Pay off our house?

[tvguy]

YES! I won't get into it here, but my doctor just dropped a bunch of patients (me included) due to having too many. The Canadian system is a mess, but I don't think it's just a "here" problem.

Sadly, you are correct, it isn't just a Canadian problem. We have the Affordable Care Act that guarantees coverage for everyone and subsidies so those without money can get free coverage. But finding a Doctor in small towns that take that coverage can be impossible. A friend lives in a city of 100,000 and absolutely no Doctors take her insurance. She has to travel 150 miles to a University run medical facility for care.

 

[sheilafri]

We paid ours off with a 3% rate. On paper it didn’t make sense. But the security from doing it was priceless. If something bad happens we can live off one fast food wage.

Agree. It doesn’t always make the most financial sense, but we make so many decisions that put heart over head.

Paying off a house has the benefit of lowering the amount of income needed to live. Rate of return isn’t the only consideration.

 

[Rex1993]

I used to be in the camp of it being a good move to have low/no debt in retirement but not anymore. There is an emotional reason to be debt free and that's totally fine. We make decisions every day that are emotional in nature but benefit us tremendously. Just understand that is an emotional reason rather than financial one.

One thing people typically cite is the ability to tap home equity in retirement if they need it, so better to have the house paid off. Well if it's a choice between having a large cash balance or paying off the house, you're infinitely better off having the cash than a paid off house. Standard home equity loans are available to those who have the ability to repay them and they are usually at higher rates than purchase money financing. If you're in an emergency during retirement you're probably not going to be in a position to show the bank you can repay. That leaves hard money loans and reverse mortgages. Few lending products are more expensive.

There are a myriad of tax reasons, even for those with the standard deduction, why maintaining a mortgage can be beneficial in case of an emergency. Cashing out tax deferred retirement plans results in income and in turn taxes. Borrowing money is a not income and thus is tax free. This is why Jeff Bezos has effectively no taxable income and reportedly managed to qualify for a child tax credit on one of his tax returns.

Right now, I don't believe there is any financial justification for paying down a <4% mortgage. The current 6 month treasury yield is over 5.5%. You can invest in treasuries and make money with no risk and that income is state tax free.

 

[Frwinkley]

I've always been in the camp of retire debt free. Right now we are debt free and I will retire in June (DH retired 2 years ago). We are planning to downsize to a new build ranch house that will cost a good bit more than we will sell our house for. We'll move closer to daughter and grandbaby. Now might not be the best time to buy, but I don't care. Although we'll have the cash to pay off the new house immediately, I'm not sure that we will. I like having cash and knowing that we can pay it off if we need/want to. We would also have to pay taxes (capital gains or ordinary income tax depending on the source we use). I know it might not make the most financial sense right now with interest rates pushing 6.5% and we may change our minds. We'll just wait and see. The time might come and we'll feel differently.

 

[ruadisneyfan2]

This country rewards and encourages those with money.

It was designed to encourage homeownership. Similar to how we don't pay federal income tax on funds sent to our 401k/403b. That is to encourage people to save for retirement.

 

[tvguy]

This country rewards and encourages those with money.

I disagree. This country rewards debt. Look no further than our bankruptcy laws, and the currentstudent loan debate going on right now.

 

[Starport Seven-Five]

It was designed to encourage homeownership. Similar to how we don't pay federal income tax on funds sent to our 401k/403b. That is to encourage people to save for retirement.

It was meant to encourage home ownership but in practice it is regressive with almost all of the benefits going to the wealthy.

The deduction has always been regressive, and the 2017 tax changes made it more so. In 2018 almost 17% of the benefits will go to the top 1% of households, and 80% of the benefits will go to households in the top 20% of the income distribution. Only 4% will accrue to households in the middle income quintile.

It also encouraged construction that is the opposite of what we want for first time home buyers:

Instead, the deduction encourages construction of larger, more expensive houses. This leads to higher energy costs and urban sprawl and reduces investment funds available for business. The resulting higher home prices may actually raise costs for first-time purchasers, most of whom don’t itemize or are in the 12% tax bracket and thus gain little or no direct benefit from the deduction anyway. By encouraging people to finance homes with high levels of debt, the deduction increased the likelihood of default when housing prices fell in the financial crisis.

https://www.brookings.edu/articles/chipping-away-at-the-mortgage-deduction/

 

[barkley]

Sadly, you are correct, it isn't just a Canadian problem. We have the Affordable Care Act that guarantees coverage for everyone and subsidies so those without money can get free coverage. But finding a Doctor in small towns that take that coverage can be impossible. A friend lives in a city of 100,000 and absolutely no Doctors take her insurance. She has to travel 150 miles to a University run medical facility for care.

even in a large city, in possession of high level private insurance coverage it can be near impossible to find a primary care provider. this was the case for us when we had traditional coverage and moved to a new state. we were reliant on utilizing walk in urgent care until a medical emergency sent dh to the e/r resulting in them setting a follow up appointment with an associated pcp who was kind enough to agree to take our entire household on as patients (despite having a wait list for new patients). i routinely advise anyone who is approaching medicare eligibility to fully investigate if their pcp is even able to RETAIN them as a patient b/c so many practices have a cap on the percentage of medicare patients within their practices such that i've known individuals who have been devastated to learn they can no longer remain with their decades long medical group. it's only gotten worse in recent years-more doctors retiring/less going into primary care practice.

Now might not be the best time to buy, but I don't care. Although we'll have the cash to pay off the new house immediately, I'm not sure that we will. I like having cash and knowing that we can pay it off if we need/want to.

we chose to bank and have a small mortgage when we sold. i wanted the peace of mind having that extra nest egg was in place. we ended up paying off much earlier b/c knowing we had that money in reserve we were much more inclined to throw extra at the principle each month.

 

[ruadisneyfan2]

Instead, the deduction encourages construction of larger, more expensive houses.

I think this is just human nature, or perhaps an American attitude, to keep wanting more.
I grew up in a 3BR/2BA rancher, no basement, 2 car garage. 2 parents & 3 kids. It was tight but we survived.

This is exactly what we ended up buying too, but we only had 2 kids. At first we really wanted a 4BR/2.5BA with a basement and a big yard, but it seemed like a lot of people we knew who moved into much larger homes ended up getting divorced within a few years. We didn't interview them of course, but we often wondered if the stress of having all of that house was the straw that broke the camel's back. We decided it was better to stay small and only move if we really needed to. There was about a year that we felt we were bursting at the seams but then it got better; as the kids got older, they were more into gaming and less into plastic toys in the toybox. We got more organized. We realized that more storage often means saving more crap. (Also noticing the contruction of so many storage facilities in our area.)
It appears people just can't let go of "stuff".

I know people who live in these huge homes who are empty nesters and another who only have 1 child. I don't understand the need for that much space but some people do and there are enough of them to drive that market.

 

[barkley]

I think this is just human nature, or perhaps an American attitude, to keep wanting more.

or at least the illusion of 'more'. when we sold our former home we had a realtor who had been in the buisness for decades. over the course of listing and selling we had some interesting discussions about real estate trends over the years. at that time he was noticing that among (then) younger buyers an inclination to purchase homes that appeared larger vs. actualy being so via square footage. he saw it time after time-younger buyers who would pay far more for a home with less square footage simply b/c it appeared larger due to higher ceilings (even if it was just in an entryway), half vs. full walls and rooms absent doors. he said he had literaly taken to bringing a measuring tape to showings b/c despite cautioning some buyers that rooms were smaller than they appeared they insisted that they were larger vs. ones they had seen with greater square footage, bought and then complained after closing that their furniture would'nt fit believing they could reverse the sale

 

[tvguy]

i routinely advise anyone who is approaching medicare eligibility to fully investigate if their pcp is even able to RETAIN them as a patient b/c so many practices have a cap on the percentage of medicare patients within their practices such that i've known individuals who have been devastated to learn they can no longer remain with their decades long medical group. it's only gotten worse in recent years-more doctors retiring/less going into primary care practice.

A good point, but not my experience. I did investigate before I went on Medicare last year, and the stat my Doctors offices and the Broker that I bought my Medicare supplement from all quoted is that 98% of all U.S. Doctors accept Medicare for existing patients.