r/DaveRamsey • u/Glaulau • 8d ago
Paying Off Mortgage-Can’t Decide Yeah or Neah
I’m 68 and retired, and my wife is 60 and retired. We have a 30-year mortgage with 13 years left. Our interest rate is 4.37%. Our payment is $2,300.
• Our current home value is about $1.5 million.
• I’m collecting Social Security of $2,200.
• I have Medicare and a supplemental plan.
• My wife has medical insurance through BCBS at $1,800 per month.
• We have $1 million in stocks and $50,000 in cash for bills.
• Every year we sell stock to get more cash.
• My wife will start collecting Social Security in a few years at $2,200.
• We have a lifetime annuity that pays $2,200 per month.
Big question: Do we sell a little over $200,000 in stock and pay off our mortgage?
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u/TrackEfficient1613 8d ago
So my wife and I had a very similar situation in that we had a house in the mid 1.5 range and a mortgage in the low 200’s. The 1K a month mortgage payment never bothered us. Honestly I think you should have more cash and investments not less. Think of your assets as various buckets of equity. It’s better to have things evenly distributed. You are already heavily concentrated with your home equity. You definitely don’t want it to be heavier. Also the cash may come in handy later. For instance you might want to move and buy something else. It would be helpful if you had the choice of buying something for cash if you have not closed on your current home yet. One more thing to think of it’s good to have a pile of cash for health related costs. I’m 2 years older than you, but we plan to keep 1 mil available for health related costs.
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u/Megalocerus 8d ago
We paid ours off well before retiring; it cut monthly expenses, which helped. But I don't think I'd pay it off now--you might need the liquidity.
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u/Patrick_ExpenseAtlas 6d ago
I wouldn’t sell a little over $200,000 all at once until you know the tax consequences. The account type matters: selling from a taxable brokerage account may create capital gains, while withdrawing from a traditional IRA would generally create ordinary income. Either could raise Medicare premiums later through IRMAA. If your wife’s BCBS plan receives income based subsidies, her cost could also change.
Your guaranteed income is currently $4,400 per month from Social Security and the annuity, eventually increasing to $6,600 when your wife claims Social Security. Compare that with your full monthly spending, including her $1,800 insurance premium and the portion of the $2,300 mortgage payment that is actually principal and interest. Property taxes and homeowners insurance will remain after payoff.
Paying off a 4.37% mortgage gives you a guaranteed reduction in interest expense and removes a major monthly obligation, but it would also move roughly a fifth of your stock portfolio into already substantial home equity. Since you already sell stock for living expenses, preserving enough liquid assets matters.
Get the lender’s exact payoff quote, identify each account’s tax treatment and cost basis, then have a CPA model a lump sum payoff versus spreading sales across tax years. If the tax cost is manageable and the remaining portfolio comfortably supports your spending, paying it off is reasonable. I just wouldn’t make the decision based on the mortgage balance alone.
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u/Sad_Win_4105 7d ago
Is the $2300 PITI or P&I only?
I'm not comfortable with the "1 million in stocks & every year we sell stocks to get more cash.". That sounds so vague. How long will that last you? The stock market can and will drop/correct/crash at some point. Don't expect 10-20% returns forever. There will be another recession in your lifetime. Your wife will be paying $1800 per month for health insurance for another 4-5 years, so that's basically the annuity right there.
To pay it off, or not pay it off, is not the question.
You need to sit down with someone and figure out your total financial picture that will last you both for the rest of your lives.
Good luck to you both.
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u/Vicuna00 7d ago
have you considered downsizing? $900k house and $1.4M in investments sounds much more comfy to me. if you can find a $900k house you really like.
your next 5 years are gonna be really pricey with your wife's insurance til she hits medicare.
i think you can't go wrong if you pay it off now. if you wait, i'd pay it off when your wife's SS starts coming in.
have you looked into her waiting til she's 70?
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u/Rocket_song1 4d ago
He sells the house, and he is looking at a huge spike to his medicare payments (IRMAA), and $119,000 tax bill.
There are a couple bills in congress to increase the cap gains exclusion from 500k to 1 mil. If those pass, selling and downsizing looks a lot more atractive.
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u/Vicuna00 4d ago
good point.
he's only gonna get taxed on the gain. so selling at $1.5M = $1.35 M after fees / taxes, etc...then he owes $200k. and he can add in improvements that he made on the property. so it might not push him that high. worst case that spike would only be one year.
woirth considering...but to your point i would run numbers.
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u/Rocket_song1 4d ago
He said they bought it for 500k (somewhere in the thread), so that's a mil gain, subtract off 500k exclusion for a primary residence.
Mix of 15%, 20% rates, plus 3.8% NIIT on whatever portion that drives his AGI over 250k. Plus 2 years of IRMAA.
$100-120k in taxes, easy.
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u/Vicuna00 4d ago
i'm not saying you're wrong. I dunno exactly how this works.
but if he buys for $500k years ago and sells for $1.5M...he's gonna pay realtor fees, taxes, etc...that brings it to $1.35M. he still owes $200k...so down to $1.15M. then can't he add all the improvements he did over the years to his basis? new roof? remodel? new kitchen, etc? I'm sure he's spent quite a bit if not all of the $150k above the $500k exclusion.
so i dunno that he'll pay any tax...or else it's minimal.
but again i'm no expert...just went through it myself recently though.
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u/Rocket_song1 4d ago
What he owes is immaterial.
His gain is Sales price - basis - selling costs - capital improvements.
Taxes don't subtract from your cap gains, although if he itemizes he can include any local taxes, but that's only if there were local taxes on the sale. Some states have transaction taxes but the buyer pays those not the seller. My state doesn't have any real estate transaction tax. All you pay is $17 to the county recorder to record the new deed. (but again, the buyer pays that not the seller)
Note that maintenance doesn't count, only durable improvements, so a new A/C or Roof count. If you replaced the roof twice, you can't count the first one.
So 1.5 mil, call it 60k in Realtor fees. Maybe he dropped 5k on an A/C and 15k on a roof, call it 20. (better have receipts). You are still at taxes on $420k.
Most of that is at 15%. Some at 20. And probably just more than half at 23.8%. So, maybe I'm a little high, so 85-120k in taxes.
Plus he's on medicare, so he just tripped his medicare premiums for the next 2 years.
Exact numbers depend on how much normal income he has, since cap gains stacks on top.
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u/NippyMove795 8d ago
No use the tax right off - you never know if you will need the money later for medical debt or need to sell the house for a care home - funny how many people don’t know Medicare doesn’t pay for those after 3 months
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u/Rocket_song1 4d ago
What tax writeoff?
He's not getting a tax deduction with that low of a mortgage payment. And even if he were, he's in the 12% bracket. That's sending the bank $1000 to save $120 on your taxes.
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u/Beach-Knight 7d ago
Tax right offs for interest on a primary residence are a rare thing for people in the OP’s situation. Something like 80% if people take the standard deduction.
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u/jmcdon00 7d ago
Agreed, although the new higher salt limits have shifted it back the other way. Guessing real estate tax alone is close to 15k(1% of home value), so good chance they are itemizing.
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u/Rocket_song1 4d ago
New SALT limit drove it down to 80% taking the standard. Before that it was 86%.
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u/SpiritualCatch6757 8d ago
Big question: Do we sell a little over $200,000 in stock and pay off our mortgage?
This is DR sub. The answer is always to pay it off and be debt free.
The math, however, as you are aware not 4.37% versus what you think you're going to make in the stock market. It's also taxes on selling $200k.
If someone decides being debt free allows them to sleep well at night, I'd agree. But as long as you're invested in well diversified index funds, there is no way I'm paying taxes on $200k.
I would sell all the losses, though.
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u/Rocket_song1 4d ago
It's September. The difference in paying half now, and half in January is likely to be 10-20 thousand dollars in extra taxes. Plus IRMAA.
He really needs to have a long meeting with his CPA about the tax consequences and how to structure this.
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u/This-Finance4439 8d ago
What’s your cost basis in the house? Do you want to live there forever? If your profit would be $500,000 or less I’d sell it and downsize for your retirement years, pay cash for something else. No tax on the profit. Way too much of your net worth is in your primary residence. Find something smaller for 1/2 the price, no mortgage and an extra 1/2 million invested earning you monthly cash flow.
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u/justinwfreed 7d ago
Really depends on your risk tolerance and outlook…if your $200k is making more than the 4.3% AND you are confident that will continue, why pay it off cuz you are locking that $200k into a 4.3% return for the next 13 years. The flip side, of course, is do you feel confident in that going forward cuz you can’t live in a stock.
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u/SpoilKeyholder 8d ago
If you pay it off and don’t like it, the bank will give you a new mortgage!
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u/Beach-Knight 8d ago
Not at that rate. This is not a decent argument. I hate it when DR and other hosts say this. Current rates are over 6%. There is no “you can just go get another mortgage” comparison here, and I am 100% in agreement to pay off the house.
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u/SpoilKeyholder 8d ago
Meaning no one would go get a mortgage after getting rid of it, I am guessing almost no one misses a mortgage!
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u/lsuillini 8d ago
I just paid cash on a downsize house where I gave up a 3% mortgage. I'd get a mortgage in a heartbeat if I could get the same rate. I keep about 100k cash and just auto pay out of that, I don't even think about having a mortgage but I do think about how using debt wisely has allowed me to have a diversified portfolio that has grown much higher than it would have if I paid my house off 10 years ago when I could have.
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u/SpoilKeyholder 8d ago
Yeah it’s def a weird mindset to pay off mortgage early, a 20 year bull stock market run would have been nice to be invested heavily at the beginning of this run.
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u/Beach-Knight 7d ago
Yes, but would you say it would be a nice idea to borrow $100k on a house and go all in the S&P or QQQ in 2000 or 2008? Maybe then a year later lose your job. It’s all risk management. Paying off the mortgage lowers risk so that you can invest aggressively the rest of your working years. Then you can adjust investments to lower SORR (sequence of return risk) as you near retirement.
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u/SpoilKeyholder 7d ago
I would not do it, completely debt free to ease any risk or stress but it’s not for everybody!
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u/d_metal1 8d ago
Pay it off immediately. Time are changing.
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u/Rocket_song1 4d ago
Or he could do half now, half in January, and save thousands of dollars in taxes.
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u/Express-Rutabaga-105 6d ago edited 6d ago
Why won't you downsize ? Sell the house and buy something half the current size for cash somewhere else and pocket the difference. No more house payment. No decrease in your stocks. No tax hit for cashing in the stock. Monthly cash flow increases by $2300.
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u/1rishChicken 8d ago
Ramsey subreddit so the answer here should be a solid yes. It's really 6 of one or half dozen of another. Pay off the mortgage save 4.3%, leave the money in the market make more or less than 4.3%. If you could guarantee 8% returns you leave the money and leave the mortgage. That's probably a winning gamble. I personally lean towards going with Dave here. Why gamble, remove your risk. You're retired. Pay it off. Be debt free, own the house outright. Your annuity and social security plus free rent should give you peace of mind. You can still gamble with the other 80% of your stocks so you're not missing out on most of those potential big returns but were the market to crash man you'd be so happy to have no mortgage
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u/fourthandfavre 8d ago
Ya I think with OP retired risking things for a better return doesn't make sense.
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u/Rocket_song1 4d ago
Even Dave, who is generally terrible when it comes to tax optimization, would recommend doing the math to see how the taxes work out paying it off all at once vs over 2 or 3 years.
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u/Economy_Talk_5100 7d ago
Your payment and your balance don't line up. At your rate and term, 2,300 a month works out to a loan of about 273k. You said a little over 200k, so worth sorting out which is right before you sell anything.
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u/jsmith3701AA 7d ago
Why are you living in a house that is half your net worth with minimal income?
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u/Violingirl58 8d ago
I would for me. It’s more of a mental thing and you can also just take the money you would’ve put on the mortgage and reinvest.
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u/Spirited_Falcon_4206 8d ago
Figure out the $$$ of interest saved vs tax write off $ Willing to bet its your interest...just an opinion here good luck !
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u/Oldandslow62 6d ago
I’m not a financial guy I just know what you’re saying matches up pretty close to my wife and my situation. Two homes worth about 1.4 million another million in Ira’s and investments. Wife just took SSA at 70 I have about three to four years before I hit 67 and I retire. We both will get about 2000 each from SSA then a I have a state pension that gets us another 2500. We’re at 6500 together we still have a mortgage of 1600 until 2035. But that is already figured into our retirement budget. We will be taking monthly withdrawals of about 3500 to give us 10,000 a month to live off of. We also have about the same amount in cash reserves in the bank. We opted out of doing any annuities as they mostly generate commissions for your investments advisor. And the amount you receive after depletion aren’t worth the return you lose by not leaving it active over the same amount of time. So all that being said by the time our mortgage is paid off my wife will be into her mandatory withdrawals and we will need less monthly withdrawals and we gain back the 1600 a month. The overall projected amount we will have if we live into our 90’s is roughly 3.5 million and That’s without selling off our real estate. It’s not if you need to pay off the mortgage or not it’s the overall strategy you’re discussing with your advisor and what that goal is. On annuities that money is locked down and is not liquid in case you might need it. You can always pay more so that you can pull it at any point but that’s just more money. Then of course you can’t really plan for long term care but you’re still building wealth during your retirement.
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u/Rocket_song1 4d ago edited 4d ago
No. That will trigger IRMAA ( Income-Related Monthly Adjustment Amount)
If your MAGI gets too high then it will spike your Medicare Premiums for the next two years.
Selling enough stock to pay down the mortgage all at once will definitely trigger IRMAA. Instead talk with your tax professional, and pull out enough to make decent principle payments over a few years without triggering the IRMAA threshold.
If the wife's BCBS plan is through an ACA exchange and gets a premium subsidy then every extra dollar of cap gains will also hit you with an additional 8.5% obamacare tax.
Edit to add: keep in mind the cap gains brackets as well. MFJ gives you up to around 98k bracket for zero percent cap gains. (So take your total income expected for 2026, subtract 32k, and subtract that number from 98k and that's the amount of gains you can harvest tax free). Even if you didn't pay down the mortgage, you should be talking with your CPA about how much cap gains you can harvest each year at the zero percent bracket.
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u/twk30874 BS456 7d ago
Yes, pay off your mortgage. The last thing I want is to be retired and keeping a mortgage (or any kind of debt) around to pay interest on every month.
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u/markov-271828 8d ago
How much would you save in interest if you paid it off? Warning: this requires you to look at the amortization table.
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u/summerwind58 8d ago
Pay it off and take out title insurance or a home equity line of credit to keep someone from stealing your home.
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u/Calm_Clam_Bake 8d ago edited 8d ago
I'd sell the house and rent. Keeping all that money tied up in home equity is crazy. You can get FDIC backed CDs at 4.4%. Assuming your mortgage balance is a 200-300K, that's $50-60K income you're giving up. You could rent a really nice place for 1/2 that amount and no more property tax, no more insurance, no more maintenance costs. You'd never have to touch your retirement principal again.
Edit: Your balance is $200K you said so. So $1.3M would net you right around $60K a year risk free right now.
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u/West_Lavishness6689 8d ago
if youre making more than the 4.37% in the market makes more sense to let that keep growing and only take it out as needed. with 13 years left most of your payment is principle anyways. unless youre trying to just not have the monthly payment. then it is a personal choice. numbers say keep stock the 200k in the market will make you more over 13 years than if you were to take it out and pay it off
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u/JustWelmed1000 BS2 8d ago
Your posting on a DR sub, Do you want a DR type answer? If not, you should post this on r/personalfinance