Most mortgages don’t end up on banks’ books. They’re securitized and sold to investors. The originators of these mortgages are supposed to do their due diligence, including ordering appraisals, but they don’t guarantee or have a stake in the accuracy of these appraisals.
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Just popping in to say my husband is now LESS than 6 months from retirement. I retired last March.
So… I don’t know if we have enough, but we’re going to give it a try :).
We did go to 3 different financial advisors and they all assure us we have enough. It’s still a little scary. My husband is having trouble realizing he won’t be needing to save any of the money he takes from his retirement account. It is so ingrained in him that he really did have a hard time grasping that.
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This is probably too complicated a question for anything definitive, but I’ll ask it anyway.
My bff does something that I don’t understand. I’m not saying she’s wrong; I’m saying that maybe I’m too ignorant to understand why she thinks her system is superior.
She is considering refinancing her house again. This would be at least the third or fourth time she’s refinanced. She says that she uses her house’s equity like an ATM. We bought at roughly the same time. Ours has been paid off for a couple of years, and she still has more than 20 years on her latest loan. Can someone explain to me why this is a “better” financial maneuver? She kind of throws shade at me by calling me “debt averse.” Is this some kind of high-concept financial decision I don’t get? Or is this just her way of financing things they can’t afford out of pocket, such as an addition on the house or new windows, which are things they’ve done with the money they’ve pulled out of their equity? In other words, they aren’t using the freed-up money to put more money in the stock market to get a bigger return than the 2.5% interest rate on the house. I understand THAT concept. They are using the money for things like vacations and stuff they, I guess, couldn’t afford otherwise. Which is FINE. It’s their money, and they can do whatever they want. But it kind of feels to me like they are doing this to live kind of beyond their means. What am I missing? Am I a chump for having my house paid off?
I don’t think there is any issue with refinancing to get a lower interest rate but that is different than using your home’s equity. I’m unclear if she just uses the extra savings from having a lower interest payment every month as “fun money” or if she’s actually taking out a home equity loan.
When we were younger, H also said that have a low interest mortgage, which also is a tax write off, was a great deal because we could invest money and have it grow at a much higher rate. As we’ve gotten older, our goal is to have the house totally paid off to coincide with H’s retirement. I don’t think being debt free makes anyone a “chump”!
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Maybe it’s a matter of semantics. I know that she has a HELOC, but yesterday she said that she wants to refinance to have a lower monthly payment to take more trips and “invest in the house” by doing things such as replace the HVAC and windows. We do those things, too, but we pay for it out of savings. And we don’t consider a new HVAC as “investing in an asset” so much as not wanting to die of heatstroke.
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Maybe if you start keeping monthly financial ins and outs with household budgeting, and then once going into his retirement - and once he is totally calm and realizes yes there is enough, it will be good.
Once DH did retire, he has been monthly printing off our investment/financial summary - and that gives him reassurance. I still do all the analyses and discuss the various financial snapshots with him (for example the quarterly and yearly returns on 401k and those 4 sub-investment funds, and during a particularly turbulent quarter show him what happened month to month.
DD2 is getting more into the nuts and bolts of auto maintenance and understanding about getting the right info from the right sources. She had a new car battery that ended up having a bad cell and caused her problems after 6 months. She had it in the dealership for other things, and they charged her $50 for cleaning the contacts but never checked the battery itself - so she had to get it jumped again and went to Auto Zone or where ever she had gotten the battery. So that chore was hopefully put to bed – as soon as I have to have my battery jumped I go to where I received the battery and have them test it; that way whatever warranty gets honored and they replace the battery, one stop shop. So DD2 found a Goodyear she liked the customer service (2nd one she has dealt with), and got a quote on tires. She sent me via PM on Facebook - as I said I will check with our Goodyear here as to when the tires were replaced and what is the best tire for you to have. I did believe we had 2 done then 2 done - and that was the case. Her quote also was with lesser tires (they said to replace all 4, and she didn’t ask about how much tread was left on the back 2 tires) and I got the 411 (from our family owned Goodyear which has excellent management and customer service) on the best tires to get that ended up for $20 more had a warranty of more miles, 65,000 versus 40-45,000 miles. And based on the timing of the prior tires put on that vehicle (looked up on the Goodyear data base for that vehicle), recommended to replace the worn 2, and in 10,000 miles replace the other two. IDK if it depends on the vehicle (we have Highlanders), but my Goodyear said to have the better tires on the front two wheels where her Goodyear wanted the better tires on the back. So now she has a plan to get a new quote with 2 tires with the kind recommended. Also in addition to her car manual, Goodyear can download a summary of when scheduled maintenance should be done on her vehicle. If you ask the right questions. She is an engineer, so she is definitely paying attention to these details. Her BF is good with some of the maintenance while the other can be with quote at reputable place. I suspect the Goodyear there was wanting to be sure to get the business versus another tire place, but one needs to look specifically at the value of the tires themselves.
If you need something major like HVAC, we have gotten interest free financing and just set up the automatic payments (Wells Fargo). We had both units done this way. Our current very nice LG refrigerator was also interest free with simple application through appliance place ($101 a month is taken out, and it includes an extended warranty). I finally have a refrigerator I love! With excellent credit that works for a household.
Your BFF is choosing not only to not build up home value, she is continually paying for closing costs - so it is like she is moving and paying those additional costs but she is making a ‘conscious choice’ (which if you are relocating from areas, or have a very good reason to move within your geographical area). Somehow she is comfortable not having home equity and having those debt payments. She is desiring to live beyond her means because instead of saving up for vacations she is ‘rewarding herself’ with not only what she wants now but she is comfortable borrowing for it. Her reasoning may be that the home interest is a tax deduction, but our deductions now only help with our state taxes as the federal standard deduction has risen to be the way we go with federal taxes (Turbo Tax conclusion once all is entered).
When I had cancer, our mortgage company reached out to us and asked if we wanted to extend our home loan, which reduced our payments but added 1% additional on the interest - I believe they offered it to have more of the debt extended out. Then 10 years ago I knew interest rates had dropped, and with low closing costs I secured a 10 year at 2.5%. Since we are staying in our home probably another 10 years, and interest rates low and about to climb or are climbing as we speak, I secured a 10 year at 2.5% with a little more closing costs but still made sense (the loan paperwork states an interest rate based on including the closing costs and it was like 2.72%).
Maybe your BFF feels like they can live on less in retirement when they no longer feel like traveling/vacations, or maybe believe that down the road everything will be OK even if they have a lot less financial security.
You are doing great having your house paid off - it gives you a lot more flexibility down the road on any decisions you may want to make or may need to make on where you live due to your physical health/spouse’s, or other family changes. Less chance to say “I wish I could do XYZ, but we don’t have the financial security to do so.”
"I’m saying that maybe I’m too ignorant to understand why she thinks her system is superior.
She is considering refinancing her house again. "
For many, this can be a good economic decision. With inflation on the horizon, a ~3% mortgage looks really good. And she is earning appreciation of of OPM (other people’s money). Again, from a purely economic decision.
OTOH, most others prefer the psychic income from having their house paid off. If that helps folks sleep better at night, a payoff is a better decision for them.
Using home equity to invest in equities is not much different than a margin account at a brokerage. Does your friend have one of those? If not, why not?
Personally I think borrowing against your house for travel is a bad idea. Better to sell the house to get the equity out, pay any taxes, keep the net profits, rent somewhere and travel with the remainder.
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I like the term psychic income.
We both have homes that have wildly appreciated and are in stronger-than-average markets. We both will be fine. I wondered whether there is a pure dollars-and-sense way to look at each of our decisions.
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Friend is using house to supplement income. Rather than using low cost of mortgage to seek higher returns with delta. House is viewed as a source of income. We saw a lot of people doing that back in '08/09. But you are counting on your house always increasing in value. Not always true (as we saw back in '08/09). Easier to adjust if you are just using your house to pay for luxuries which you can cut back on if housing market drops. Much tougher if you are using your house for day to day needs. Particularly true if housing market drop is accompanied by job losses. May find yourself with significant drop in income (both from job and house supplement). Easier to be viewed as being foolish not doing when housing prices are increasing and job market is strong. Trick is we have alot of people who have gone through much/all of their adult life without any true downturns/recessions. Not sure how well some of them will react when the thing that they haven’t experienced and really don’t even think happens.
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On the subject of home equity, I recently got a postcard in the mail from a company that is offering a shared appreciation model, where they receive a percentage of the growth in your home value. Looks like there is a low single digit closing cost (taken out of what they pay you) and a 2% discount taken on the appraised value. However the loan only lasts a maximum of 30 years (or until you sell the house, whichever is sooner). They are also only doing it for up to 25% of the value of a home, to limit their chance of taking a loss. Conceptually it seems a possible option to replace a mortgage, but only if you think the home prices will appreciate less than the interest rate. And there are pros (freeing up cashflow) and cons (could you still borrow against your house later on?).
It was interesting to me that this is coming up when house prices are at an all time high, though on the other hand, houses are still likely to be a decent hedge against inflation for their investors. So I’m wondering, under what circumstances would this offer be of interest to people to take up? Only those who are retiring? Or others who are still working?
Regarding car tires, it is best to have them be a matched set in terms of brand, model, and wear, which is usually done by rotating tires often enough. Having a matched set reduces the risk of handling surprises due to having one end or corner of the car having much better or worse tire grip than the other(s).
This is also why it is best to drive very conservatively if you have to install a spare tire, and why it is a bad idea to mix winter and non-winter tires on the car.
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We chose to refinance our house back to a 30 year mortgage when rates were super low last year…because we had recently decided this wasn’t going to be our ‘forever home’. We got a 2.625 rate with all our closing costs paid for (we chose a higher rate rather than having to come to the table with anything at closing - we could have gone down to 2.250 if we had been willing to front the pre-paids - taxes, insurance, etc but we decided getting almost 11k as a credit was better than a slightly lower rate - Amex was also offering a huge bonus for refinancing at the same time we added as a benefit).
We are now looking at our monthly mortgage payment as a rent payment, and as such we are paying way below market rate. We didn’t take any cash out when we refinanced, this was literally just a way to stop investing additional equity in the house and be able to be more liquid.
We have been saving the difference between our old payment and the new one and increasing our liquid assets. At the time we weren’t looking to hedge inflation, though that has been a nice surprise side benefit. Our plan is now to downsize out of this house within the next 7-10 years so not locking up more equity into the house was a no-brainer for us.
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@Youdon_tsay - We’ve had our mortgage paid off years ago (before the kids started college). We are definitely debt averse - I attribute that to our upbringing 
I don’t think there’s anything wrong with this, especially if you can afford to do it without compromising elsewhere.
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@Youdon_tsay I think your neighbor could be in for a rude awakening at some point. Refinance for a better rate is smart. Taking money out is risky. I knew quite a few people who lost their homes during the last downturn by banking on the increased equity to get money out. When prices dropped they were in over their heads.
We have refinanced a number of times, always for a lower rate. My husband made a point of not extending the loan out another 30 years each time. We were more interested in keeping the amount of time owed the same. Many people don’t realize they need to also calculate what that new loan will cost in fees.
We have some rentals that have adjustable rate mortgages that have been very low. We are going to look into refinancing at a fixed rate due to increasing interest rates.
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Don’t think Tom Brady will be joining this thread, but happy retirement to him! 
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How much did we need to retire? Less than Tom Brady
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All 4 tires are same brand - just with rotating 2 front and 2 back, two are a little more worn than the other two. So it makes sense to also replace 2 and then 2.
If all needed changing of course using all 4 of same tire. This was the case several times when we have had a used car purchase and all 4 needed changing.
We regularly have the tires rotated - it is part of tire warranty. Not sure why we sometimes seem to have 2 more worn than the other two.
All of our vehicles have a full spare tire - DD had to use her spare while one tire got repaired for nail. That is also when she got the tire quote.
@mom60 we got a better rate for 10 year versus 15 year at the credit union we chose - that had a bit lower closing cost and also lowest 10 year rate.
Another credit union had same rate for 10 year and 15 year, at .25% higher than what we locked in.
All other financial institutions were higher. Our original credit union (with the 2.5% rate on 10 years that is almost paid off) merged with another credit union and they only do mortgages in 14 states which did not include ours.
I imagine with rental property, you already have a feel for where to refinance if you choose to do so. The original ARM mortgage holder may offer a refinance with low or no closing costs - it is worth shopping around. IDK if any rates in your area have gone up yet or not.