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Author: tidegirlny Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127459  
Subject: Should I pay cash or get a mortgage? Date: 2/27/2013 4:26 PM
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We are selling our coop apartment in NYC and buying a home in the NJ suburbs. We have an accepted offer to buy a house and are now listing our apartment for sale. Inventory is very low in our neighborhood and we do not expect to have any difficulty selling our place for about the same amount as the home we are buying.

We do not currently have a mortgage and thanks to an inheritance, we have enough liquid assets to be able to pay cash for the new place if desired. About $800K. We would have about $75K left over until we got the money from our apartment, which would probably be about the same time. We have good but not great retirement accounts and are in our late forties.

We are frugal types and I'm tempted to just pay cash for the new place, but rates are sooooooo low. What should we do, what should we be thinking about... Thanks for any advice.

Courtney
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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124856 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 4:30 PM
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IMO, get a mortgage. With 30 yr fixed rates being so low, you can pad your retirement $$ by earning more than you are paying in interest. FWIW we are pretty conservatively invested even now, and getting a return of roughtly 10% after all fees.

IP,
having happily handed the financials over to a financial planner a couple of years ago

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124857 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 5:27 PM
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Hi Courtney,

What should we do, what should we be thinking about... Thanks for any advice.

In this ironic reality, paying cash would be a risky & spendthrift thing to do... you'd be losing the net earnings you'd have made on the working capital (net gains meaning after deducting the costs of the leverage/mortgage,) and you would be carrying both immediate liquidity risks, and future retirement income risks due to the underperformance of your overall balance sheet.

Get a 30 year term loan. If you don't mind paying-up in premium emotional feelings, take the more expensive 30 FRM programs. Its more expensive (some would say unecessarily...) but some justify the higher expense as a quality of life premium... like buying Haagen Das instead of plain label ice cream.

If you are more of a saver by nature, take a 5 yr ARM at about a 30-40% discount in rate vs the FRM (the rate markets are going nowhere fast for a long time forward, and even if that turns out wrong your working capital gains, invested for safe performance, will *always* earn more than your mortgage interest might ever increase.)

Don't treat or invest your coop sales proceeds separately... but rather lump that into your balance sheet total asset balance, and re-apportion your risk/reward account allotments (1st sufficient reserves, then sufficient principal-guaranteed safe accounts, and lastly risk capital you can afford tolose.)

Helpful?
Dave Donhoff
Leverage Planner

PS. IP I'm out of recs... IOU tomorrow ;~)

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124858 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 5:39 PM
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You need to learn to be frugal with your recs.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124859 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 5:48 PM
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You need to learn to be frugal with your recs.
HAHHHH... now I'm even *FURTHER* in debt!!!

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Author: Mosquito7778 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124860 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 5:52 PM
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There, I've got mine left over so I spotted you all a rec.

Mosquito

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124861 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 5:53 PM
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There, I've got mine left over so I spotted you all a rec.
DOH... now I am in debt with COMPOUNDING INTEREST!!! ;~)))

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124864 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 6:49 PM
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I'll toss in my agreement with inparadise and Dave. Go ahead and get the mortgage. It is typically easier to do on a purchase rather than a refinance later.

Further, if you were to refinance to get a mortgage some time after purchasing, you run the risk of only being able to deduct the interest expense on $100k of mortgage - and not even that if you are subject to AMT.

By getting the mortgage now, you are keeping your options open. You can always choose to pay the mortgage off at any time in the future. But you might not be get a loan in the future if you need to.

--Peter

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124865 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 7:36 PM
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I will also agree with inparadise and Dave and Peter about getting a mortgage, but I would suggest a mortgage for no more than 80% LTV (at most).

Furthermore, given the size of the mortgage you are considering - 80% of 800k is still $640k - and without knowing the limit for conforming loans in NJ, it might warrant more analysis as to whether to limit the mortgage size to the conforming limit even if that brings LTV below 80%.

Regards, JAFO

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124866 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/27/2013 9:47 PM
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Furthermore, given the size of the mortgage you are considering - 80% of 800k is still $640k

The high balance conforming loan limit in New Jersey is $625,500.

https://www.fanniemae.com/singlefamily/loan-limits

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Author: spinning Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124867 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 12:53 PM
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One thing about these kind of questions and the discussions they generate is everyone seems to decide there is a Best Answer and you should go all in on that answer.

One option is to split the difference. Get a smaller mortgage, maybe 20%-50% loan-to-value. This hedges your risk but also reduces your potential gains.

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Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124868 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 2:40 PM
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One option is to split the difference. Get a smaller mortgage, maybe 20%-50% loan-to-value. This hedges your risk but also reduces your potential gains.

I haven't checked NJ rates - nor checked in the past few months.
But I know in my area in CA (which also has the higher "conforming" limit) there was a interest rate / cost-of-loan difference between below $417500 and above. (I think they called it "conforming" below $417.5k and "conforming jumbo" for the $417500-$6xx000 range)

So I'd check options for under/over that ~$417K amount

And that'd also put you around 50% LTV

Good luck

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124869 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 2:41 PM
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One option is to split the difference. Get a smaller mortgage, maybe 20%-50% loan-to-value. This hedges your risk but also reduces your potential gains.

Um, no.

Your risk is the same with any mortgage greater than $0, be it 20% LTV or 80%. I've seen houses go into forclosure with a balance as low as $5000.

Financially, the Best Answer is to borrow as cheap as you can for as long a period as you can. *IF* you can earn more than the loan costs. You just have to make sure that you are liquid enough that you can always make the monthly payment.

Not that I am recommending either of these, but PFF pays 5.95% and PGX pays 6.4%.

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124870 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 3:49 PM
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Financially, the Best Answer is to borrow as cheap as you can for as long a period as you can. *IF* you can earn more than the loan costs. You just have to make sure that you are liquid enough that you can always make the monthly payment. Not that I am recommending either of these, but PFF pays 5.95% and PGX pays 6.4%.

Bingo! Hey, Rayvt, we finally agree on something. ;-)

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124871 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 4:14 PM
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Financially, the Best Answer is to borrow as cheap as you can for as long a period as you can. *IF* you can earn more than the loan costs. You just have to make sure that you are liquid enough that you can always make the monthly payment.

Yep... and you can go to 90%, behind your chosen 1st, with a HELOC at Prime + 2.25% (thus, currently 5.5% total.) Do it at purchase, and all the interest is tax deductible... even if you immediately repay the line & avoid interest charges until you have appropriate growth accounts lined up to outperform.

Dave Donhoff
Leverage Planner

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124874 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 4:44 PM
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Do it at purchase, and all the interest is tax deductible

I agree.

... even if you immediately repay the line ...

I disagree. Once repaid, the purchase money debt is gone. Any new borrowings on the credit line would become equity debt, subject to the $100k cap and disallowance for AMT.

--Peter

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124875 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 5:17 PM
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We are frugal types and I'm tempted to just pay cash for the new place, but rates are sooooooo low. What should we do, what should we be thinking about... Thanks for any advice.

I would put 20% down and take a mortgage. Having the assets to pay off a mortgage is the same as having a paid off mortgage to me and it sure gives you much more flexibility if life hands you rough spots.

I will never understand people bragging about a paid off house.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124876 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 5:29 PM
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I disagree. Once repaid, the purchase money debt is gone. Any new borrowings on the credit line would become equity debt, subject to the $100k cap and disallowance for AMT.
AaaaahhhHHHHHHHHHHhhhhhhhhhhhhh!!!! Great distinction... a "little thing" that completely escaped my consideration... assuming the establishment of the liened line itself was sufficient and that only the retirement of the line would cancel the purchase money advantage (clearly an erroneous "ass-u-mption.)

Peter, you are a gem! Just ignore what everyone else says!
Dave

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124877 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 7:33 PM
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I will never understand people bragging about a paid off house.

Having had our mortgages bounced all over the country during the Saving and Loan mess, one of the mortgage companies was completely incompetent, and having a mortgage limited the deductible on my homeowner's insurance, paying off our mortgages was a relief. Interest rates were high, and the cost of refinancing would have been significant because the loan amounts were enough to qualify for low cost refinances and one of the properties was no longer a primary residence.

Putting too much of your financial resources into a home is a bad decision. Owning a home long enough that the mortgage pays off has its advantages.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124878 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 7:38 PM
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We do not currently have a mortgage and thanks to an inheritance, we have enough liquid assets to be able to pay cash for the new place if desired. About $800K. We would have about $75K left over until we got the money from our apartment, which would probably be about the same time. We have good but not great retirement accounts and are in our late forties.

We are frugal types and I'm tempted to just pay cash for the new place, but rates are sooooooo low. What should we do, what should we be thinking about... Thanks for any advice.

Courtney


There will be some cost to obtaining a mortgage, but probably not enough to be a serious concern.

Given your age and situation, keeping the mortgage within a conforming loan is reasonable. You can also check the interest rates on 20 and 25 year loans.

Being frugal gives options.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124879 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 8:11 PM
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Owning a home long enough that the mortgage pays off has its advantages.

It has no advantage over having more than enough in assets to pay it off at any point in time. BFD. Wanna match net worths ?

I only have the experience with numerous relatives ill and mostly dying to know that I would rather have a low interest mortgage with the ability to pay it off at will than to have a paid off home. If you haven't had father, sister, mother, spouse, daughter ill and/or dying, you have led a charmed life.

Chortle away about your paid off house.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124880 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 8:21 PM
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Wanna match net worths ?

I am likely to win.

If you haven't had father, sister, mother, spouse, daughter ill and/or dying, you have led a charmed life.

My parents and other relatives have passed away, including cousins that are far younger than myself.. Life has been far from charmed.

Most relatives of my parent's generation owned/owns their property. Most have/had owned their property for more than 30 years, and have long since paid off their mortgages.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124881 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 8:45 PM
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Most relatives of my parent's generation owned/owns their property. Most have/had owned their property for more than 30 years, and have long since paid off their mortgages.

Deciding to carry a mortgage or not is a very personal choice that often over rides the logical ability to carry a low interest rate debt while earning more money by investing the money you borrow via mortgage. For some people, the Maalox effect of not having a mortgage works best for them. One can be analytical, one can be emotional, and what ever works for you is what is best.

If you haven't had father, sister, mother, spouse, daughter ill and/or dying, you have led a charmed life.

We all go through this eventually, or we live alone. It has nothing to do with the price of tea in china, as long as you follow the basic tenet of keeping enough liquid funds on hand to deal with emergencies. Worse yet, live long enough and your abilities to make sound judgements will deteriorate to the point that you will torpedo yourself, and no one will be able to keep you from doing so, unless you are basically a blob that drools on yourself and can be declared legally incompetent. Easier said than done, and not fun from either side. Living too long can be a fate worse than death.

IP,
preferring to exit this world in a blaze, not a fizzle

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124882 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 9:28 PM
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It has no advantage over having more than enough in assets to pay it off at any point in time. BFD. Wanna match net worths ?

I only have the experience with numerous relatives ill and mostly dying to know that I would rather have a low interest mortgage with the ability to pay it off at will than to have a paid off home. If you haven't had father, sister, mother, spouse, daughter ill and/or dying, you have led a charmed life.

Chortle away about your paid off house.


AMEN!!!

Our family got a big lesson when my Uncle had an emergency quintuple heart bypass surgery 2 days before their big 50th anniversary celebration. They had house & land outside Altanta worth over $1M -- and very little ready cash.

People who brag about having their house paid off are usually people who have no idea of personal finance, and no idea of how much risk they are unknowingly taking on.

My wife mentioned to one of our neighbors (who paid off their new house as soon as their old house in Chicago sold) that we had a $1300/mo morthage payment, and she gasped. Then wife said, The mortgage is 4% and we are earning 7.5% on our preferred stock & bond portfolio. And that if we ever had a brain-f*rt and decided to pay off the mortgage, one phone call to Etrade would take care of it.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124883 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 9:32 PM
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Worse yet, live long enough and your abilities to make sound judgements will deteriorate to the point that you will torpedo yourself, and no one will be able to keep you from doing so, unless you are basically a blob that drools on yourself and can be declared legally incompetent.

My MIL is in this stage. She has never really handled her finances. It is unlikely that she will be able torpedo herself because she probably can't remember the location of her accounts. She believes her phone service is free, because it is on autopay.

It is going to be challenging. Her finances are structured such that my husband has access to her checking account. It is allowing him to manage her day to day expenses without needing to declare her incompetent. She needs in home care, but attempts to hire someone has gone very bad.

preferring to exit this world in a blaze, not a fizzle

It is unfortunate that we can't leave advanced directives that state when assisted suicide would be preferred to living.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124884 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 2/28/2013 9:46 PM
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People who brag about having their house paid off are usually people who have no idea of personal finance,

Oh please!!! Give me a break.

People who chose to pay off their mortgage over time are not idiots with no idea of personal finance. They have simply made a choice that is different from the one you have made.

--Peter

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124886 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 12:28 AM
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Our family got a big lesson when my Uncle had an emergency quintuple heart bypass surgery 2 days before their big 50th anniversary celebration. They had house & land outside Altanta worth over $1M -- and very little ready cash.

Get over it, not everyone who has paid for property is land poor.

We all agree that putting all of your funds into illiquid assets is bad. Regardless of whether the illiquid asset is property or illiquid financial products.

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Author: jrdown Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124887 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 12:34 AM
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Our plan is to pay off the house in a bit under 7 years. LTC in order = check. Good medical insurance = check (until we find out the repercussions come January 2014). No credit card debt = check. Paid for car = check. Investment accounts doing well = check. One year emergency fund for all living expenses = check. Renters in place at both individual four-plexes = check. Other investments coming to fruition with the next two years = check.

We don't live in the largest home but it is comfortable and the neighborhood is safe. This is a goal that is easily attainable but, if something happens, we can pay the lower monthly payment from the refi of 16 months ago. We think it would be neat to use the money for other investments and increase charitable giving.


Robyn
Who thinks a mortgage-burning party would be fun!

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124888 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 1:13 AM
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Our family got a big lesson when my Uncle had an emergency quintuple heart bypass surgery 2 days before their big 50th anniversary celebration. They had house & land outside Altanta worth over $1M -- and very little ready cash.

Everyone on this thread has completely forgotten about OTHER methods for dealing with critical or chronic illness that don't involve stock market arbitrage or cash out refinancing in the case of an emergency.

For example, one could purchase for $100,000 an Index Universal Life policy with an accelerated benefits rider. If a quintuple heart bypass surgery was required, the policy would pay 4 times--that's right 4 times--the initial investment to pull the entire family through such a crisis. It's no longer a matter of the hospital and the doctor getting paid while the patient drains his bank account or firesales his assets.

If not accessed for emergencies, the policy continues to grow--tax free--at stock market like returns.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124889 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 2:25 AM
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OK... let's get the emotions & judgments out of the way, & look at the cold math.


2013-02-28 Courtney Tidegirl
Assumptions;
Initial cash, tax free $800,000
Home value & price $725,000
Marginal Tax rate 25.000%
Cap gains rate 15.000%
Tax-free long-term safe rate 6.000%
Inflation rate 3.000%
Appreciation rate 3.000%
Monthly Housing Budget $2,986.23

1st % 1st bal 1st Pymt 2nd % 2nd bal 2nd Pyt Tot Pts/mo MFA init bal MFA contr/yr 30 yr NW Net Worth Change
#0 Free & Clear 0.000% $- $- 0.000% $- $- $- $75,000.00 $35,834.76 $5,113,325.00
#1 30 FRM LPMI @ max LTV 4.000% $625,500.00 $2,986.23 0.000% $- $- $2,986.23 $700,500.00 $- $5,702,866.00 $589,541.00
#2 30 FRM 80LTV, HELOC 90LTV 3.500% $580,000.00 $2,604.46 5.500% $72,500.00 $332.29 $2,936.75 $727,500.00 $593.76 $5,835,198.00 $721,873.00
#3 5yr ARM 80LTV, HELOC 90LTV 3.125% $580,000.00 $2,484.58 5.500% $72,500.00 $332.29 $2,816.87 $727,500.00 $2,032.32 $5,995,752.00 $882,427.00
#4 5yr IO ARM 80LTV, HLOC 90LTV 3.500% $580,000.00 $1,691.67 5.500% $72,500.00 $332.29 $2,023.96 $727,500.00 $11,547.24 $6,173,118.00 $1,059,793.00
#5 30 FRM 90LTV Jumbo no MI 4.375% $625,500.00 $3,257.84 0.000% $- $- $3,257.84 $727,500.00 $(3,259.32) N/A N/A
#6 5yr ARM 90LTV Jumbo no MI 2.900% $625,500.00 $2,715.90 0.000% $- $- $2,715.90 $727,500.00 $3,243.96 $6,129,789.00 $1,016,464.00
#7 5yr IO ARM 90LTV Jumbo no MI 3.325% $625,500.00 $1,807.97 0.000% $- $- $1,807.97 $727,500.00 $14,139.12 $6,390,322.30 $1,276,997.30


The ultimate bottom line difference to net worth at the end of a 30 year term is the far right column.

Paying cash will cost Courtney $1.2 Million in reduced net worth, given these fairly reasonable & conservative market assumptions.

As I said before, its like paying up for Haagen Das ice cream... its a personal decision. If a person can afford the premium, and wants it, they can certainly pay it.

Screen snaps of my analytical workups;
2013-02-28 Courtney Tidegirl Data Worksheet
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

2013-02-28 Courtney Tidegirl #0 Free & Clear Asset Balances
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

2013-02-28 Courtney Tidegirl #0 Free & Clear Model View
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

2013-02-28 Courtney Tidegirl #1 30 FRM LPMI Asset Balances
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

2013-02-28 Courtney Tidegirl #1 30 FRM LPMI Model View
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

2013-02-28 Courtney Tidegirl #7 5yr IO ARM 90LTV Jumbo Asset Balances
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

2013-02-28 Courtney Tidegirl #7 5yr IO ARM 90LTV vs Free & Clear; Model View Comparison
https://dl.dropbox.com/u/8644020/TMF%20shares/2013-02-28%20C...

OK.......... anybody wade through this & have questions, feedback, leverage in your pants?

Dave Donhoff
Leverage Planner

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124890 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 2:36 AM
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PS. before anyone says it;
If/when rates rise...... rates rise!

When interest rates being charged to loans increase, then interest rates being credited to the MFA accounts can reasonably expect to roughly equate in movement.

The differential between costs of remaining mortgage principal and growth of accumulated growth principal remains unchanged, on the whole.

Cheers,
Dave Donhoff
Leverage Planner

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Author: foo1bar Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124891 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 4:01 AM
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Interesting - I'd want to see a $417K loan in that comparison - it'd be lower interest rate than 4%.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124893 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 9:43 AM
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People who chose to pay off their mortgage over time are not idiots with no idea of personal finance. They have simply made a choice that is different from the one you have made.

"Idiots" was your word and "usually" was mine. It's the bragging, not the paying off that is the key;)

Here are my stats:
Primary residence - mortgage
secondary residence - mortgage
jointly owned house with son -paid for; hold mortgage on his half & soon to be sold
rental townhouse - mortgage
rental condo - paid for(short sale and worth just buying)
rental quartershare of resort hotel - paid for(again just worth buying)

Assets available to pay off all.

The thing is a "paid off house" could be worth quite a range of amounts so I guess I should just start bragging myself but I suspect people who understand the current interest rates would think me ignorant.

And when I was still hoping there might be something to do for my husband, having a paid off house would have meant bupkis Liquid assets felt much more useful. Same when my daughter was ill.

Yes it is a different choice so I guess the next time I hear or see the brag, I should ask for the value;)

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124894 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 9:58 AM
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I guess the next time I hear or see the brag, I should ask for the value;)

Or maybe you could just smile and say "Congratulations."

So much having to do with real estate, at least that of the average Joe or Jane, is emotional, including the driving need to pay off the mortgage. Clearly, from the number of properties you have you are more in the real estate investor category. That is quite a different thing.

IP

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Author: Gingko100 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124895 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 10:48 AM
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"Idiots" was your word and "usually" was mine.
Both are wrong. Those of us who pay off houses are not idiots and not usually ignorant of personal finance. It's arrogant to assume we are.

You can have both liquid assets and a paid for house - and both provide security of different kinds. I have no idea why one would assume it's all one (paid -ff house, cash poor, no savings) or all the other (leveraged out the wazoo).

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124896 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 11:11 AM
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It's the bragging, not the paying off that is the key.

Bingo. If one has the money to pay off the house, but instead prefers to use those liquid funds to pursue higher rates of return than the mortgage note, what are you bragging about? That you're not very bright?

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124897 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 11:13 AM
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So much having to do with real estate, at least that of the average Joe or Jane, is emotional

There's so much emotion driving our nation's fiscal policy and the decisions made about how to spend taxpayer money, maybe individuals should strive to keep emotion out of their finances. Someone's got to be proficient in plain ol' math.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124900 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 12:18 PM
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OK... let's get the emotions & judgments out of the way, & look at the cold math.

I'm not going to argue with your math. I didn't look at it at all, in fact. I didn't read beyond this first line. Because I don't disagree with the math.

But this is personal finance. PERSONAL.

We can't take emotions out of the way precisely because it is intensely emotional. Personal finance is wrapped up and dripping with emotion. It's soaking in emotion.

As a professional advisor, one of the most important things I can do is to understand my client. Anyone here who has a securities license is steeped in KYC (Know Your Client) issues.

The point of personal finance is to make the best decisions for the person, for the individual. And individuals have different needs, wants, hopes, desires, and emotions. It's a messy business dealing with emotion. My job is to blend emotion with the rational facts to come up with plans that fit the person.

Why do people brag about paying off their home? For the same reason people brag about having enough stocks and bonds to pay off their mortgage with a stroke of their pen. Yes, those who paid off a mortgage and those who have amassed sufficient assets to match their mortgage are pretty much the same.

Because what they did was to set a long term financial goal for themselves AND THEY MET IT!

Why shouldn't anyone brag about that?

--Peter

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124901 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 12:46 PM
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Hi Peter,

I'm not going to argue with your math. I didn't look at it at all, in fact. I didn't read beyond this first line. Because I don't disagree with the math.
But this is personal finance. PERSONAL.


Your "but" keyword implies a disagreement, which suggests you didn't read the full post (which you actually said as much.)

Twice in this thread (including this last posting) I've pointed out that owning an otherwise leveragable property free & clear is expensive, but its a lifestyle decision... much along the lines of spluring on Haagen Das ice cream versus plain label store brand vanilla.

If you can afford the expense premium, and the financial trade offs that reflect in your future, *AND* whatever feelings you get from it are worth the costs, then its no less valid than creamier ice cream!

I think one of the most valuable things I can do for my clients is to make sure they have all the factual information they want, in as digestible fashion as possible, so they can decide which path they want to take with 'eyes wide open.'

As an advisor I know I can only understand my client enough to give them the decision criteria I understand they want... but its dangerous for me to assume sufficient understanding of them to make decisions about their future FOR them.

Regarding bragging;

Be wiser than other people, if you can, but do not tell them so.
~Lord Chesterfield

He who is humble is confident and wise. He who brags is insecure and lacking.
~Lisa Edmondson

If you done it, it ain’t bragging.
~Walt Whitman
(Also credited to Dizzy Dean ;~)

Cheers,
Dave Donhoff
Leverage Planner

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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124902 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 12:58 PM
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In case the OP is still reading I wanted to point out that about 30% of homes are owned without a mortgage so there are a number of people that agree with having a paid off mortage.

There is no doubt that the math works out so that having a mortgage an investing the money will work out well the majority of the time but there will also be some percentage of the time that it turns out badly.

The same math says that opening a margin account at your brokerage and buying stock with borrowed money will also work out well, at least on average. Heck you could even use that math to rationalize getting a car loan instead of paying cash for a car or keeping a balance on low interest rate credit cards just so that you can invest the money.

I would looke to see if buying the house for cash would put less than a third(+ or -) of your net worth into home equity after your other home is sold.

If that is true then paying cash for the house may not be the mathmatically optimal money strategy but you will still likely do well not matter what since you will not have a mortgage payment and your other investments will do well if the stock market soars and you have the other two thirds of your net worth invested. If the stock market does badly, like Japans has for the last 20 years, then having a paid off house will have been a very good choice.

Sometimes it is more important to minimize the risk of having a bad result than to optimize the chances of getting the best possible result.

Personally I plan on having my mortgage paid off in a few years just before I retire.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124904 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 1:28 PM
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Hi Watty,

The same math says that opening a margin account at your brokerage and buying stock with borrowed money will also work out well, at least on average.
Not anywhere close. Margin loans are extremely dangerous because they are callable, on a 24 hour notice. Home leverage is not only non-callable, its up to 100% leveragable (whereas reg-T limits stock margin loans to 50%, at which point you are a hiccup away from a margin call forcing you to sell at a bottom.)

Heck you could even use that math to rationalize getting a car loan instead of paying cash for a car or keeping a balance on low interest rate credit cards just so that you can invest the money.
Ehhh... not really. Leveraging a depreciating asset is an entirely different consideration. The utility of buying a car on credit *might* make it worthwhile (say, if driving for employment generates sufficient premium over not driving that it more than overrides the interest paid for the leverage.)

I would looke to see if buying the house for cash would put less than a third(+ or -) of your net worth into home equity after your other home is sold. If that is true then paying cash for the house may not be the mathmatically optimal money strategy but you will still likely do well not matter what since you will not have a mortgage payment and your other investments will do well if the stock market soars and you have the other two thirds of your net worth invested. If the stock market does badly, like Japans has for the last 20 years, then having a paid off house will have been a very good choice.
I propose that its more valuable to start the decision process from the point of retirement/financial freedom. Put yourself out into the future at the point when you will be living of your passive income, and no longer actively earning income.

Ironically, a prematurely paid off home means delayed financial freedom, and a longer mandatory employment career. Is the "free & clear" feeling worth sacrificing earlier retirement, and the additional years of employment at an older age that it may require?

If you "just wing it" and wait until you are at that older age, its too late to take advantage of the opportunities of compounding growth available when you were younger (i.e. today.)

Sometimes it is more important to minimize the risk of having a bad result than to optimize the chances of getting the best possible result.
This is what planning, projections, hedging & insurance is all about. The more time-based facts you put on the table and consider, the better to decide from.

Personally I plan on having my mortgage paid off in a few years just before I retire.
Me too... in fact, I am close to having all my properties' mortgages payable in full on balance sheet already... probably just a few more years will do it. (Of course, most of my properties are more than paying their own way... so directing those cashflows into compounding outside growth just achieves balance-sheet debt elimination faster!)

Having the ability to stroke a check and wipe out all mortgages at *MY* choosing is infinitely more valuable, and safer, than whittling down the mortgage balances by draining away all discretionary working cashflow each month by paying additional principal to the mortgage bankers.

As the saying goes; "Cash is King"
(Which I always found ironic when stated by people who rush to give their cash back to the bank! ;~)

Cheers,
Dave Donhoff
Leverage Planner

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Author: sykesix Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124906 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 2:25 PM
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In case the OP is still reading I wanted to point out that about 30% of homes are owned without a mortgage so there are a number of people that agree with having a paid off mortage.

There's nothing *wrong* with having a paid off mortgage. But the question was what is the best use of funds today? Forget the theoretical investment returns for a minute, and think about what might happen in the next 30 years. There is a pretty good chance that "life" will happen. That can mean illness, divorce, change of lifestyle, unemployment, investment opportunities, retirement....

...if any of those things happen you don't want to have the money in the house. Putting the money in the house is risk, plain and simple. The risk is hard to quantify, but real.

Now, this next part is theoretical, but worth thinking about. The historical long term inflation rate is something like 3.5%. That's about what the mortgage rate is right now. So if over the next 30 years the inflation rate is like it was over the past 30, then you wind up getting use of the money for free, or close to it. That's speculative, but those are reasonable assumptions. If inflation shoots up to five or six percent you'll look like a genius :)

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124907 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 2:26 PM
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"Idiots" was your word and "usually" was mine.
Both are wrong. Those of us who pay off houses are not idiots and not usually ignorant of personal finance. It's arrogant to assume we are.

So you are saying that the majority of people with paid off houses are financially astute? I think the opposite, that MOST people are not financially astute, regardless of holding a mortgage or not.
We here (including you) are a self-selected subset of people --- people who are in the top 10%-50% of the population in the area of financial astuteness. Don't make the mistake of thinking that just because *you* have both paid off house and large liquid assets that most people do. They don't.

You can have both liquid assets and a paid for house - and both provide security of different kinds. I have no idea why one would assume it's all one (paid -ff house, cash poor, no savings) or all the other.
Because that is the true fact, that's why.
"The Federal Reserve's most recent Survey of Consumer Finance, found that the median net worth of households headed by someone between age 65 and 74 [was] $206,700 in 2010."
"While the typical household headed by someone age 65 or older had a net worth of $170,128 in 2010, most of that wealth is in the form of home equity."

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124908 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 2:32 PM
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If one has the money to pay off the house, but instead prefers to use those liquid funds to pursue higher rates of return than the mortgage note, what are you bragging about? That you're not very bright?

Heh.
Some years ago one of our friends had a Mortgage Burning Party from the profit he made in stock options when his employer's company got bought out.

He didn't get quite the reaction he was expecting. He & his wife were the only ones who went outside when the time came to put the note on the grill to burn it. Everybody else shrugged and got another beer. The congratulations he got were perfunctory.

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124909 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 2:57 PM
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Personally I plan on having my mortgage paid off in a few years just before I retire.
Me too... in fact, I am close to having all my properties' mortgages payable in full on balance sheet already...


You are mixing apples & oranges here. The original topic was about the house you live in, *not* about other houses you own as investments.

So, back to the topic of the house you live in ... and speaking from the viewpoint of a) being retired and b) living in a community that we moved to FROM the place we used to live because that's where our job was...
A large majority of the people here are not from here. They moved from other places (Chicago, Michigan, California, etc.) after they retired. When you no longer have to stay in a particular place because of your job, there are LOTS of other places you can move to. The field is wide open.
If you do decide to move, you have to sell your old house and buy a new one at your new location. When your old house sells, you have a wad of cash, and then you face the question of whether to put all that money into the new house or to get a mortgage on the new house. Regardless of whether your old house was paid off or not.

From what I have personally observed of my neighbors in that situation, the ones who I rank "clearly financially independent" generally have a mortgage and the ones who I rank otherwise generally bought their (new} house for cash and have no mortgage.

As the saying goes; "Cash is King"
(Which I always found ironic when stated by people who rush to give their cash back to the bank! ;~)

That's a great shorthand expression, but the more accurate saying would be "Cash gives you options. Having options puts you in the catbird seat."

As for me, I "rush" to give my bank 4% once a month (a few days before the late-penalty date), while leisurely collecting 7.5% once a quarter from my preferred stocks & bonds.

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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124910 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 3:00 PM
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It has no advantage over having more than enough in assets to pay it off at any point in time. BFD.

Of course it does. I pay no interest. None. Zero. Someone who has a mortgage does (and for those who tell me "it's deductible" I say "Sure. You spend $1 to get 25¢ in deductions.")

For those who tell me "I get more in my stocks than the mortgage rate" I say "2007. Or 1999. Or any of a dozen other times in history when the market went in the crapper, when dividends were slashed, when bonds swooned." The is no market event which will deprive me of my house, but there may be which deprive you of your ability to "pay it off right now."

Now I would be a fool to advise someone to use their last ten pennies to pay off their mortgage, but with a reasonable cushion, what's the big deal? (Oh, and if you should find yourself in need of cash, they have these great things called "banks" which will loan you money against the value of your house. I believe the instrument is called "a mortgage."

Do I own my house free and clear? You bet. Two of them, actually. And damn proud of it. Sleep very well. Nothing like it.

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124911 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 3:45 PM
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He didn't get quite the reaction he was expecting. He & his wife were the only ones who went outside when the time came to put the note on the grill to burn it. Everybody else shrugged and got another beer. The congratulations he got were perfunctory.

It is in the character of very few men to honor without envy a friend who has prospered. ~Aeschylus

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Author: wasmick Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124912 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 4:04 PM
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Of course it does. I pay no interest. None. Zero. Someone who has a mortgage does (and for those who tell me "it's deductible" I say "Sure. You spend $1 to get 25¢ in deductions.")

For those who tell me "I get more in my stocks than the mortgage rate" I say "2007. Or 1999. Or any of a dozen other times in history when the market went in the crapper, when dividends were slashed, when bonds swooned." The is no market event which will deprive me of my house, but there may be which deprive you of your ability to "pay it off right now."

Now I would be a fool to advise someone to use their last ten pennies to pay off their mortgage, but with a reasonable cushion, what's the big deal? (Oh, and if you should find yourself in need of cash, they have these great things called "banks" which will loan you money against the value of your house. I believe the instrument is called "a mortgage."

Do I own my house free and clear? You bet. Two of them, actually. And damn proud of it. Sleep very well. Nothing like it.



Proof that there is no right answer.

Whatever works for you personally is the right answer. While it's easy enough to run models that will demonstrate that having a mortgage will likely provide better financial results over time, there's no way to put a dollar value on sleeping well at night.

Personally, I have one free and clear property, mortgages on my rental properties and a mortgage on my primary. I know for a fact that over time I get better return on my money than my mortgages cost me.

That's my personal choice. Others choose differently and they are just as correct.

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Author: InconclusiveFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124913 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 7:00 PM
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"People who brag about having their house paid off are usually people who have no idea of personal finance, and no idea of how much risk they are unknowingly taking on."

Our mortgage was paid off long ago, and we did so as a result of a carefully planned, deliberate financial strategy. Now with me in earshot of minimum retirement age, we are debt-free except for a small 1.9% car loan. We took a calculated risk and it has paid off many times over.

17 months to retirement and counting.

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124914 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 7:12 PM
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sykesix:

<<<In case the OP is still reading I wanted to point out that about 30% of homes are owned without a mortgage so there are a number of people that agree with having a paid off mortage.>>>

There's nothing *wrong* with having a paid off mortgage. But the question was what is the best use of funds today? Forget the theoretical investment returns for a minute, and think about what might happen in the next 30 years. There is a pretty good chance that "life" will happen. That can mean illness, divorce, change of lifestyle, unemployment, investment opportunities, retirement....

...if any of those things happen you don't want to have the money in the house. Putting the money in the house is risk, plain and simple. The risk is hard to quantify, but real."

For a small opinion to the contrary, depending upon the state in which you live, equity in the homestead is near sacrosanct, and largely judgment proof.

Texas Proeprty Code 41.001(b) - Encumbrances may be properly fixed on homestead property [ONLY {emphasis added}] for:
(1) purchase money;
(2) taxes on the property;
(3) work and material used in constructing improvements on the property if contracted for in writing as provided by Sections 53.254(a), (b), and (c) [[i.e., home improvement loan];
(4) an owelty of partition imposed against the entirety of the property by a court order or by a written agreement of the parties to the partition, including a debt of one spouse in favor of the other spouse resulting from a division or an award of a family homestead in a divorce proceeding;
(5) the refinance of a lien against a homestead, including a federal tax lien resulting from the tax debt of both spouses, if the homestead is a family homestead, or from the tax debt of the owner;
(6) an extension of credit that meets the requirements of Section 50(a)(6), Article XVI, Texas Constitution [since roughly 1998]; or
(7) a reverse mortgage that meets the requirements of Sections 50(k)-(p), Article XVI, Texas Constitution [since roughly 1998].

Nobody else can get to it (including a bankruptcy court, under current law, IIRC), like judgement creditors (car accident, hospital, etc.). Many of the other assets classes proposed for investment do not come close to offering that sort of protection.

Such protection may also be hard to value, but it is clearly non-zero.

According to Wikipedia, certain other states have homestead protections - see: http://en.wikipedia.org/wiki/Homestead_exemption

Also ignored in the discussion so far (as far I can determine) is whether a person is disciplined enough to actually invest and not raise spending because liquid asset pool appears larger with a a mortgaeg and invest the amount in better returning assets. There has been discussion about whether the other assets are always better returning, but it seems that everyone assumed that the discipline to invest existed (without so much as a second thought).

Perhaps a reasonably assumption for most on these boards, but not necessarily, especially if one spouse posts on the boards and the other, spendy spouse does not.

No real dog in the hunt, but likes to see a full discussion.

Regards, JAFO

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124915 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/1/2013 11:59 PM
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You can have both liquid assets and a paid for house - and both provide security of different kinds. I have no idea why one would assume it's all one (paid -ff house, cash poor, no savings) or all the other.
--------------
Because that is the true fact, that's why.


Your fact does not do a good job at rebutting the earlier statement.

PSU

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124917 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 11:39 AM
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Do it at purchase, and all the interest is tax deductible

Interest is a Schedule A deduction. It doesn't mean that there will be an actual decrease in taxes. For the OP, the loan is large enough but that doesn't apply to everyone.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124918 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 11:49 AM
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So much having to do with real estate, at least that of the average Joe or Jane, is emotional, including the driving need to pay off the mortgage. Clearly, from the number of properties you have you are more in the real estate investor category. That is quite a different thing.

IP


If you own a property long enough, the acquistion mortgage will be paid off. This doesn't require emotion or even any significant deliberate action.

Property values around here have significantly appreciated. If you bought in the right area, properties that sold for less than $50K in the 60s are now $1M+.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124919 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 12:01 PM
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You can have both liquid assets and a paid for house - and both provide security of different kinds. I have no idea why one would assume it's all one (paid -ff house, cash poor, no savings) or all the other.
Because that is the true fact, that's why.


Average means that there are a lot of people who haven't planned for retirement, and many that have both home equity and investments.

For those who have home equity and no other assets, if they had access to the home equity, they would probably have spent it.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124920 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 12:25 PM
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Average means that there are a lot of people who haven't planned for retirement

KEY DISTINCTION:
Don't Be Average!!!






(With apologies to my buddy AveragJoe ;~)

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124921 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 1:49 PM
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KEY DISTINCTION:
Don't Be Average!!!


Absolutely!!!

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124922 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 1:55 PM
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For those who have home equity and no other assets, if they had access to the home equity, they would probably have spent it.

If they have home equity, they can get a reverse mortgage and never make another mortgage payment until they die.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124923 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/2/2013 3:43 PM
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If they have home equity, they can get a reverse mortgage and never make another mortgage payment until they die.

True, not a trivial decision but an option.

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Author: richinaz Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124924 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/3/2013 10:13 AM
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Also ignored in the discussion so far (as far I can determine) is whether a person is disciplined enough to actually invest and not raise spending because liquid asset pool appears larger with a a mortgaeg and invest the amount in better returning assets. There has been discussion about whether the other assets are always better returning, but it seems that everyone assumed that the discipline to invest existed (without so much as a second thought).

Perhaps a reasonably assumption for most on these boards, but not necessarily, especially if one spouse posts on the boards and the other, spendy spouse does not.


Doing a brief scan of the comments in this thread that was my thought. My belief is that the average person (which geneally isn't the person reading these boards) produces below average (SP500) returns.

Giving a person $250K to invest instead of having a house paid off IMO is usually a recipe for disaster. Unless the typical person can take that money and get something safe like a CD/annuity which is paying more than a mortgage rate I just think for a significant majority of people they will obtain returns lower than their mortgage in the long run.

For myself I haven't really decided what I will do although I tend to lean towards having a house paid off or at least a mortgage with substantial equity in the house.

I don't think there is one answer for everyone. It really depends on the persons investing skills.

Rich

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124925 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/3/2013 4:03 PM
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Hi Rich,

Doing a brief scan of the comments in this thread that was my thought. My belief is that the average person (which geneally isn't the person reading these boards) produces below average (SP500) returns.
Its an excellent point. 'Average' is neither the typical audience here, nor the desired outcome of anyone who shows up here (even if they have previously been merely average, or worse.)

Giving a person $250K to invest instead of having a house paid off IMO is usually a recipe for disaster. Unless the typical person can take that money and get something safe like a CD/annuity which is paying more than a mortgage rate I just think for a significant majority of people they will obtain returns lower than their mortgage in the long run.
With a 20-30 year timeframe, there *ARE* fixed rate, and upside indexed rate instruments from the cash value insurance world that pretty strongly (and completely hands-free/passively) outperform the costs of carrying a mortgage balance. No need for an individual to try to personally play the markets. A typical ratio is 5-8% post tax growth, net of all costs & fees, versus 1.5-3% post tax mortgage costs.

OTOH, those who *ARE* sufficiently educated & skilled in market trading (like RayVT, as an example) can probably beat the costs of their mortgage by 200-400% or even substantially more.

I don't think there is one answer for everyone. It really depends on the persons investing skills.
Actually, not really so much a persons individual skills as much as their knowledge of what's actually available in the hands-off safe growth options... *AND* probably even more importantly; their ability to have their reason and logic override their emotions (if they're a nervous type of person.)

Dave Donhoff
Leverage Planner

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124926 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/3/2013 7:30 PM
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I don't think there is one answer for everyone. It really depends on the persons investing skills.
Actually, not really so much a persons individual skills as much as their knowledge of what's actually available in the hands-off safe growth options... *AND* probably even more importantly; their ability to have their reason and logic override their emotions


And probably most important, how they choose to spend their time & effort.

When I retired early, many co-workers dropped by to chat and ask how I could afford to retire at 58. I said that for the last 10 years I spent 10-25 hours a week at investing, both learning and doing, but mostly learning. 40 hours working at Motorola, 10 hours working for myself at home = 50-60 hours working a week.
They generally lost interest at that point.

My (also retired) friend & neighbor chooses to spend his time puttering in the garage and holding down a part-time job as janitor/handyman at a church (not his church, another one). I have given him some basic & simple papers & books -- such as how to buy Preferred Stocks that pay 5%-8%. He moans about the bank paying 0.10% interest rate, but he never bothered to even read the 10-page paper I gave him, let alone discuss it with me, even though I offered.

As the guy at http://www.controlyourcash.com says, poor people are poor largely because they choose to be.

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124927 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/3/2013 10:02 PM
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As the guy at http://www.controlyourcash.com says, poor people are poor largely because they choose to be.

Oooohh, don't say that on the PA board.

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124937 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/4/2013 3:29 PM
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It really depends on the persons investing skills.

Rich


And risk tolerance. Unless they also have income that can be used to cover their mortgage payments, they can't risk market swings.

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Author: synchronicityII Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 124939 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 3/5/2013 11:01 AM
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I'm not going to argue with your math. I didn't look at it at all, in fact. I didn't read beyond this first line. Because I don't disagree with the math.

But this is personal finance. PERSONAL.

We can't take emotions out of the way precisely because it is intensely emotional. Personal finance is wrapped up and dripping with emotion. It's soaking in emotion.


Peter, the line I use (a LOT) is: "Numbers are simple. People are complicated." Feel free to steal it if you want.

-synchronicity, doesn't know nuthin' 'bout all this financial stuff, no sirree, and certainly don't know no 'rithmetic.

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Author: tidegirlny Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 125088 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 4/10/2013 5:43 PM
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Thanks all for your thoughts. we decided to put down 60% and take a mortgage for the rest.

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Author: mjw3786 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 125627 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 6/17/2013 1:31 PM
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I have given him some basic & simple papers & books -- such as how to buy Preferred Stocks that pay 5%-8%.

i'm interested. in case you were feeling generous and want to help educate someone just getting started with investments :]

cheers,
Mike
who is currently in his "learning and doing, but mostly learning" phase

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 125628 of 127459
Subject: Re: Should I pay cash or get a mortgage? Date: 6/17/2013 4:29 PM
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I subscribe to this newsletter, which I read only occasionally, so can't really vouce for it much.

http://www.dividend.com/dividend-stocks/high-dividend-yield-...

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