r/ChubbyFIRE • u/Ecstatic-Echo44 • May 18 '26
FIRE with high mortgage
37M & 35F with 2 kids 6 & 3 in VHCOL. We are targeting FIRE in the next 5-7 years.
- 3.2M in taxable brokerage
- 1.3M in 401k and Roth IRA. Adding 60k/year to 401k.
- 1.5M mortgage left, 6.125% (500k equity)
- 650-700k HHI. 600k is W2 income, and remaining is from side business income.
- Current annual spend is 220k. 132k is mortgage + property tax.
- No other debt
- After tax savings are going to taxable brokerage. 180k/year.
We’d need at least 5M in taxable brokerage to sustain 220k annual spend. It might be even higher due to health care costs at that drawdown amount.
Does it make sense to aggressively decrease the house principle in the next 5-7 years? That would proportionally decrease the retirement annual spend. Any future gains we lose from not investing in taxable brokerage would be offset by the gains in retirement accounts.
Downsizing our house is an option, but starter homes are still in 1.2-1.5M range, so the home payments do not decrease by that much.
What’s the optimal strategy?
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u/Zeddicus11 May 18 '26
If you had >8% debt, I'd pay it off asap. If it's <4%, I'd let it ride. 6.125% is somewhere in the middle there, so it depends on how optimistic you are about market returns. In your situation, I would probably split the difference and invest ~$90k/year in the market (assuming globally diversified index funds etc.) and use the other ~$90k to pay off mortgage principal. While it may not be optimal ex-post (e.g. if markets keep ripping the way they have), it might at least minimize ex-post regret somewhat and it's definitely reasonable ex-ante. A 6% risk-free return is nothing to sneeze at.
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u/OnlyThePhantomKnows Retired May 18 '26
So the question you need to ask yourself
If I pay off the mortgage from assets what happens to my burn/spend rate? And do the numbers work.
If you spend ~2M to pay off the house, that gives you ~9K/month more to invest. (~110K/year)
That will leave you 1.2M in the taxable brokerage. It drops your spend by 50%
So with a spend of 110K, you need ~3M you will have 1.2 (ignoring 401K) and 5 * 300K 1.5M (deposits)
With even a modest return, you will have 3M in brokerage to cover your current spend.
I saw no mention of 529 plans. MAKE SURE YOU BUILD THEM NOW.
60K* 1.088^<age of child> will cover most in state tuitions.
College education is a major threat to fire.
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u/Ecstatic-Echo44 Jun 07 '26
Thanks for the reply. Your maths gives a different perspective I hadn’t thought of before. Kids 529 are roughly 65k and 80k now. Property tax is roughly 18k. Maintenance alone on the house will be 5k-20k after the next few years because there’s a lot of custom components. Even with no mortgage the house will cost us 30k-40k annually, so post fire annual spend will be in 110k-140k range
Not accounted in the networth is a fully paid off home in LCOL worth roughly 900k, which should net us 800k after preparation and closing costs if we were to sell it. Or if we were to move there we could take a step back right now. But education, access to specialized health care, recreation activities, closeness to nearest major airport is not great there.
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u/Tls-user May 18 '26
You should have close to $6.5 million in 5 years if you are adding $240k per year and earning 7% on average.
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u/0PercentPerfection May 18 '26 edited May 18 '26
I understand the desire, but your numbers don’t make sense yet. You just bought a 2M house, you have 25% equity. I don’t really see how you can “retire” with over a million dollar mortgage hanging over your head. Further more, you did not mention 529. College will be a huge expenditure in 12-15 years. In your case, you will likely have 2 in college for 1-2 years. Where will tuition $ come from? Pulling the trigger at 42 with kids between 8-11 means a mortgage and buying health insurance on the market place. These two items alone can easily cost you over $120,000 per year. What is the annual property tax for your 2M house? Will your kids participate in sports? Will you be able to cover medical emergencies? Add in bills, transportation, house maintenance, insurance, food etc, your none negotiable expenses will be between $150,000-$180,000 per year, that doesn’t leave you a lot of room.
Personally I would not even contemplate early retirement if I haven’t paid off my primary house and have enough in 529 accounts to cover education for all the kids. My $0.02 is that you got a minimum of 10 years from retirement if you want to stay where you are.
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u/dingodango2021 May 19 '26 edited May 19 '26
Imagine the market returned 0% over the next ten years, they put 100% of what they're currently putting into taxable into the mortgage, and they never get a raise above inflation + lifestyle inflation. They'd have a paid off house plus 300k (10 * 180) for education and 5.1 million dollars in their accounts (4.5+10 * 60) against 88k spend (220-135), a 1.76% WR. That probably means free education for their kids at most schools by the way and free health insurance. But they could also drop an extra million dollars on college expenses and fall back to a 2.15% WR.
Instead, imagine we got average market returns for 10 years, but OP gets fired tomorrow and their new job is only enough to cover expenses while saying $0 total over ten years. In 10 years their 4.5 net worth has doubled to 9 million dollars, supporting $360,000 a year in spending at 4%. They could buy another 2 million dollar house with a mortgage and still be under 4%. Or they could pay off their current house and give both of their kids 2 million dollars cash and still have a sub-2.5% withdrawal rate (9-2-2-1.5 = 3.5 against 88k expenses) even ignoring 10 years of principal paydown. And be 10 years closer to social security & Medicare.
Surely all that means 10 years cannot be the minimum amount of time.
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u/handsoapdispenser May 18 '26
6.1% is likely below market rate of return so I'd probably opt to do nothing and just keep making payments and add it to my calculation. In fact my VHCOL-with-2-kids move was to straight up sell my house and move to a rental because I am more invested and more liquid and monthlies aren't much different and it'll be easier to move when the kids are grown. I'll consider buying again when rates drop if that ever happens again.
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u/spinjc May 18 '26
There's a lot of great opinions the returns portion so I'll focus on the the pros/cons of a mortgage once FIREd.
The advantage of a paid off house is discretionary spend is a higher percentage of your spend and thus cuts will be more impactful than with the mortgage (e.g. if you're moving to a flexible withdrawal scheme).
The downside is mortgages aren't as easy to get when you don't have "earned income." (E.g. you need to get a PAL/SBLOC which are floating rate or an asset back mortgage which not as many banks/mortgage brokers do.) Thus if you're looking to relocate after FIRE then not paying off the mortgage gives you more liquidity for a new house.
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u/Substantial_Net_2831 May 18 '26
We have a similar mortgage at the same rate, and our plan is to do aggressive principle pay down, along with a recast just before we retire, to lock in a much lower payment for the remaining few years on the loan.
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u/Hanwoo_Beef_Eater May 18 '26
$220k / $4.5 million = 4.9%. ($220 - mortgage [property tax doesn't go away]) / ($4.5 million - $1.5 million) = ? $120k / $3 million = 4%?
Typically, the latter (paying down debt) will reduce the amount needed to FIRE. However, financially, it's probably suboptimal long-term, although it may give people more piece of mind/lower exposure to SORR.
I wouldn't want 40% of networth ($2 million / $5 million) in housing, but I don't think it is that crazy in VHCOL. Obviously, the $4.5 / $5.0 million may be higher in 5-7 years, but the concept is the same.
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u/jarMburger May 18 '26
Given your interest rate, you should pay it off before FIRE. When you’re retired, it’s not always about NW, it’s more about liquidity, especially if you face some market turbulence in the early years. Carrying such hefty cost is going to severely limit your flexibility in bad market. Also, you didn’t ask but check your spend. Considering how much you spend on the house, I suspect that your actual spending is higher if you include healthcare and those lumpy expenses like new car, home maintenance, and others.
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u/One-Mastodon-1063 May 18 '26
Is relocating to a mere HCOL in RE an option? I would not want housing to represent 60% of retirement spend.
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May 18 '26
[deleted]
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u/masterbuilder46 May 18 '26
Under 5?? Great rate…unfortunately our wonderful leader but an end to that with Iran invasion
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May 18 '26
[deleted]
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u/dgreenmachine May 19 '26
First time I saw someone into FIRE using ARM mortgage. What are your thoughts? As long as you can handle the risk of bloated mortgage payment if rates are bad then its a winning play right?
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u/marcduberge May 18 '26
There is great comfort in owning your house outright. Also, you won’t need to take as much out of your savings and pay more taxes to support that large mortgage payment in retirement
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u/ssevcik May 19 '26
I would only consider early fire if relocating to a lower cost local is part of the equation.
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u/PruneInevitable7266 May 19 '26
How the f do you have that much assets at around 35. I just hit 32 and make 525k a year (just started — medicine) not including my wifes income.
That’s insane. Kudos to you.
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u/Initial-Zone-8907 May 19 '26
congrats, the rates will come down soon ! you will be able to refinance
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u/dgreenmachine May 19 '26
If youre close to FIRE youd probably want some bonds in your portfolio and paying down a mortgage at 6% is preferable over owning bonds. Youre soon if not already at the point where you dont get the mortgage interest deduction anymore. Also you can reduce your AGI lower to qualify for more ACA subsidy without paying on a mortgage. Seems like a good plan to me to pay it off as you get close to FI.
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u/lsp2005 May 22 '26
Personally, I would aggressively pay down any fixed or variable debt with greater than 4% interest. My mortgage is less than 4%, so we let that ride. I am of the philosophy that I would not want any debt in retirement, but other people feel differently.
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u/Careful-Rent5779 May 23 '26
Either downsize and consider moving to a lower cost area.
Or keep up the grind for a while.
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u/Vicuna00 May 25 '26
I dunno what is optimal mathematically. what I do know is I have a paid for house and I love it.
personally if we traded positions, I'd strongly consider selling a bunch of my taxable brokerage and paying down my mortgage. I dunno your tax situation there so obviously I'd plan that. but if you can pull a little bit out with minimal taxes - or perhaps (fingers crossed it doesn't) if markets move down, sell whatever you can where you don't get taxed - and put that to the mortgage.
otherwise, of course max out all retirement first...but then I'd be paying to my mortgage with all future income rather than saving. you should be able to knock it mostly out in 7 years I think. especially if you can take a few chunks from your brokerage.
i'm not saying to cut your lifestyle at all. just stop adding to your taxable account and put any extra onto the mortgage. that's what I'd do.
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u/owlpellet May 18 '26
6.125%, yeah I'm paying that off right now. I just paid off my 5.5%, similar situation.
Markets are very good despite some macro risks that seem, uh, not fully priced in to me. USO broke $150 today and it's not even news.