Would you pay cash for a house if you could?

[Hector]

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.

I agree as well. Also people often talk about mortgage deduction, but hardly mention taxes that we pay on capital gains from that investment.

[disneysteve]

I agree as well. Also people often talk about mortgage deduction, but hardly mention taxes that we pay on capital gains from that investment.

The gain on one's personal home is exempt from taxes up to a pretty high amount. I don't know the exact number but it is way more than our home is worth.

[Hector]

The gain on one's personal home is exempt from taxes up to a pretty high amount. I don't know the exact number but it is way more than our home is worth.

Sorry for confusion. I was talking about investment in stock/bond/CD/savings account.

What I meant to say is:
Lets say my mortgage payment is 1500/month and I still have 1000/month left after all expense and contribution towards retirement, 529 and other necessary accounts.
In this situation even though I can, I would not pay 2500/month towards mortgage because I am extending my mortgage debt as long as I can because I love taking mortgage deduction. And I would invest 1000/month into regular brokerage account and I would not consider taxes that I am paying on capital gain on this investment that I am making in brokerage account.

[DebbieL]

Another difference here in Canada is that there's no such thing as "locking in a rate for the entire length of the mortgage". The most you get here is a 5 year fixed term. Nobody can ever know what their payment will be in the future here. Actually there are some places that do advertise a 10 year fixed rate, but it is so much higher that nobody ever does that. There is definitely a different feeling if you were able to know with certainty what your payment will always be. That must be nice.

[dawnwes]

If I could, yes.

Actually we had almost that much from the sale of our last house......we SHOULD have done something like that, but we opted for a larger home and a large down payment.

That was before we started being extra careful with our $$. I could kick myself. Our mindset was different as we had just moved out of CA where houses were far more expensive.

Dawn

[LivingAlmostLarge]

Debbie, I heard about that a long time ago. My MIL chastisized me about our 30 year fixed mortgage and said it was "ridiculous". After a long time, I realized it's what you are used too. People in the states always say 30 year fixed or 15 years. But then in other countries a 5 year term or basically a 5 arm is what they get and that's "standard operating protocol" where they are. She also mentioned when they bought their house in the 70s they had a few 1 year term mortgages along the way and paid it off in 10-15 years.

I think that also influences people's decision. What is the norm in the society they are in. FWIW, everyone we know in Canada has a 5 year term right now at like 1% or less.

[beagle]

I would definitely pay it in cash if I do have a money for it. I don't want to be thinking every now and then that I would have to save this kind of amount of money to pay for something. which in some cases I do have monthly dues. It's just that it's crowding my mind every now and then. Adds stress..

[GREENBACK]

everyone we know in Canada has a 5 year term right now at like 1% or less.

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

[thefrugallery]

If I had that much cash I would do it. It would be an amazing feeling to eliminate our largest expense. The monthly money would be freed up for other investing, traveling, and other charitable causes. Unfortunately, unless you are living with someone rent free, it takes FOREVER to amass that much spare money.

The Frugallery

[DebbieL]

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]

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]

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]

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.