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We are retiring next year and thanks to California real estate, we will be able to pay cash for our next home. Of course we are going to consult an accountant in our new state, but I was wondering what you all think about paying cash for a house versus putting 50-75% down and carrying a mortgage and investing the money that would have been used to pay the house off (plus the mortgage interest tax deduction benefit consideration)? Looking forward to your opinions.
You always here people say that having a mortgage is a tax savings, it really isn't. Yes, you can deduct your property tax and interest but how much is that really? I think our interest and taxes came to something like $12,000 last year, our mortgage payments were triple that for the year so and we saved a few thousand on our taxes maybe? What I would do it pay cash for your house and then use what you would be paying for a house payment and invest that each month. Then, if you have an unexpected bill of some sort you have the cash on hand to pay for it (like my in-laws that have a $5000 car repair this month). It is a nice bonus if you HAVE to have a mortgage that you get a break on those things but you are still FAR better off not having a mortgage at all. Oh, and add in the 6% you are paying the bank for the mortgage when you can take that money and earn 10%+ instead, a swing of over 16% return on your investment if you look at it that way. Pay cash for your house and invest your 'payments'.
We are retiring next year and thanks to California real estate, we will be able to pay cash for our next home. Of course we are going to consult an accountant in our new state, but I was wondering what you all think about paying cash for a house versus putting 50-75% down and carrying a mortgage and investing the money that would have been used to pay the house off (plus the mortgage interest tax deduction benefit consideration)? Looking forward to your opinions.
Pay for the house outright and get something comfortable but not something which you have bought just because its cost equated to what you have saved up (I'm recommending buying less so you have money left over). Use the left-over money for another investment. In retirement there would be absolutely no real ongoing benefit and certainly upfront costs to needlessly obtaining a small mortage.
I agree golfgal - another factor - loans in and of themselves are tremendously expensive - have you ever really studied all the fees associated with taking out a home loan?? Every tiny entity associated with that loan tacks on a fee from $50 to hundreds of dollars.....I still get told by friends and neighbors that we should not pay cash for our home - not sure what they are thinking.
Another plus: The peace of mind knowing you own your home outright...a novelty here in So. California.
We will have savings beyond paying for the house - thank goodness.
Pay cash for the house and own it outright. Golfgal is completely right...the mortgage deduction for interest is miniscule in comparison to having your home paid for and taking the money you'd otherwise be paying in a mortgage and putting it somewhere earning higher interest.
I don't trust the stock market at all and I think anyone buying into it right now is a fool. But you can buy the safest investments of all..U.S. bonds, or put the money left over in high interest CDs.
I paid cash for my house here in Missouri after selling in Las Vegas and I don't regret it a bit! I sleep at night knowing this house is mine, not the bank's, and if things got rocky, I'm not in danger of losing it.
Pay cash for the house, especially if it's your retirement home.
The tax advantages are not that great to a mortgage, and there's a lot of peace of mind knowing you own your home.
Consider moving into a smaller, less expensive home and having some of that prior equity to invest.
For us, getting rid of the mortgage was the best thing we ever did. I then paid off all my rental properties and have positive cash flow from them, even without the depreciation and mortgage write-offs.
Should a deal come along where I need more working capital, my banker knows my portfolio and can issue a pre-cert letter for me whenever I need it to make a deal.
The only folks I know who do benefit from not being fully in on their houses are ones who consistently capture a much higher rate of return than average on their invested money. I've just never been able to do that in the stock market or businesses like they do.
CIB (Cash Is Best)! Why would you not want to have 100% equity in your home? More to the point, why would you want to place yourself in any type of debt if you don't absolutely have to?
You will still be able take the deduction for your property taxes, and furthermore if your state "splits" the due date (you have the choice of paying it all at once, or in two equal payments six months apart) you will be able to choose which tax year you want the deduction in.
For instance my taxes are due by 31 December (payable without penalty to 10 Jan) and by 31 May (50% of the total bill due each time). If I see that I will do better to have the deduction for one of those payments in the following year, I can wait and pay it in January rather than December. Mortgages don't give you that flexibility.
Just wanted to say I agree with everyone, the "tax savings" is only a small part of what you paid in interest. Much better to just buy a house cash and invest the rest.
We pay a full tithe on our gross income - that alone is a huge tax write-off so we really don't need the mortgage interest write-off. Some people don't want to have the majority of their fluid cash tied up in real estate - that is my neighbor's advice...don't pay cash for a house (she is a tad paranoid).
I do agree that paying cash for our next house is a sensible idea and that is what we have decided to do - thank you everyone for your opinions.
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mortgage vs no mortgage
