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Old 03-18-2015, 11:55 AM
 
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I think there is no one size fits all answer. You can make a good case for taking a mortgage, and an equally good case for not taking a mortgage.

One consideration I have not seen mentioned yet is the possibility of paying higher income taxes with a mortgage. Why? Well, the standard deduction for a MFJ couple, both over 65 is 14.8k for 2014. With today's low interest rates, unless the mortgage is quite large, mortgage interest + property taxes + charitable contributions + deductible medical + state income or sales tax will not exceed 14.8k in many cases. Therefore, no tax break on the interest paid. The money which might have paid for the house has been invested or banked, where it earns dividends and interest.

Yesterday, on a different thread, mathjak made reference to the fact that if a person is not already being taxed on 85% of SS benefits, additional income from IRA withdrawals can cause some or more SS to be taxed. For people in this situation, that additional principal in the bank or investment account earning dividends and or interest can mean more income tax on SS benefits.

It won't be a consideration for all of course, but some people will find themselves in the double whammy situation of no tax break for mortgage interest PLUS additional income tax owed on SS benefits.

So, the best approach is going to vary from person to person.
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Old 03-18-2015, 12:31 PM
 
12,825 posts, read 20,144,092 times
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Quote:
Originally Posted by Escort Rider View Post
Your point is a good one, but I still tend to come down on the other side of the fence. Let's take the example of your friends who had to "prematurely tap their remaining savings". In their case, since they don't have a mortgage, the additional cash flow means that they can rather quickly rebuild their remaining savings by directing the amount they would otherwise pay on their mortgage back into savings every single month.

My own example: I buy cars new then drive them forever. Back in 2007 I bought a new car for a bit less than $27,000 and paid cash for it. Within about a year I had replenished that entire amount just from extra cash flow each month.

As someone else said, a lot depends on our own comfort level with doing things a particular way.
And in that example, I submit, the friends had inadequate savings and too much outbound cash flow to begin with. Their earlier house was probably too much house and the new one may still be too much house. I'd rather live more like European or Japanese, with stacked up closets, than not have enough savings / liquidity.

Most Americans are horrible in terms of liquidity, as compared with the rest of the world.
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Old 03-18-2015, 02:26 PM
 
530 posts, read 538,235 times
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Quote:
Originally Posted by BayAreaHillbilly View Post
And in that example, I submit, the friends had inadequate savings and too much outbound cash flow to begin with. Their earlier house was probably too much house and the new one may still be too much house. I'd rather live more like European or Japanese, with stacked up closets, than not have enough savings / liquidity.

Most Americans are horrible in terms of liquidity, as compared with the rest of the world.
Thanks for your observations, BAH ... In some ways I agree with your PoV. I can't speak for my friends, but I do know that the only reason I continue to work (and live) here, in the SF Bay Area, is to put-away as much as we can afford into savings (IRA, 401(k), CDs, Money Markets, etc.). Being on the "lower-rung" of the well-paid folks I am employed with, it has been a real struggle, over the years.

Somewhat-like Escort Rider, I purchased a hardly-used vehicle in 1998, and have driven it across the U.S. twice, was forced to refinance it once, and now own the vehicle free-and-clear. Another old friend once told me: "You can buy a lot of gas with what you'd pay for a car payment" - and he's right. Not having a car payment has allowed us to put-away some of that car-payment-money into a savings account that we set up to help cover the costs of repairs, and other expenses associated with our (older) home.
And like Escort Rider quoted from someone else: "a lot depends on our own comfort level with doing things a particular way" ...
Many of us were raised by parents of the "Greatest Generation" - who had come through the Great Depression. They instilled many of their values in quite-a-few of us. Some of those, what I call "Old-School Values", continue to rise to the top of our thinking, and still do influence the ways that we make plans, react to situations, and generally just go about our lives. As for DW & I, we'll probably run the numbers on which situation (mortgage vs. no-mortgage) is most to our benefit, when that happens. Right-today though, we're leaning more toward trying to get a mortgage for a replacement house, somewhere-other than California.

As for living like a European ... Thanks, but No Thanks ... I'm not a big fan of "benevolent" or "democratic" socialism. I won't allow myself to get any-further off-topic, here, so I'll quit while we're all still friends.

Thanks, Everyone! ... TC
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Old 03-18-2015, 05:18 PM
 
2,294 posts, read 1,561,711 times
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Quote:
Originally Posted by BayAreaHillbilly View Post
Here are my thoughts on taking a 30 year mortgage ... when you are 30 (let alone 70). It stinks.

I and my partner had to take one when I was the ripe old age of 35. That really stank to high heaven. Thankfully, when rates fell really low, we refi'd to a 15 and then went into a discipline of paying it off as if it were a 10. Now counting down the final months. Yeeeeee haaaaaa!
Again, depends if you want to be more liquid or illiquid. I would do the 30 year mortage, invest some and keep some in cash or other similar. I don't understand the joy that some do of paying off a mortgage in a low interest rate environment especially.
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Old 03-18-2015, 06:00 PM
 
71,593 posts, read 71,751,865 times
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why ? because as they age not everyone is interested in maintaining aggressive enough allocations to make it worth it.

many can't write off a thing pertaining to the home even with a mortgage and that becomes even truer in retirement when you lose possibly two pay checks and relocate to a low or no tax state.

so even a 5-6% return pre tax after taxes may not be worth the volatility of investing vs just paying off the mortgage.
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Old 03-18-2015, 06:18 PM
 
Location: Near a river
16,042 posts, read 18,978,143 times
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An owned home wo mortgage can be, when the time is right, a ticket into a decent SNF/nursing home. In that respect, keeping up the property in good condition is an investment.
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Old 04-11-2015, 11:54 AM
 
238 posts, read 544,573 times
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Default I may follow this route

Quote:
Originally Posted by ToriaT View Post
I am in my sixties and plan on buying an expensive new home this year. But I can afford it. I will put a large down payment down but still have a mortgage most likely a thirty year. I plan on living in the house at least ten years and will re evaluate after that.
I'm with toriaT; I'm seriously considering a 2nd home purchase. We are in our early 60s without any debt. I'm nervous as I do my homework wondering if it's the right move at our age. I've always played it 'safe' and did without for many years as we built our retirement monies. Now, I guess, I kinda want to make up for some things I let go by years before. I'm hoping to find the appropriate financial advisor as I'm an educated risk taker. I don't want to leave the monies we built for retirement, to the kids. What fun is that? I'm just hoping there isn't anything I didn't consider before finding the 'perfect for us' property and pulling the trigger.
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Old 04-11-2015, 02:57 PM
 
Location: Pennsylvania
12,511 posts, read 4,230,897 times
Reputation: 9831
Without having all of the financial facts....my gut would be telling me, don't fix what isn't broken.

If your house is paid off and isn't causing you any major maintenance problems, I sure wouldn't want to give that up and have to deal with some money grubbing banker.
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Old 04-11-2015, 03:55 PM
 
71,593 posts, read 71,751,865 times
Reputation: 49204
Quote:
Originally Posted by Petunia 100 View Post
I think there is no one size fits all answer. You can make a good case for taking a mortgage, and an equally good case for not taking a mortgage.

One consideration I have not seen mentioned yet is the possibility of paying higher income taxes with a mortgage. Why? Well, the standard deduction for a MFJ couple, both over 65 is 14.8k for 2014. With today's low interest rates, unless the mortgage is quite large, mortgage interest + property taxes + charitable contributions + deductible medical + state income or sales tax will not exceed 14.8k in many cases. Therefore, no tax break on the interest paid. The money which might have paid for the house has been invested or banked, where it earns dividends and interest.

Yesterday, on a different thread, mathjak made reference to the fact that if a person is not already being taxed on 85% of SS benefits, additional income from IRA withdrawals can cause some or more SS to be taxed. For people in this situation, that additional principal in the bank or investment account earning dividends and or interest can mean more income tax on SS benefits.

It won't be a consideration for all of course, but some people will find themselves in the double whammy situation of no tax break for mortgage interest PLUS additional income tax owed on SS benefits.

So, the best approach is going to vary from person to person.
this is true and becomes truer, as you saw the closer you get to just going over those thresholds where the combo of the tax on the income and the additional tax on ss can create insane marginal tax rates.
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