage.
« Reply #63 on: April 28, 2019, 10:30:21 AM »
It's interesting to me that no one has mentioned your current low return on equity from the rental.

That math is a little fuzzy, right?  It only generates about $5k per year in positive cash deposited into a savings account, but then you really have to account for the mortgage principal being paid down by the renters, which is about another $7k/year.  That is real equity being generated independent of price appreciation.  They're paying down my leveraged debt for me. 

So those two alone get me to roughly 6.0% return on my $200k of extractable equity, which is higher than the mortgage rate on my primary mortgage.  It was previously much higher than that, when I had less equity, but adding $40k/year of equity has dramatically reduced my ROI even though rents have also gone up.

And you're right, the depreciation is another short term benefit.  We showed a relatively small profit of our schedule E last year.  But depreciation recapture is going to sting us upon sale, so the real "value" of the depreciation deduction is sort of hard to calculate.  It's a time-dependent adjusted value of the delayed taxes due.  I think I need to hire an accountant.

Quote
it seems that buying the property at it's value today would not make sense based on the rental return.

That's definitely true if you were going to purchase it with 50% down, which is the equity we currently have in it.  Generating $5k/yr on 200k (50% equity) is only 2.5% (lower than my primary mortgage) but generating that same $5k on 20% equity more than doubles that return (better than my primary mortgage).  According to this math, I could dramatically improve my ROE with a cash-out refi, but as discussed above that is NOT what we're trying to accomplish here.

sol

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Re: Please convince me to keep my mortgage.
« Reply #64 on: April 28, 2019, 10:34:12 AM »
Regardless, only some federal loans are subsidized. Itís also capped: Year 1 $3500; Year 2 $4500; Year 3+ $5500.
...
Pell grants, fed loans, work study, none of the programs are as helpful as they used to be in covering tuition compared to say the 90s.

I still have a lot to learn about how financial aid works these days.  Thank you for your helpful input.  I'll do more research.

lhamo

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Re: Please convince me to keep my mortgage.
« Reply #65 on: April 28, 2019, 10:46:08 AM »
Not everybody who is eligible gets funded due to state budget issues, but there ARE grants (not loans) available in Washington state for families with Mustachian FIREd income levels. 

https://readysetgrad.wa.gov/college/state-need-grant
https://wsac.wa.gov/state-need-grant

In 2016-16, more than 2/3 of eligible applicants were awarded funding.

The award does turn into a loan that needs to be repaid if the applicant doesn't meet certain criteria (must make acceptable progress toward the degree, etc).

Still, definitely something to try to make your kids eligible for if you have the ability to do so. 

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Re: Please convince me to keep my mortgage.
« Reply #66 on: April 28, 2019, 10:54:29 AM »
Is there a list somewhere of competitive colleges that do NOT require the CSS?

seattlecyclone

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Re: Please convince me to keep my mortgage.
« Reply #67 on: April 28, 2019, 11:17:16 AM »
Back to your point, brooklynguy, here's my thinking on the matter.

You're right that an increase in withdrawals will not necessarily correspond 1:1 with an increase in income.

Brooklynguy is definitely right, in the short term.  Because we have a variety of different retirement and non-retirement accounts, we have the ability to artificially manipulate our income in any given year.  We could probably live entirely off of savings for a year or more and show no income at all, regardless of what we do with this rental house.

But that's not a long term solution.  My three kids are so spaced out that I'm expecting to fill out the FAFSA for eleven out of fourteen consecutive years, starting in 2020 with a seven year stretch of doing it every year.  I can't suppress my rollover income forever.

Exactly. That was my point about looking at your existing basis, dividing it by the number of years you'll be worrying about suppressing your income, and figuring out how much you can sustainably do every year. Unfortunately with the rental property it's not quite as simple as with mutual funds because you have a bunch of basis locked up in just two rental properties, and you can't realistically sell bits and pieces of those houses every year. What you can do is a cash-out refinance from time to time, which may be just as effective.

Quote
And bg's advice to sell or refi the rental and then hold the money to make mortgage payments with doesn't help me with shielding assets from FAFSA.  As far as I can tell, only stashing it in the equity of my primary residence hides it from the FAFSA.

If your goal is to shield assets, you don't want to refinance the rental and use the proceeds to gradually pay off the primary mortgage. Instead you would want to pay off that mortgage right away. Whether you move equity from the rental to your primary residence by selling the rental, or by refinancing the rental, it seems to me that the effect on your FAFSA assets would be the same either way.

The effect on your FAFSA income would be different. If you sell the rental property you'll have to invest any surplus after paying off your mortgage into something else. Rental real estate is a pretty sweet deal tax-wise (and for ACA/FAFSA income) because the depreciation deduction allows you to have positive cashflow and negative income all at the same time. You can't depreciate VTSAX and even if you sell none of it the dividends still count as income. If you instead refinance the rental property, any additional mortgage interest would reduce the income you need to report. The FAFSA takes a bigger piece out of your income than out of your assets, so you'll need to consider this tradeoff carefully. Furthermore if you keep your income below $50k and meet one of the other qualifications for the Simplified Needs Test, the asset shielding becomes a moot point anyway as the assets won't be included in the EFC computation.

Quote
It still wouldn't help with removing leverage from your financial life or removing the hassle of that one rental.  Anywhere else that I hold that money, even if it doesn't hurt me for ACA reasons, is going to hurt me on the FAFSA.  And despite six different people above telling me that the FAFSA is worthless because it gives you loans and not grants, the loans that the FAFSA gives you seem infinitely better than the one your mortgage lender gave you.  I would trade those dollar for dollar all day and all night.

Agreed. Interest-free loans are of course worse than free grant money, but they're still nothing to shake a stick at.

ChpBstrd

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Re: Please convince me to keep my mortgage.
« Reply #68 on: April 28, 2019, 01:50:31 PM »
Question: Is the property in a corporation and is there a way to sell the real estate and its mortgage together? If the loan is locked in at, say, 3.9% and it is transferable to the new owner, you might net more by collecting the value of the below-market mortgage as part of the sale price.

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Re: Please convince me to keep my mortgage.
« Reply #69 on: April 28, 2019, 05:28:42 PM »
Is there a list somewhere of competitive colleges that do NOT require the CSS?

Anywhere not on this list:

https://profile.collegeboard.org/profile/ppi/participatingInstitutions.aspx

secondcor521

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Re: Please convince me to keep my mortgage.
« Reply #70 on: April 28, 2019, 05:32:59 PM »
getting under the 50k mark will mean more federal loans being available not free money.

Federal loans are still free money.  0% interest for as long as you're a student?  Yes please.

Only subsidized loans are at 0% while you're a student.  Unsubsidized loans start accruing interest immediately, even if you don't have to pay them back until later (I think usually 6 months after the student leaves school, either by graduating or quitting).

Also, I am not sure on this, but I think federal loans still have fairly steep origination fees of several percentage points of the loan value.  Because of the origination fees, the relatively low interest rate on savings, and the small loan amounts that my kids qualify for, I'm not going after this with my kids.  YMMV.

ETA:  I just checked, and the regular loans have an origination fee of about 1%.  PLUS loans are about 4%.

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Re: Please convince me to keep my mortgage.
« Reply #71 on: May 03, 2019, 03:31:02 PM »
My recommendation is take as large of a loan against the equity in your investment as you can and use that to pay off your mortgage.  You will start showing less everywhere.

Several of you have suggested this course, and I can kind of see the attraction.  We have about $200k in extractable equity and we have about $200k left on the mortgage, so we could theoretically do a cash out refi back to 80% and still pocket $120k while increasing our monthly mortgage payment by enough to start showing losses on our schedule E.  Unfortunately, the $120k wouldn't clear our primary mortgage so then I'd be stuck making my full current mortgage payments AND the the new higher rental mortgage payment, and would be even more exposed to a potential downturn in the local housing market than we are already.  I would effectively be leveraging up, not down.

Part of my motivation for selling is to reduce the number of different kinds of risks that can still sink my plan.  My partner is more risk averse than I am, and she's keen to be rid of the mortgage and be rid of the rental.  She sees that has a win-win scenario, even if it's unclear if that would be a good financial move or not, because it removes the headache of being a landlord (which is mostly my headache rather than hers), and it cashes in on recent appreciation which is sufficient for our needs while foregoing future appreciation that might be stellar but that we don't really need anymore.  It's a risk-reduction move, taking the W and cashing in while you can.  Take the sure victory, right? 

Enigma's suggestion feels like doubling down after you've already won.  Even if you've got good odds, why bet it all when you don't have to?

@sol , why not do a cash-out refi on the rental and then refi to primary mortgage with the proceeds?  While it wouldn't completely knock out the primary mortgage, you get a new 30-year loan at at young-ish age and still attractive rates (~4-4.5%) that could be paid on poverty (minimum) wages should an economic emergency happen and you or your partner needed to work for whatever reason during ER.  Then you get the passive income loss, inflation hedge, and lower monthly primary payment, while still keeping the rental for (potential) future appreciation.  With a large enough asset base to support ER, my guess is you wouldn't have much trouble working with a local bank or CU to handle this transaction (or a mortgage broker in your area).

waltworks

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Re: Please convince me to keep my mortgage.
« Reply #72 on: May 12, 2019, 02:18:56 PM »
@sol, what did you decide to do?

We're pulling the trigger on paying off ours this week.

-W

sol

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Re: Please convince me to keep my mortgage.
« Reply #73 on: May 12, 2019, 02:49:28 PM »
@sol, what did you decide to do?

We're pulling the trigger on paying off ours this week.

-W

My choice was 50% made for me before I even started this thread, because my partner wants to sell it and clear the mortgage.  I don't think it's a terrible idea, though I recognize that there are other ways to work this situation toward an arguably better financial outcome.  It's not always 100% about the finances, though.

We're meeting with realtors with an intent to list the house for sale in approximately 3 weeks.  We'll see what happens.  If we don't get a sufficiently high offer then it probably makes sense to keep renting it out for another year or so.

Cgbg

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Re: Please convince me to keep my mortgage.
« Reply #74 on: May 13, 2019, 11:48:05 AM »
I dislike mortgages so Iím firmly in the camp of pay-it-off.

You can run both scenarios through both Fafsa and some of your Washington state universitiesí net price calculator (google up [university name] net price calculator). Iím pretty sure that rental income skews some of these. Fafsa should still ask you about your assets even if you meet the simplified needs test because some states require the info for state based grants. All this to say- go in with your eyes open. Even if you meet the simplified needs test, youíll still need to be aware that most universities ďgapĒ between recognized need and financial aid awards.

Also realize that if your kid qualifies for merit, merit awards and financial aid donít often stack. Youíd have to check with each universityís financial aid office to see if they stack merit.

sol

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Re: Please convince me to keep my mortgage.
« Reply #75 on: May 19, 2019, 11:17:23 PM »
Just as an addendum for those helpful posters who tried to highlight that FAFSA awards are largely loans these days, instead of grants, I thought I should mention that Washington State just passed a bill offering free college to anyone who makes under ~$50k/year.  Forget the FAFSA, college is free!

It's called the Workforce Education Investment Act and it levies an additional tax on high-tech businesses in the state that most benefit from a highly educated workforce, and uses that money to pay full or partial tuition at in-state schools for any family that makes less than the median income.   A family of four gets to send their kids to UW for free if they show less than $51k of income, a benefit that is worth about $12k per year.  That same family can receive partial tuition if they make up to $90k/year.

It's available to cover costs for 4 or 2 year colleges, and other stuff like apprenticeships.  Even if you only go to school part time.

This should all be going into effect in 2020, before my oldest starts college.  Good timing for me!  So at least in my particular case, if my kid wants to stay in Washington State, there is a very real benefit of keeping my taxable income in a mustachian bracket.
« Last Edit: May 19, 2019, 11:19:53 PM by sol »