One of the questions that we get asked at CLF regularly is,”should I scale down and become mortgage free?”. I suppose the best answer would be yes, get yourself mortgage free as soon as possible. In 2009 the United States (and most of the Western world) is going to be in a deep recession.
This means that being mortgage free has some they advantages. Been mortgage free always has advantages but when the economy is in rough shape it has even more advantages. I realize that this article is more useful to people who are in semi-retirement or already completely retired, and these are the reasons most people over the age of 45 to 50 years old consider becoming mortgage free.
A classic example of how couples over the age of 50 become mortgage free would have to be moving from a large city Center to a smaller town. To demonstrate this I will use a case study of somebody who recently wrote us on one of our other finance related web sites. In this example we will use the story of Betty and Brant.
Brant is 45 years old and works from home exclusively. Betty also works at home as part of their small business. The children are all grown up now and they don’t need the big house they own in Los Angeles, and they don’t want the mortgage payment they still have on their home. They owe $170,000 on their mortgage and their resulting mortgage payments are $970 per month. They have a motor home loan left for $80,000 and that payment is $650 per month as well.
They lease a small car which has a payment of $350 per month and that is not required anymore either because they both work at home and don’t need to have perfectly reliable transportation. Their home is worth $750,000 in the new California economy (wink wink), and they could easily move from Los Angeles to a smaller Center and have their house paid off mortgage free, their motor home paid off, and their leased vehicle done with. This would mean they would have no mortgage payment, no car payment, and no motor home payment. Essentially they would be debt-free.
Brant and Betty are not interested in chasing their children around the country (they have four children and only two of them still live in California) so deciding where they want to retire comes down to location and logistics, more than “where the kids are”.
They did the math and by having all of these monthly payments gone from consideration and all of their loans paid off they will have enough money to travel much more and live with considerably less stress. As a matter of fact they would even have enough money to buy a bigger motor home clear and free if they could find a house in California in that area they liked for under $400,000.
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Other Posts of Interest
A LOAN CALCULATOR FOR CRUNCHING YOUR NUMBERS IS BELOW; Enter your loan amount, how many years, the interest rate, and payment frequency (14 for biweekly, 30 for monthly, 7 for weekly. Very helpful so you know exactly what the loan will cost you in interest payments and you will know the total COB (cost of borrowing).
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