Retire the Mortgage or Stay Liquid?

[dbarberic]

I am fortunate enough to have accumulated enough assets through frugal living to pay off my mortgage after living in the house for only 8 years. However I am wondering, does it make sense. I thought the iTulip community could help me figure it out.

After paying off the house, I will have roughly 8 months of living expenses saved in a highly liquid account, with the balance of my assets in 401K/IRAs.

While paying the house off gives me security and a total monthly lower expense, it locks up a lot of cash into a highly illiquid asset. For all practical purposes, once the mortgage is retired the cash cannot be freed up again until sold. As much as I like security from paying off the mortgage, I like the idea of having complete flexibility over cash/asset.

However, if I choose not to pay off the mortgage, then there is the question of what do I do with the cash. Given the true rate of currency depreciation, cash is a terrible place to keep it and I will need to find alternatives. Given EJ’s recent commentary regarding the next 10 years, I’m not sure I can even find a suitable place to park it. Paying off the mortgage seems like the lower risk and guaranteed option.

Some additional stats:
Age: 38
Mortgage: 5.25% with 16 years left

Thoughts?

[jiimbergin]

Re: Retire the Mortgage or Stay Liquid?

I am fortunate enough to have accumulated enough assets through frugal living to pay off my mortgage after living in the house for only 8 years. However I am wondering, does it make sense. I thought the iTulip community could help me figure it out.

After paying off the house, I will have roughly 8 months of living expenses saved in a highly liquid account, with the balance of my assets in 401K/IRAs.

While paying the house off gives me security and a total monthly lower expense, it locks up a lot of cash into a highly illiquid asset. For all practical purposes, once the mortgage is retired the cash cannot be freed up again until sold. As much as I like security from paying off the mortgage, I like the idea of having complete flexibility over cash/asset.

However, if I choose not to pay off the mortgage, then there is the question of what do I do with the cash. Given the true rate of currency depreciation, cash is a terrible place to keep it and I will need to find alternatives. Given EJ’s recent commentary regarding the next 10 years, I’m not sure I can even find a suitable place to park it. Paying off the mortgage seems like the lower risk and guaranteed option.

Some additional stats:
Age: 38
Mortgage: 5.25% with 16 years left

Thoughts?

how much pm do you have?

[dbarberic]

Re: Retire the Mortgage or Stay Liquid?

how much pm do you have?

Physical = 6% of networth
Central Fund of Canada = 9% of networth
Misc Gold Stock Funds = 6% of networth

Total = 21% of networth is in PM or heavily tied to PMs.

[jiimbergin]

Re: Retire the Mortgage or Stay Liquid?

Physical = 6% of networth
Central Fund of Canada = 9% of networth
Misc Gold Stock Funds = 6% of networth

Total = 21% of networth is in PM or heavily tied to PMs.

I personally have about 50% (excluding my home which is paid off). My home is paid off. Logically it would make sense to a partial cash out refi with the debasing of the dollar we all forsee, but just can't convince myself to take on debt. The last debt I had was in 1992 (a small mortgage). I am not sure what is best for you.

[Milton Kuo]

Re: Retire the Mortgage or Stay Liquid?

I am fortunate enough to have accumulated enough assets through frugal living to pay off my mortgage after living in the house for only 8 years. However I am wondering, does it make sense. I thought the iTulip community could help me figure it out.

After paying off the house, I will have roughly 8 months of living expenses saved in a highly liquid account, with the balance of my assets in 401K/IRAs.

While paying the house off gives me security and a total monthly lower expense, it locks up a lot of cash into a highly illiquid asset. For all practical purposes, once the mortgage is retired the cash cannot be freed up again until sold. As much as I like security from paying off the mortgage, I like the idea of having complete flexibility over cash/asset.

However, if I choose not to pay off the mortgage, then there is the question of what do I do with the cash. Given the true rate of currency depreciation, cash is a terrible place to keep it and I will need to find alternatives. Given EJ’s recent commentary regarding the next 10 years, I’m not sure I can even find a suitable place to park it. Paying off the mortgage seems like the lower risk and guaranteed option.

Some additional stats:
Age: 38
Mortgage: 5.25% with 16 years left

Thoughts?

Being that you would only have eight months of living expenses after paying off the mortgage, I would not pay off the mortgage right now if I were you. Eight months of living expenses is not very much especially during an era of high unemployment with a high median duration of unemployment. If something bad should happen to you, you do not want to be in a situation where you only have eight months to sell your house.

Being that we expect inflation and further devaluation of the dollar, I would consider refinancing into a 15-year mortgage, which could shave off roughly 1+% from your current rate or maybe even refinance into a 30-year mortgage. If you have enough liquid assets and are willing to take some risk, you could also go so far as to take a cash-out 30-year mortgage.

If I were in your shoes (I'm a person who's more willing to take risk), I'd take the cash-out 30-year mortgage (assuming I could get a 4.5% fixed-rate mortgage) and put a percentage of the proceeds into gold. It seems the U.S. is hell-bent on making junk paper good through dollar devaluation and I see almost no possibility that gold will fall in price over the next five years. If you're particularly risk-averse, you could sell the gold as it appreciates and use the proceeds to pay down the mortgage.

The only warning with the cash-out refinance plan is that gold is likely to be more volatile going forward than it has been for the past decade. If you are unable to stand pat in a drawdown, then you shouldn't consider this strategy. In that circumstance, it'd probably be best to take your current mortgage and refinance into a 15-year mortgage.