When do most pay off their mortgage?

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!

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

as the source of this data if you want more details. The next survey will be in 2007.

-Will

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).

Great! Thanks for the info.

- Bill

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

Amen to that. I posted a link to Scott Burns discussion of whether to pay one's mortgage by retirement,

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

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

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

has more space and carries a bit clout than I do.JOE JoeTaxpayer.com

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

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.

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

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.

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.

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:

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

Getting a bit off-topic for this group...

That would be karma. :-)

Anoop

Well, we must all evaluate our risks. I think the big risk I need to cover, however, is that I DON'T get hit by that truck.

Elizabeth Richardson