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Old 02-02-2012, 07:53 PM
 
2 posts, read 3,526 times
Reputation: 11
Default Record low interest rates

I'm going to be building a new home in Houston. Not sure if I should pay cash or get a mortgage at just over 3%

The way I see it

Pros of paying cash
-No mortgage should will allow me to invest extra each month
-Avoiding debt is a guaranteed rate of return
-I don't have much optimism in any other investment vehicle at the current time
-Not sure i want a leveraged investment in Houston, you never know where the next ghetto will be
-Long term capital gains tax of 15% will go up if Obama gets re-elected, I would be selling stock index to pay for the house
-Peace of mind having no debt

Pros of a mortgage
-I believe inflation will spike and rates rise sooner or later which would make real morgage debt lower, and nominal home price higer
-Housing should be a good buy right now, make a higher ROI with leverage
-Could earn a higher ROI with money in index funds
-I would have more liquidity
-Would not incur tax long term capital gains tax

What would y'all do?
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Old 02-02-2012, 07:59 PM
 
Location: Westbury
2,628 posts, read 2,323,976 times
Reputation: 2148
$200,000 - $250,000+ can earn you money elsewhere than paying outright for a house (whatever capital gains taxes may go to). if you are close to retirement and have those funds set aside real tight plus extra to outright buy a home then why not. most people aren't even close to that situation

if you are spending under 100,000 is the house/land worth that much to buy it outright? it is not much of an investment (under your pro section) then
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Old 02-02-2012, 08:27 PM
 
Location: city-suburbia west...Houston, TX
1,289 posts, read 1,105,180 times
Reputation: 1388
not put all my eggs in one basket...
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Old 02-02-2012, 08:39 PM
 
Location: The Greater Houston Metro Area
7,131 posts, read 7,443,131 times
Reputation: 8179
Pay 20% down and finance the rest. You will avoid PMI. Right now, money is cheap. Just choose an area that will do well.
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Old 02-02-2012, 09:12 PM
 
Location: Cypress, TX
727 posts, read 1,299,577 times
Reputation: 595
I'd put 20% down to avoid PMI and finance the rest for 15 years fixed rate.
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Old 02-03-2012, 06:47 AM
 
600 posts, read 642,987 times
Reputation: 629
At the end of the day it is what will give you the feeling of financial freedom. If that is paying for a house in cash, go for it. If it is having a mortgage payment that you can afford, go for it. You are the one that has to wake up in the morning and feel good about yourself!
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Old 02-03-2012, 07:19 AM
 
Location: Houston area
1,408 posts, read 2,222,239 times
Reputation: 618
How would capital gains tax affect you in this situation if you are building your primary residence??

And, I would do what was already mentioned. Put 20% down and finance for 10-15 years. Since you have all that cash saved, you seem like a financially conservative person, go ahead and put 12 months of expenses in a interest bearing account. You'll have a good safety net, and have the liquidity to invest. On 10-15 year mortgage, you'll be getting a rate of around 3%. That's cheap money that you could invest.

But I can see your point about paying cash. If you don't feel comfortable investing your money because of the way the market is. There is value to having your home paid for. You could always get a mortgage, and pay it off if within a year or 2 if you haven't met your investment goals.
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Old 02-03-2012, 07:20 AM
 
614 posts, read 505,315 times
Reputation: 652
You left out two pros for having a mortgage:

1) Risk allocation - rather than bearing the full brunt of the risk in a worse case scenario, you are sharing it with your lender

2) The tax benefit given you can deduct your mortgage interest

My off the cuff response would be it depends on the cost. If small, then I'd do all equity. For example, if I buy a car then I pay in cash unless they are offering a super low interest rate. However, if $100k or more then it is pretty silly to not get a mortgage, especially when rates are so low.
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Old 02-03-2012, 07:50 AM
 
4,151 posts, read 5,572,114 times
Reputation: 2899
Finance the house and use the 200k and buy all Facebook stock.
















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Old 02-03-2012, 10:26 AM
 
85 posts, read 113,680 times
Reputation: 119
We did a 20% down 15 year for 3.125

Buying a long-term bond fund would net you 6%

Why are we even discussing paying cash?
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