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Subject:  Re: Retirement planning Date:  9/29/2004  9:28 PM
Author:  babyfrog Number:  42502 of 88104

Hi invest02,

How much of your total worth should be in your home?

You need a place to live. You will pay for that place to live, regardless of whether you own or rent. If you have a mortgage, you're paying the servicing costs on the mortgage. If you own the house free and clear, you're tying up cash that could otherwise be generating you income in the house. If you rent, you're paying the landlord's mortgage.

No matter what your situation, you're paying for your place to live, either via forgone income or directly via rent or interest payments.

So my answer to your question is "enough so that you're comfortable in your surroundings, but not so much that you are required to sacrifice your lifestyle and long term security on the alter of your dwelling."

Is it wise to sell & invest the money or hold the house?
There's something to be said for owning a house free and clear. If I owned my house free and clear, my monthly housing expenses would drop by about 2/3rds. I believe that over the long run, however, I will likely end up better off financially by keeping the mortgage and investing, rather than pre-paying the mortgage and retiring the debt sooner.

That being said, owning a house is a lifestyle unto itself. In addition to the mortgage and utilities payments, there's yardwork, inside maintenance, cleaning, appliance repair and replacement... All of which take some measure of both money and time. If I didn't own the house, they'd be someone else's problem. If I rented, the costs would be included in the rent, and the effort would be the landlord's.

It's a lifestyle question at least as much as a financial question, and only you can answer it for yourself.

I guess I'm wondering if housing prices will fall or continue to go up.
My crystal ball is on the fritz, sorry. Reports of a pending collapse in the housing market have been news for well over a year now, and you've seen how that has worked out. At the same time, house prices in relation to income is historically very high right now, and that might compress if long term interest rates start moving up.

Do you like the house? Do you like the neighborhood? Can you handle the upkeep? If you weren't living in that house, where would you live? In all seriousness, those questions are far more important to answer than what direction house prices will move in the near term.

Best of luck to you,
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