Would you pay cash for a house if you could?

[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?

[disneysteve]

It would be a tough check to write. I had enough trouble writing one to buy a car for cash. Too many zeros.

If I could do it, I'd certainly consider it. There's something to be said for cash flow and flexibility so I'd want to be sure I had plenty of money on hand for other stuff.

Actually, I'm getting to the point in life where I'm starting to think about paying off the house in a lump sum. We're not quite there yet but there will come a point when I just want to cash out some investments and get rid of it so we'll see when I make that call.

[GREENBACK]

In short, I wouldn't. It's great to not have the loan but he also won't see those six figures turn into something much bigger over 30 yrs.. No mortgage deduction, lots of liquidity instantly tied up in his home and not being able to take advantage of historically low mortgage interest rates. I wouldn't plunk down that much cash at once unless I was so well off that the above points don't matter.

[elessar78]

Originally Posted by disneysteve

It would be a tough check to write. I had enough trouble writing one to buy a car for cash. Too many zeros.

If I could do it, I'd certainly consider it. There's something to be said for cash flow and flexibility so I'd want to be sure I had plenty of money on hand for other stuff.

Actually, I'm getting to the point in life where I'm starting to think about paying off the house in a lump sum. We're not quite there yet but there will come a point when I just want to cash out some investments and get rid of it so we'll see when I make that call.

That's my feeling on life in general... all generally the same stuff, just (hopefully) more zeros. I remember buying my first computer and agonizing at the price, then it was the car, then it was my student loans (lump sum) concept. I think the next thing is a house, although it won't be for many years that I can pay the lump sum for that one.

Yesterday, to help my wife's recovery from back surgery we bought a recliner on sale for just a shade under $300. There was a point in life where a purchase over $20 would cause me consternation.

Oh to answer the question, it would depend on my overall cash position. If that lump sum for the house represented, say, 5% of my overall cash position... I'd do it.

[feh]

We bought our current home for cash in 2007. The mortgage on our previous home had been paid off, and I didn't want to go back to owing money.

Here's the thread from back then: to mortgage or not to mortgage?

FYI - we weren't able to sell our previous house immediately, so we sold investments to cover the entire price of the new house. It worked out beautifully, as we sold when the market was at an all-time high.

[Hector]

Depending on interest rate and expected rate of return from investment in non-retirement accounts.

I assume that average rate on mortgage is 5%. The way market is behaving for a bit more than a decade now, I think it is too optimistic to think that rate on return on investment would be higher than 5%. So under this assumptions, I would pay cash for house if I can.

[MonkeyMama]

Absolutely!

$130k is merely a 20% down payment, where I am from.

Actually, I have always been pretty open to the fact that we could have paid off our house in our 20s, if that was our primary goal. & I don't see much downside to that. It's not like inflation or the stock market has done much of anything the 12 years that we have been homeowners, anyway. BUT, in order to do so we would have had to put off having kids about 7 years. SO not worth it. Possible? Yes. Worth it? To some, and not to others. But, I mean, imagine in this economy - having a paid off house at age 30? That would have been $1500/month to invest for the rest of our lives - and we would have invested it. I am not getting why this would have been a terrible idea.

Anyway, I am pretty anti-debt, but the only reason I am really pro mortgage is due to the high cost of living here - rents in particular are insane. It was always cheaper just to buy and start paying down a mortgage. & saving up the cash first wasn't terribly realistic. Though I have always appreciated the advice to just pay the minimum on the mortgage, I realize that this may have been awesome for people like my parents who lived through high inflation and made killings in stock and real estate (80s/90s). The game has simply not been the same for us. With these low interest rates, I have thought more and more about just paying off our mortgage quicker. IT probably doesn't help that I have watched a lot of peers *invest* their home equity and lose it all. I am all about the middle ground - we have room to pay off our house quickly and invest - without sacrificing anything that is important to us. But with the high cost perspective, being able to pay $130k cash sounds pretty sweet, to me.

[Hector]

Originally Posted by MonkeyMama

Anyway, I am pretty anti-debt, but the only reason I am really pro mortgage is due to the high cost of living here - rents in particular are insane. It was always cheaper just to buy and start paying down a mortgage.

this is debatable.
I am in northern California as well. Currently my wife and I are in our late 20s/early 30s. We live in one bedroom apartment and are paying $1200/month in rent. We are not planning to have a kid for a couple of years and our current apartment is big enough for our current needs. 50+ yr old, 1200 sqft house starts from half million in our neighborhood. If we put down 20% and interest rate on mortgage rate is 5%, our monthly mortgage related expenses would be around $3000. So I think it not cheaper to take mortgage in our condition.

[graceful]

For $130K, I definitely would do it. Especially to avoid the hassle of a construction loan. I could see being careful and being able to save up to that amount, considering that we saved over $300K to use as a down payment on our current house.

Now if it was over $800K, I would rethink it.

Obviously, all contingent on if I had the cash or could save it up in a reasonable amount of time to when I needed the house. IF I DID, I probably WOULD pay to just get it built THEN, if I needed to, finance some of it back out.

[artwest]

If we could pay cash for a house, we would do it in a heartbeat. We are hoping to have our house paid off in the next 2-3 years. We will then be completely debt free.

It would be a great feeling to no longer be a "slave" to debt in any form.

[YLTL_Dan]

It's the DW's and my goal to eventually pay for a house with cash (or pay off current mortgage). We live in a higher cost of living area now, but we'll probably eventually end up in a cheaper place. We've put a lot of money into fixing our house up, and with the expected home equity along with projected savings, we should be able to do it.

As MonkeyMama mentioned, as soon as we don't have a mortgage DW and I will pile the money we'd pay on a loan into investments. I don't think the mortgage deduction is worth it (pay 10k a year in interest to save 2500 a year on taxes? No thanks) and I don't buy into the advice that "you can make more money in the market".

We have a mortgage now, and I agree most people will need a mortgage at least starting now. We'll feel very fortunate when we're mortgage-free.

[DebbieL]

Absolutely in a heartbeat! Especially for an amount such as that (I live in an area where $600K gets you an average house that needs work). It would hurt writing the cheque, but I'd do it (as long as I still had other savings left).

I'm in Canada, and we have no incentive to carry mortgage debt (can't write off our interest payments). I don't feel confident enough in my investing to feel I could consistantly beat a mortgage rate with my returns on that money if it were invested elsewhere.

[LivingAlmostLarge]

Yes but only if it were $130k. We put down that much on our current home sooo...BTDT. But that aside if I could pay our home cash for say another $400k and still have investments? Absolutely.

[97guns]

Originally Posted by Hector

this is debatable.
I am in northern California as well. Currently my wife and I are in our late 20s/early 30s. We live in one bedroom apartment and are paying $1200/month in rent. We are not planning to have a kid for a couple of years and our current apartment is big enough for our current needs. 50+ yr old, 1200 sqft house starts from half million in our neighborhood. If we put down 20% and interest rate on mortgage rate is 5%, our monthly mortgage related expenses would be around $3000. So I think it not cheaper to take mortgage in our condition.

have you considered moving a bit out of the area and commuting in? i know its not fun commuting an hour each way but if i were in your shoes thats a sacrafice i'd be willing to make in order to own, $1200 a month can easily cover a mortgage on a 3 or 4 bedroom house in antioch, manteca, los banos etc.

[supercar]

Irrespective of whatever the amount is, I wouldn't pay off with cash in this loan environment. At 3.5% 15 yr rates, I'm better off taking the loan and investing my money prudently. You will easily beat the 3.5% rate over 15 years.

[disneysteve]

Originally Posted by GREENBACK

In short, I wouldn't... No mortgage deduction

The mortgage deduction is irrelevant IMO. As Dan said, purposely paying 10K in interest to save 2.5K on taxes makes no sense. You're still out 7.5K in the end. Better to pay 0 interest and save 0 on taxes.

[rj.phila]

yes, i would. and did. i have 4 properties paid in full. do i wish i did 20% ROI in 2010? hell yes. do i wish i was riding the DJIA right now, or rode it down to 4800 in "the crash"? hell no. tradeoffs.

to those who say they can "beat their mortgage rate over 30 years", tell me this: right now, where can i put 200k at a guaranteed 5+% rate annually for the NEXT 30 years? THAT is the question at hand. NOT whether x-y-z financial instrument beat a mortgage rate over the LAST 30 years.

also, this:

Originally Posted by disneysteve

The mortgage deduction is irrelevant IMO. As Dan said, purposely paying 10K in interest to save 2.5K on taxes makes no sense. You're still out 7.5K in the end. Better to pay 0 interest and save 0 on taxes.

people overlook this way too often.

[GREENBACK]

Originally Posted by disneysteve

The mortgage deduction is irrelevant IMO. As Dan said, purposely paying 10K in interest to save 2.5K on taxes makes no sense. You're still out 7.5K in the end. Better to pay 0 interest and save 0 on taxes.

This is true. It is only relevant to someone who will have a mortgage anyway which is how I meant it to apply.

[LuckyRobin]

I would, simply for the security owning your home free and clear gives you, but then security is a lot more important to me than to some people.

[GREENBACK]

Originally Posted by LuckyRobin

I would, simply for the security owning your home free and clear gives you, but then security is a lot more important to me than to some people.

I have always thought that it is far more secure to have more money in your own account versus a home that can potentially lose significant value (2007!). You still have to pay taxes and insurance which will always leave you with the risk of losing your home. There really is no "free and clear".