Would you pay cash for a house if you could?

[DebbieL]

Originally Posted by GREENBACK

Just curious, but what happens after this initial term is up? What is the rate at that point?

It is whatever rate you can get at that time (the going rate). If interest rates have gone up by 2-3 points - then look forward to a huge increase in your payments. There is no certainty with your mortgage payment beyond 5 years here - which makes our current housing bubble (which is by the way much worse than things were ever allowed to get in the US) even more insane. People are stupid

[GREENBACK]

Originally Posted by DebbieL

It is whatever rate you can get at that time (the going rate). If interest rates have gone up by 2-3 points - then look forward to a huge increase in your payments. There is no certainty with your mortgage payment beyond 5 years here - which makes our current housing bubble (which is by the way much worse than things were ever allowed to get in the US) even more insane. People are stupid

Seems like you have to keep playing the 5 yr. b.s. game for the life of the loan. My god, who came up with that system?

[ecoadapt]

Originally Posted by bjl584

I was talking to my one neighbor up on the hill. There was a mobile home on the property that he was living in, and he is currently building a modular home set on a foundation. I was curious how his bank handled construction loans, but he told me there was no loan. He had been saving up over the past several years and just wrote a check for the whole amount. Around $130,000. I was impressed. I know that he could have probably done better had he invested that money over 15 years or 30 years, but what a nice feeling to just get it over with and not have to make that mortgage payment for the next 15 to 30 years. So, would you do this if you could?

If I could,I definitely will! Aside from the fact that you won't spend your mind thinking about the payment or whatever,the peace of mind is priceless!

[charlieh]

I have to say that "yes" I would pay cash for a house. Is it a smart financial decision? That is another question.

Age is a factor in answering that separate question. Certainly someone nearing the end of their higher earning days, and nearing retirement would benefit from owning their house in full. There are tax benefits on income from writing off mortgage interest so borrowing becomes even cheaper if you are writing this off against income. Once that income stream disappears or lessens this tax benefit lessens as well.

As a young person and an earner there is a consideration that with a cheap mortgage and the benefit of writing off part of the mortgage, that having the cash to put to work could be more profitable. With risk though comes reward. If mutual funds average a 7% growth and you can take out a 4% mortgage for your house, then maybe it is better to mortgage the house, and use the cash to invest in something more profitable. This of course though is risky, as markets do not always go up.

There are benefits to both sides, but to answer the original question for the purpose of security, and less headaches owning a house for cash sounds great to me.

[LivingAlmostLarge]

I was told most people pay it off in far less than 30 years. my in-laws did less than 10 years and they 3 1 year terms.

[GREENBACK]

Originally Posted by charlieh

If mutual funds average a 7% growth and you can take out a 4% mortgage for your house, then maybe it is better to mortgage the house, and use the cash to invest in something more profitable. This of course though is risky, as markets do not always go up.

The stock market does not always go up and it does not always go down as we have seen in the last few years. Volatility is the norm right now. A long term mortgage is absolutely locked in when you sign on the dotted line. My bet is that over 30 yrs. the stock market will average well over the 4% rate(unbelievable!) of a mortgage loan. Is there real risk there? maybe, but it's small in my opinion. This is why I maintain that a mortgage is an investment, if not an investment in the traditonal sense.

I don't see why being young is an equation. I would happily keep my low rate mortgage until they're shoveling dirt on my coffin. I have the funds to pay it off so why worry about it. Actually, I have those funds because of not surrendering money to my bank for them to invest.

If you can't top 7% in the next 30 yrs., something in society has collapsed or you're not investing properly.

[Kooshiball]

I definitely wouldn't. In fact, I will do exact opposite. If I can extend the loan to 40, 50 years, I will definitely do it. In this current economy, those loan will be destoryed by inflation. Also, I will allocate those $140,000 into other investments that yield much better return.

[rj.phila]

Originally Posted by GREENBACK

If you can't top 7% in the next 30 yrs., something in society has collapsed or you're not investing properly.

it would be SUPER helpful for me if you could post:

-portfolio positions that you held that beat 7% over the last x-years
-what portfolio positions to hold in 2012 that will beat 7%

that would be really awesome info for me to have, thanks.

[greenskeeper]

If I ever came into money to where I could pay off the house, I would not hesitate one bit. Times are very different and having a place to live free and clear would be great.

[GREENBACK]

Originally Posted by rj.phila

it would be SUPER helpful for me if you could post:

-portfolio positions that you held that beat 7% over the last x-years
-what portfolio positions to hold in 2012 that will beat 7%

that would be really awesome info for me to have, thanks.

Who said antything about 2012 or the last "x" years. I'm talking about several years down the road. I'd love to give you my shortsighted opinion but I don't have one.

[photo]

Originally Posted by Kooshiball

I definitely wouldn't. In fact, I will do exact opposite. If I can extend the loan to 40, 50 years, I will definitely do it. In this current economy, those loan will be destoryed by inflation. Also, I will allocate those $140,000 into other investments that yield much better return.

What would you do then, if you lose your house, and rent becomes outrageously expensive?

Buying a house outright is an investment in the sense that you own it, period, and no one can kick you out (as long as you keep up with any property taxes).

[Kooshiball]

Originally Posted by photo

What would you do then, if you lose your house, and rent becomes outrageously expensive?

Buying a house outright is an investment in the sense that you own it, period, and no one can kick you out (as long as you keep up with any property taxes).

Let's say if we borrow $140,000 at 5% for let's say 30 years (You may be able to borrow much cheaper rate if you buy the house and I will do it in 30 years in this time because 50, 60 years a bit unreasonable...), then monthly payment will be $751.55 (Plus property taxes of course...). This means that you can lock in the monthly mortgage of $751.55 for 30 years no matter how high inflation goes (Even rent increaed by $1000, your mortgage payment is still remain the same). With inflation kicks in, all the other investments tend to increase in value due mainly to inflation. So, you can allocate these $140,000 to some other investments instead of paying all cash to purchase the house prior to inflation so that you can pay back the mortgage with much cheaper dollar.

It is all about opportunity cost. It is okay to pay cash to buy free and clear house but we can't invest other opportunities that potentially much higher return than the simply paying all off. Personally, I will borrow money to purchase house and make the loan as long as possible if I can simply because I can lock in the mortgage amount with cheap fixed interest loan and paying them back with future cheaper dollar.

I hope this makes sense...

[dojo]

I've had enough problems with a small car loan (13k Euro) so I'LL NEVER GET INTO DEBT AGAIN!

If I don't have money for a house, I'll rent. And SAVE. Work more, work better, make more money. Just as I can pay mortgage, I should be able to save money. And not get the most expensive house possible, but one that's enough for our needs.

In these hard times, getting into debt for the next 20-30 years is not what I'd consider. I had to pay for my car 4 years and after one year I lost my job. ONE YEAR ONLY. If in 4 years time so much can go wrong, what about 20 years? 30?

[rj.phila]

Originally Posted by Kooshiball

Let's say if we borrow $140,000 at 5% for let's say 30 years (You may be able to borrow much cheaper rate if you buy the house and I will do it in 30 years in this time because 50, 60 years a bit unreasonable...), then monthly payment will be $751.55 (Plus property taxes of course...). This means that you can lock in the monthly mortgage of $751.55 for 30 years no matter how high inflation goes (Even rent increaed by $1000, your mortgage payment is still remain the same). With inflation kicks in, all the other investments tend to increase in value due mainly to inflation. So, you can allocate these $140,000 to some other investments instead of paying all cash to purchase the house prior to inflation so that you can pay back the mortgage with much cheaper dollar.

It is all about opportunity cost. It is okay to pay cash to buy free and clear house but we can't invest other opportunities that potentially much higher return than the simply paying all off. Personally, I will borrow money to purchase house and make the loan as long as possible if I can simply because I can lock in the mortgage amount with cheap fixed interest loan and paying them back with future cheaper dollar.

I hope this makes sense...

the idea of what you are saying makes perfect sense. in essence, you are promoting the idea of gambling on raised interest rates on investments for an extended period in the future, enough so to BEAT any mortgage rate of today, over the life of that mortgage. correct?

i personally find the term "cheaper dollar" a bit misleading, if it refers to US citizens earning and spending US dollars. we dont buy USD, per se. the dollars global worth only bears on us, in as much as it can affect interest rates. would you care to explain the phrase in the context of, say, a boston mortgage holder at 5% on 140k? maybe im misreading your statement?

[Kooshiball]

Originally Posted by rj.phila

the idea of what you are saying makes perfect sense. in essence, you are promoting the idea of gambling on raised interest rates on investments for an extended period in the future, enough so to BEAT any mortgage rate of today, over the life of that mortgage. correct?

i personally find the term "cheaper dollar" a bit misleading, if it refers to US citizens earning and spending US dollars. we dont buy USD, per se. the dollars global worth only bears on us, in as much as it can affect interest rates. would you care to explain the phrase in the context of, say, a boston mortgage holder at 5% on 140k? maybe im misreading your statement?

I am sorry. Yes! I am talking about US (Since I am in the US).

I am talking about artificially low interest rate. With current super low interest policy, there will be more inflation (Due to government borrowing from the Fed to roll over their debt because no one buys them or some case bank lending) so value of the currency (In this case, dollar) will decline. It translate to nominal dollar value of house will go up. By lock up the price and rate for long period of time, your mortgage payment stays the same while all other housing price (Nominal value) will go up over time due to high inflation.

Conversely, if interest rate goes up, price of house will tend to decline simply because not so many people will borrow money with high interest rate. So I am talking about inflation but not betting in higher interest rate.

Thanks!