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So I've been thinking about scenarios where home buyers are in their mid-late 30's or early-mid 40's. They may already have a modest home, perhaps are a bit pinched on space, but can get by. The mortgage is low enough that they can have the house paid off by retirement age, or if they want to pay it off significantly earlier (and retire earlier), they can make extra principal payments or do a 15-year mortgage instead of 30-year. It could mean retiring at 50-55 years of age instead of 65+ years of age or continuing to have to work up to 70 years of age due to still having mortgage payments.
How many of you in the aforementioned age range are opting to buy nicer, move-up houses that are almost double the payments once you factor in property tax and other things and looking to continue making mortgage payments even after retirement?
Are there those of you who are instead opting to stick with the house you have now and pay it off sooner because you don't want to still be making mortgage payments post-retirement?
Or if you don't have the means to make the nearly double payments required to pay off a mortgage on a nicer, move-up house so you can retire early, are you still going for the nicer, move-up house even if it means you'll be making mortgage payments on it up to until you're perhaps 70 years old?
When you reach a certain age, does the dream home come at too high a price in time/money for you to consider a possibility anymore? Or do you look at it as something you enjoy but don't intend to pay off in your lifetime?
I'm in my mid-30s. I just purchased my second home, which is really comparable to my first, just in a different state. I'd consider both a started home. I lost a lot of money and bought too much with my first house. I learned my lesson. With this house, I took a 30 year mortgage out, but my loan amount is only 113% of last year's income. I took a 30 year because I have a long commute and this is not a forever job. I wanted to be able to afford my payments if I switch jobs. If I budget carefully, update nothing, and really put any extra money towards my mortgage, I could pay it off in 4 years. That isn't really in my plans. 10 years is more my target. But, 10 years from now I will be mid-40s. I get torn. Part of me thinks I'm better keeping what I have which is a nice house, but not a preferred location and smaller than I'd ideally like. Plus side is I'd be mortgage free. The other part of me wants to trade up to more of the dream home. Bigger, better location. But, I wouldn't be mortgage free. However, I would have all of my equity to transfer, so I would still live well within my means (assuming I keep my current job.) If I had upped my budget, I could have purchased the dream home, but I learned my lesson the first time. At this exact point in my life, nice home and financially secure trumps the even nicer dream home without question.
I enthusiastically encourage people to think in terms of getting mortgage-free as soon as you're reasonably able to. It is very LIBERATING!
I'm in my late 50's, haven't had a mortgage in almost 10 years and have successively traded DOWN in price. The American real estate market has become a casino and many areas are in a bubble again. One good recession, with the job losses that inevitably occur, will smack prices down again.
Not trying to scare people but, think carefully about trading up if you don't have a really good reason for doing so. Your ego isn't a good enough reason. You can trust me that people my age and older look back and realize all the dough we wasted on stupid stuff to feed our egos. I never went too far with that so never got in trouble and always had money saved.
Anyhow, just wanted to pop on and tell you all that the freedom of being debt-free is truly awesome. I highly recommend it. (Don't get me started on the gigantic waste of taking out a loan to buy a car.)
Pay off your mortgage! There's nothing like actually owning your house and not making big mortgage payments every month. It opens up all kinds of possibilities like saving more for retirement, being able to change jobs, having money available for emergencies or just for fun. Interest payments are money down the drain.
A lot of people got caught up in the upgrading frenzy in the early 2000s and came to regret it in a big way. House values don't always keep going up. Being upside down on a dream home can become a nightmare pretty fast.
Respectfully, not wearing underwear may also be "liberating" but in the grand scheme of wardrobe choices it is not a very prudent decision.
If your home DECLINE IN VALUE it is incredibly stupid to throw more money into it.
If the return you can EARN on your money is far greater than the tax adjusted rate that you otherwise "save" by paying down your mortgage it is foolish to not want to GROW your money.
There are a wide range of option between buying a distant, likely undersized home and a "dream home", it is wise to consider not just your immediate needs but the scenario that you and your family will face for the next 5-7 years whenever you buy a home.
Upon reading others' comments, this can really vary on what one's definition of a dream home.
I mean, would I love an ocean front mansion? Sure. And, I know for many, that is what they consider their dream home.
I am a practical person. Dream home for me would be in my desired location, somewhere in the 2000-2500 square foot range. My current house is 1400 square feet. It works, but I'd prefer a little more room. If it was in my desired location, I could seriously consider making it a forever home. The city I live in is mediocre at best. There is a tiny sliver that surrounds a golf course that is assigned to a better school district where wealthier people lived in the 1950s at the beginning of suburban sprawl. That is where I live. So my tiny sliver (about 2 square miles) is nice, but it deteriorates pretty rapidly. My city is very long and narrow (about 25 square miles in all), and parts of it are really trashy and unsafe. Houses can be had for under $20K. That area is the farthest from me, or I would never have even considered living where I do. The area in between is nothing spectacular. Mostly lower income, lower middle class at best, but hard working.
we bought a house a couple of years ago that we were able to comfortably afford. recently we had a financial windfall and decided to pay off our entire mortgage. feels absolutely wonderful not to see that money (half of it interest) fly out every month.
Hmm, our first house was a fifteen year mortgage, although we paid it off in ten. It's now a rental house.
The second house has a thirty year mortgage on it. But it's rented and pays for it's own mortgage plus some extra.
This third house is a ten year mortgage and while the payments are a bit on the high side, they're offset by the income from the other houses.
We're planning on selling the first house to finance construction of the fourth house which will then let the third house become a rental. Even with a ten year mortgage, it will still rent for enough to cover the expenses and will be paid for in another seven years.
If you get a thirty year mortgage and make payments on it like a fifteen year mortgage you'll pay less in interest since the loan is amortized and the amortization will be set for thirty years.
I guess what I'm saying is should you generally NOT purchase a dream, move-up house if it means it will take up more than half of your income (and lenders calculate based on gross income, so it's quite possible to be in such a situation), leaving little wiggle room after total monthly expenses, taxes, tucking a way a small amount into savings. It pretty much makes being in a position of making double payments or effectively paying off your mortgage in about 15 years impossible.
As for dream house, I mean in the realistic sense and not fantasy sense. For most, it's probably the house that is $150-250K more than their current house.
But as someone else mentioned, homes can go up in value and down in value. And we've seen examples of both in our recent past in the USA. But the stock market also goes up and down. If you were to put that "move-up, dream house money" into a 401K or other investment fund, you could potentially lose half or more. So would a house be a less riskier place to put the money? It's also a tangible asset that can be rented out in whole or part.
Someone mentioned car loans.. I regret buying a brand new car. It's been reliable and a great vehicle, but you do pay a premium for it which levels out the longer you keep it. 60 months of payments is quite a lot though. I could have gotten by with a used car for 40% of the cost. I see people mentioning how they buy used, tuck away money every month towards their next car, sell their car and use that proceeds towards the purchase of the next car, and they own that one out right and it's a step up. Repeat the process and you end up never having a car loan and gradually moving up to nicer vehicles while avoiding the massive upfront depreciation hit on a new car purchase. You also avoid paying higher insurance premiums on a used car.
Are there those of you who are instead opting to stick with the house you have now and pay it off sooner because you don't want to still be making mortgage payments post-retirement?
I'm 49 and just refinanced the house I've been paying a 30-year mortgage on for 8 years.
My bank had a deal for a 10-year mortgage at 3.5% with no closing costs. They paid for everything including the appraisal and termite inspection.
My mortgage payment is now only $200 more a month. I just paid my 2010 Honda Accord off this year, and with any luck I'll still be driving it in ten years.
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