When do most pay off their mortgage?

Discussion in 'Financial Planning' started by wbogen@sbcglobal.net, Jan 19, 2007.

  1. Guest

    When discussing our finances, my wife often tells me "Most people our
    age have already paid off their mortgage!" I am 55 and she is....
    younger than that. We moved from one house but kept it as a rental
    property and now have two 15 year mortgages, due to payoff in about 11
    years. I have a feeling my wife is wrong, that most people around 55
    are still paying off their house but I have no facts to support me.
    I've tried looking at the US Census tables, asking realtors, etc. I'd
    love to see a table showing age of owners versus fraction that own
    their homes free&clear. Can anyone provide a source for this info, if
    such exists?
     
    , Jan 19, 2007
    #1
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  2. kastnna Guest

    You and the "average people your age" are apples and oranges. Most
    people don't keep their first house as an investment. They 1031
    exchange the equity from the first house into the second. All things
    being equal, many people only pay for one house in their lifetime. You
    are paying for two.

    Look at it this way, if you sold the rental today and put the money
    towards your home mortgage you could shave a number of years off of
    your payment schedule (unless of course there is a large price
    dicrepancy in rental and residential). That may put you more in-line
    with "average people your age".

    Feel confident in your decision; you seem to be doing okay. You'll have
    twice the equity 11 years from now too!
     
    kastnna, Jan 19, 2007
    #2
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  3. Todd H. Guest

    "" <> writes:

    > When discussing our finances, my wife often tells me "Most people our
    > age have already paid off their mortgage!" I am 55


    Here's how I'd handle that:
    "Oh yeah? Name 5. And no fair counting the Gumps and their
    double wide. And of those, how many own a rental property?"

    > and she is.... younger than that. We moved from one house but kept
    > it as a rental property and now have two 15 year mortgages, due to
    > payoff in about 11 years. I have a feeling my wife is wrong, that
    > most people around 55 are still paying off their house but I have no
    > facts to support me. I've tried looking at the US Census tables,
    > asking realtors, etc. I'd love to see a table showing age of owners
    > versus fraction that own their homes free&clear. Can anyone provide
    > a source for this info, if such exists?


    That would be an interesting table. For shits and giggles though, do
    you have enough equity in the rental to pay off your current mortgage?
    If so then the answer would be "we could pay off our mortgage, but
    we'd have to sell our rental property/income generator and pay a hell
    of a lot more money to the IRS. Would that make you feel better?"


    --
    Todd H.
    http://toddh.net/
     
    Todd H., Jan 19, 2007
    #3
  4. Will Trice Guest

    wrote:
    > When discussing our finances, my wife often tells me "Most people our
    > age have already paid off their mortgage!" I am 55 and she is....
    > younger than that.


    > Can anyone provide a source for this info, if
    > such exists?


    January 2007 Money magazine has this data for upper middle income
    (defined as 60th to 79.9th percentile of income) and upper income (80th
    to 89.9th percentile) households. For the age group of 45-54, 84.7% of
    upper middle income households own a home with a mortgage, and 85.1% of
    upper income households. For the age group of 55-64, it's 62.2% of
    upper middle income households and 64.3% of upper income households.
    The article cites the Federal Reserve Survey of Consumer Finances, 2004
    (http://www.federalreserve.gov/pubs/oss/oss2/2004/scf2004home.html) as
    the source of this data if you want more details. The next survey will
    be in 2007.

    -Will
     
    Will Trice, Jan 20, 2007
    #4
  5. Guest

    wrote:
    > When discussing our finances, my wife often tells me "Most people our
    > age have already paid off their mortgage!" [....] I'd
    > love to see a table showing age of owners versus fraction that own
    > their homes free&clear. Can anyone provide a source for this info, if
    > such exists?


    Even if the information exists, it is irrelevant. All that matters is
    the
    particulars of your situation -- which may or may not be similar to
    "most people" your age anyway. The question you should be asking
    is: what criteria should you consider in deciding whether or not to
    pay
    off your mortgage(s)?

    The best answer for __you__ would come from a qualified financial
    adviser. But to get some insight, do a google search for "when to
    pay off mortgage" (without the quotes).
     
    , Jan 20, 2007
    #5
  6. Guest

    Will Trice wrote:
    > wrote:
    > > When discussing our finances, my wife often tells me "Most people our
    > > age have already paid off their mortgage!" I am 55 and she is....
    > > younger than that.

    >
    > > Can anyone provide a source for this info, if
    > > such exists?

    >
    > January 2007 Money magazine has this data for upper middle income
    > (defined as 60th to 79.9th percentile of income) and upper income (80th
    > to 89.9th percentile) households. For the age group of 45-54, 84.7% of
    > upper middle income households own a home with a mortgage, and 85.1% of
    > upper income households. For the age group of 55-64, it's 62.2% of
    > upper middle income households and 64.3% of upper income households.
    > The article cites the Federal Reserve Survey of Consumer Finances, 2004
    > (http://www.federalreserve.gov/pubs/oss/oss2/2004/scf2004home.html) as
    > the source of this data if you want more details. The next survey will
    > be in 2007.
    >
    > -Will


    Great! Thanks for the info.

    - Bill
     
    , Jan 20, 2007
    #6
  7. On Fri, 19 Jan 2007 18:12:22 -0600, Will Trice
    <> wrote:


    >January 2007 Money magazine has this data for upper middle income
    >(defined as 60th to 79.9th percentile of income) and upper income (80th
    >to 89.9th percentile) households. For the age group of 45-54, 84.7% of
    >upper middle income households own a home with a mortgage, and 85.1% of
    >upper income households. For the age group of 55-64, it's 62.2% of
    >upper middle income households and 64.3% of upper income households.



    Based purely on my own observations - and admittedly I do not see a
    cross section of America - I suspect we'd find more telling
    information in studies that relate net worth to those in debt at
    various ages.

    If there were such a study I suspect we'd see little difference at
    younger ages - under 45 - but above that a strong correlation to
    increasingly higher net worths where there was no indebtedness.

    As to the issue of what most folks do, I further suspect that the
    majority of people are in debt at all ages up into their 60s - which
    suggests why true financial security up to that point is relatively
    rare.

    At any rate, my sense is that there are an awful lot of six figure
    incomes who spend every dime they earn, and then some.


    -HW "Skip" Weldon
    Columbia, SC
     
    HW \Skip\ Weldon, Jan 20, 2007
    #7
  8. joetaxpayer Guest

    wrote:
    > wrote:
    >
    >>When discussing our finances, my wife often tells me "Most people our
    >>age have already paid off their mortgage!" [....] I'd
    >>love to see a table showing age of owners versus fraction that own
    >>their homes free&clear. Can anyone provide a source for this info, if
    >>such exists?

    >
    >
    > Even if the information exists, it is irrelevant. All that matters is
    > the
    > particulars of your situation -- which may or may not be similar to
    > "most people" your age anyway.


    Amen to that. I posted a link to Scott Burns discussion of whether to
    pay one's mortgage by retirement, http://tinyurl.com/yctt85 is a link to
    that page. You may very well be in that group for whom the mortgage at
    retirement isn't an issue, but that's not even the question, is it? At
    55, if you plan to retire at 62, you will have only four years left on
    two mortgages. By that point, the larger portion of the payments are to
    principal and you could make the case that the rental income is covering
    the interest on both.

    Back to your question - intuitively, I'd tell you wife 'no'. Most people
    are not financially savvy, most did not buy their first home at 25 or
    younger on a 30 year mortgage, with no refinancing, nor did most 40 year
    olds get their final mortgage as a 15 year. My observation is that in
    this last cycle (of low rates) the smart ones all refinanced to 15yr, 5%
    fixed, and the unfortunate souls pulled out equity to pay credit cards,
    taking the wonderful ARMs that allowed payments based on 1%, and those
    mortgages have been blowing up for the past year.

    In sum, the majority should have zero mortgage by retirement, but most
    don't, and still fewer have no mortgage at 55. My gut says your
    situation puts you in the top 20% if the data existed that way.
    JOE
     
    joetaxpayer, Jan 20, 2007
    #8
  9. Lon Guest

    I don't think there is any magical time to pay off a mortgage as long
    as the mortgage is affordable and does not impede being able to do
    other thing that the mortgage payments would allow. I had a goal to pay
    off my mortage when I turned 58 and was ready to retire. I did that and
    it was my fourth home. I am now 72 years of age and own two homes
    mortgage free, one in New Zealand and the other in California. We spend
    six months of the year at each home and have been doing so for 15
    years. I was fortunate to be able to sell one large home for a nice
    profit at age 58 and buy two smaller homes paying cash.

    On Jan 20, 8:26 am, "" <>
    wrote:
    > When discussing our finances, my wife often tells me "Most people our
    > age have already paid off their mortgage!" I am 55 and she is....
    > younger than that. We moved from one house but kept it as a rental
    > property and now have two 15 year mortgages, due to payoff in about 11
    > years. I have a feeling my wife is wrong, that most people around 55
    > are still paying off their house but I have no facts to support me.
    > I've tried looking at the US Census tables, asking realtors, etc. I'd
    > love to see a table showing age of owners versus fraction that own
    > their homes free&clear. Can anyone provide a source for this info, if
    > such exists?
     
    Lon, Jan 20, 2007
    #9
  10. Logan Shaw Guest

    wrote:
    > When discussing our finances, my wife often tells me "Most people our
    > age have already paid off their mortgage!" I am 55 and she is....
    > younger than that. We moved from one house but kept it as a rental
    > property and now have two 15 year mortgages, due to payoff in about 11
    > years. I have a feeling my wife is wrong, that most people around 55
    > are still paying off their house but I have no facts to support me.


    It seems to me that there are two issues here:

    (1) Whether it is the smart thing to do to pay off the mortgage
    or keep paying on it.
    (2) Your wife's comfort level with having a mortgage. Or with
    having a rental property.

    Maybe it would help to understand why your wife feels it's important
    to have paid off the mortgage. Maybe debt makes her uncomfortable,
    like it does me. (It took me a long time to admit that there is such
    a thing as good debt.) Or it could be a lot of other things along
    those lines.

    - Logan
     
    Logan Shaw, Jan 20, 2007
    #10
  11. Reed Guest

    Logan Shaw wrote:
    > wrote:
    >
    >> When discussing our finances, my wife often tells me "Most people our
    >> age have already paid off their mortgage!" I am 55 and she is....
    >> younger than that. We moved from one house but kept it as a rental
    >> property and now have two 15 year mortgages, due to payoff in about 11
    >> years. I have a feeling my wife is wrong, that most people around 55
    >> are still paying off their house but I have no facts to support me.

    >
    >
    > It seems to me that there are two issues here:
    >
    > (1) Whether it is the smart thing to do to pay off the mortgage
    > or keep paying on it.
    > (2) Your wife's comfort level with having a mortgage. Or with
    > having a rental property.
    >
    > Maybe it would help to understand why your wife feels it's important
    > to have paid off the mortgage. Maybe debt makes her uncomfortable,
    > like it does me. (It took me a long time to admit that there is such
    > a thing as good debt.) Or it could be a lot of other things along
    > those lines.
    >
    > - Logan
    >


    For the life of me, I cannot understand why anyone would want to make
    mortgage payments, IF they don't have to. When I paid off mine, the only
    issue was " Is the money that is available to make the payoff earning
    more than mortgage is costing me?"

    My case in 2004:
    60 y/o, $72000 mort, 7% fixed int (refi'd down twice since '86),
    $6000/yr in mort int., 23 years into 30 yr refi.
    I had $72k available that was not earning 7% fixed, and wasn't about to
    for next 23 years !
    Other consideration was income tax deduct, but I was now at point where
    the 6K plus other itemized deduc was LESS that standard deduc, so did
    not need it. Besides, why pay out $6000 to get back $600 (10% bracket)
    if you don't HAVE to.

    I look at it sort of like the $72K bought me a $6000 annuity (Granted
    the principal vs interest mix would change over the years, but too long
    for me to care.)

    As always, YMMV.

    --reed
     
    Reed, Jan 21, 2007
    #11
  12. joetaxpayer Guest

    Reed wrote:


    > For the life of me, I cannot understand why anyone would want to make
    > mortgage payments, IF they don't have to. When I paid off mine, the only
    > issue was " Is the money that is available to make the payoff earning
    > more than mortgage is costing me?"
    >
    > My case in 2004:
    > 60 y/o, $72000 mort, 7% fixed int (refi'd down twice since '86),
    > $6000/yr in mort int., 23 years into 30 yr refi.
    > I had $72k available that was not earning 7% fixed, and wasn't about to
    > for next 23 years !
    > Other consideration was income tax deduct, but I was now at point where
    > the 6K plus other itemized deduc was LESS that standard deduc, so did
    > not need it. Besides, why pay out $6000 to get back $600 (10% bracket)
    > if you don't HAVE to.
    >
    > As always, YMMV.
    >
    > --reed


    You were 100% correct to make the choice you did.
    Given you didn't even meet STS deduction, the mortgage cost you 7%.
    Had you caught the bottom of the rates, you might have been as low as 5%
    on a 15 or 20 yr mortgage, and in the 33% bracket, (assume all money is
    deductible), the money costs 3.35%. Those in this position may choose to
    keep their money invested if they are comfortable with the risks.

    Let me make one point here, which will be tough to disprove. At less
    than 4% borrowing cost, you could put the money in a T-bill (risk free)
    and get more return than the mortgage costs you. So, there is a point at
    which it does make sense. At the higher end, where the post tax cost
    starts to pass 6% there is a more than trivial chance the invested money
    will not exceed the cost of the mortgage. (that's where you were in
    '04). For the rest in that huge gray area, we need to know the rest of
    their situation to provide sound advice.

    In the end, the high bracket low rate person may be a rare 1 in 20 and
    the advice to pay it off is the correct advice for the majority of people.

    See Scott Burns' story on this topic through http://tinyurl.com/yctt85
    He has more space and carries a bit clout than I do.
    JOE
    JoeTaxpayer.com
     
    joetaxpayer, Jan 21, 2007
    #12
  13. "joetaxpayer" <> wrote in message
    news:...

    > Had you caught the bottom of the rates, you might have been as low as 5%
    > on a 15 or 20 yr mortgage, and in the 33% bracket, (assume all money is
    > deductible), the money costs 3.35%.


    Re: all money is deductible. This is rarely the case. Only the money over
    the standard deduction is really getting any benefit. So, after factoring in
    property taxes and any other deductions, that amount needed to reach the
    standard deduction is just money down the drain.

    Elizabeth Richardson
     
    Elizabeth Richardson, Jan 21, 2007
    #13
  14. PeterL Guest

    wrote:
    > When discussing our finances, my wife often tells me "Most people our
    > age have already paid off their mortgage!" I am 55 and she is....
    > younger than that. We moved from one house but kept it as a rental
    > property and now have two 15 year mortgages, due to payoff in about 11
    > years. I have a feeling my wife is wrong, that most people around 55
    > are still paying off their house but I have no facts to support me.
    > I've tried looking at the US Census tables, asking realtors, etc. I'd
    > love to see a table showing age of owners versus fraction that own
    > their homes free&clear. Can anyone provide a source for this info, if
    > such exists?


    Leaving aside the passive aggressive tone of your wife's statement,
    these days people treat their houses and mortgages differently from our
    parents' generation. I don't think my parents ever refinance their
    house. We moved at least 5 times already, refinanced our mortgage
    three times. Within the past three years lots of people refinanced
    their houses and use the proceeds in lots of different ways. There is
    no basis to say that "most" people your age have already paid off their
    mortgage.

    On the other hand, your wife thinks that your household finance is not
    as good as she thinks is something you two have to deal with on your
    own.
     
    PeterL, Jan 21, 2007
    #14
  15. "joetaxpayer" <> wrote in message
    news:...
    >
    >
    > Elizabeth Richardson wrote:
    >
    > > "joetaxpayer" <> wrote in message
    > > news:...
    > >


    > You snipped "In the end, the high bracket low rate person may be a rare
    > 1 in 20 and the advice to pay it off is the correct advice for the
    > majority of people."
    > For those with a home valued at $1M, property tax easily fills that STD
    > deduction.


    Sorry, Joe. I was really responding to those who calculate that all mortgage
    interest is deductible. After I pressed "Send" I realized I should have
    added a comment about your "1 in 20" and that I know you, JoeTaxpayer, don't
    necessarily advocate having a mortgage in retirement.

    Elizabeth Richardson
     
    Elizabeth Richardson, Jan 21, 2007
    #15
  16. Don Guest

    "Reed" <> wrote in message
    news:HLysh.13594$...

    > For the life of me, I cannot understand why anyone would want to make
    > mortgage payments, IF they don't have to. When I paid off mine, the only
    > issue was " Is the money that is available to make the payoff earning more
    > than mortgage is costing me?"


    Getting rid of a mortgage is a good idea for many of us, if for no other
    reason than the psychological boost that comes owning your home "free and
    clear."
    Indeed there are circumstances in which alternative investments, together
    with tax assumptions, and so on, would produce a superior return, but these
    do not apply to the majority of homeowners, and, if implemented, would
    demand close attention to many details and would mean that present
    assumptions about interest rates and such would have to continue to be true
    in the future. For many people that would involve too much stress to make
    the small savings worthwhile. Owing nothing on the house would mean peace
    and relaxation for many! It is not something to be given up lightly!
     
    Don, Jan 21, 2007
    #16
  17. Chris Cowles Guest

    "Reed" <> wrote in message
    news:HLysh.13594$...
    >
    > For the life of me, I cannot understand why anyone would want to make
    > mortgage payments, IF they don't have to. When I paid off mine, the only
    > issue was " Is the money that is available to make the payoff earning
    > more than mortgage is costing me?"


    That's exactly why they might want to - because the money available is
    earning more than the mortgage costs. In your case, it was not.
     
    Chris Cowles, Jan 22, 2007
    #17
  18. Chris Cowles Guest

    This the first time I grasped that logic. It makes sense. Unfortunately I
    don't have the cash on hand to pay off my mortgage, so it's only
    hypothetical to me.

    "Elizabeth Richardson" <> wrote in message
    news:eIMsh.435751$...
    >
    > ...
    > Only the money over the standard deduction is really getting any benefit.
    > So, after factoring in
    > property taxes and any other deductions, that amount needed to reach the
    > standard deduction
    > is just money down the drain.
     
    Chris Cowles, Jan 22, 2007
    #18
  19. Guest

    joetaxpayer wrote:
    >
    > Back to your question - intuitively, I'd tell you wife 'no'. Most people
    > are not financially savvy, most did not buy their first home at 25 or
    > younger on a 30 year mortgage, with no refinancing, nor did most 40 year
    > olds get their final mortgage as a 15 year.


    See below.

    My observation is that in
    > this last cycle (of low rates) the smart ones all refinanced to 15yr, 5%
    > fixed, and the unfortunate souls pulled out equity to pay credit cards,
    > taking the wonderful ARMs that allowed payments based on 1%, and those
    > mortgages have been blowing up for the past year.


    My own observation is that many of those who did that, did so because
    they had other pressures.
    >
    > In sum, the majority should have zero mortgage by retirement, but most
    > don't, and still fewer have no mortgage at 55. My gut says your
    > situation puts you in the top 20% if the data existed that way.


    My empirical experience is that 4 (or 5) major life events have a huge
    impact on your financial position at 55:

    - did you ever get divorced? Modern divorce law (depending on
    jurisdiction) requires splitting of assets 50/50. In any case there is
    a significant bias in most cases in favour of the child rearing partner
    (usually a woman). A substantial fraction of middle aged men who are
    divorced have remarried, starting a second family (and a renewed drain
    on personal finance).

    - did you ever experience a long period of unemployment? In the course
    of a 30-35 year career, there can be big changes in the nature of work
    and your profession. I know of engineers in particular whose employer
    industries (eg automotive) are gone, they needed to retread and
    retrench completely.

    - (related to above). Did you buy your first (or subsequent) home in
    an area where housing prices generally rose over the last 30 year?/ ie
    Buffalo or Syracuse would be bad news, San Diego would have been a very
    smart move.

    - did you ever go through a long period of ill health? Did any close
    family member (eg a child or spouse) undergo a long period of ill
    health or special needs?

    - did you have a support network (parents etc.) who, for example, were
    able to help you provide the downpayment for your first house, or
    significantly defer the cost of college? Or did you enter into your
    mid 20s with significant college-related debt?

    People who can answer 'no' to these questions, of middle class
    professional background, are often doing well. One or more 'yeses' and
    there is a significant problem.

    Yes there are differences in savings or investing behaviour eg do you
    own a 2 year old car, or a 6 year old one (my gut is that once cars are
    7 years old plus, the cost of repairs begins to offset the gain from
    low depreciation). But at 55, that has less impact than one might
    think (because pension savings is about *future* income)-- a lot of the
    accumulation of financial assets takes place after you are 50 or 55.

    If I have advice to my children, it is to avoid divorce, to try to
    select a career where there is always demand for your services
    (medicine or law or accounting, perhaps rather than architects), and to
    try to stay healthy. And to not have too many children, because if one
    of them has special needs or disabilities, it is going to cost.

    Just about the *worst* professionals for personal financial management,
    in my experience, are financial planners (of the commission driven
    sort).-- an industry full of the multi-divorced and 'fast live-ers'.
    Go figure ;-).
     
    , Jan 22, 2007
    #19
  20. anoop Guest

    wrote:

    > My empirical experience is that 4 (or 5) major life events have a huge
    > impact on your financial position at 55:


    Wow. This is one of the best posts I've seen that articulates the
    risks
    that a young person is exposed to. All of the financial planning that
    one does can go down the tubes when hit with a major unexpected
    event that one has no control over. One can scrimp and save and get
    hit by one of these events and find one's self no better off than one
    that has had the attitude of "living for the day." That gets us to the
    psychology of regret:
    http://finance.yahoo.com/expert/article/moneyhappy/18862

    My personal opinion is that a balanced approach works best.
    Enjoy life while you can but save a reasonable amount for a
    rainy day with the understanding that the rain may be so much
    that it might wipe you out.

    Anoop
     
    anoop, Jan 22, 2007
    #20
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