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Old 03-07-2015, 08:29 PM
 
Location: Grove City, Ohio
10,133 posts, read 12,383,606 times
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John (68) and his wife Ellen (67) are thinking about selling their mortgage free home for $140,000 and buying a smaller single floor plan home for $120,000.

Of course they could pay cash and pocket $20,000 but would there be an advantage of put 20% down payment taking a $96,000 30 year mortgage at 4% and keeping the $116,000 cash for "in case of" then paying $482/month to live in a house that will likely never be paid off?

To be clear the $482 represents about 10% of their retirement income stream and the $116,000 would only be used in an emergency.
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Old 03-07-2015, 08:49 PM
 
Location: Florida
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Buy a condo for cash and never have to make a mortgage payment, ever. No exterior maintenance/yard work etc. It is probably possible to buy a condo for less than a downsize house.
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Old 03-07-2015, 09:54 PM
 
Location: Los Angeles area
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Bad idea in my book unless they can take that $116,000 and buy income producing securities that do a lot better than CD's but that are still pretty safe. Otherwise the $20,000 in cash should be adequate for an emergency fund. Why have a mortgage hanging over your head at that age?

Another variable, albeit a minor one, is whether they can get a tax deduction out of the mortgage interest. Some people do not have enough deductions to itemize and so they use the standard deduction. Would the mortgage interest allow them to itemize and take advantage of it?
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Old 03-07-2015, 09:59 PM
 
1,440 posts, read 722,775 times
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Quote:
Originally Posted by engineman View Post
Buy a condo for cash and never have to make a mortgage payment, ever. No exterior maintenance/yard work etc. It is probably possible to buy a condo for less than a downsize house.

That sounds like a different plan than what the OP was asking....a condo is a huge difference from owning your own home. By the way, what about condo maintenance fees, association fees, etc. (you're still paying something towards maintenance, landscaping, etc.).

While there may be some advantages/less maintenance worries with a condo, you are still paying for them, losing privacy to an extent and being crowded in with others with no real "property" of your own.
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Old 03-07-2015, 10:08 PM
 
Location: Silicon Valley
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Well, if they sold their home for cash and rented the rest of their lives, would they come out ahead? I kind of like their plan. Their "rent" will be stable in a house they won't have to possibly move out of which can happen in a rental. And really, what do they care if the mortgage gets paid off? They're basically buying stable rent until they move into assisted living.

Is there a way to protect their cash from being taken if they end up in foreclosure?
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Old 03-07-2015, 10:21 PM
 
1,440 posts, read 722,775 times
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Quote:
Originally Posted by nicet4 View Post
John (68) and his wife Ellen (67) are thinking about selling their mortgage free home for $140,000 and buying a smaller single floor plan home for $120,000.

Of course they could pay cash and pocket $20,000 but would there be an advantage of put 20% down payment taking a $96,000 30 year mortgage at 4% and keeping the $116,000 cash for "in case of" then paying $482/month to live in a house that will likely never be paid off?

To be clear the $482 represents about 10% of their retirement income stream and the $116,000 would only be used in an emergency.

You've probably heard elsewhere - "Cash is King".

Having $116K in cash is nothing to sneeze at vs. having only $20K. Plus the $116 gives them the option of investing part of it (even 50%) and still having a bunch of $ on hand "in case of".

One thing is certain....owning a house outright is nice & comforting but obviously it is in no way "liquid". But...having another 30 yr mortgage means paying interest all over again , in your example about $70,000 over 30 years (highest interest starting in the early years of mortgage)

Another question is if they have heirs.....if no kids or others to saddle the problem with should they die then it'll be the bank's issue to sell off and recoup money after the last one passes away ( assuming the one last to pass is smart & healthy enough to have one hell of time in their remaining years leaving nothing for the bank to take)...also assumes the the widow/widower can continue making the required mortgage payments until then.

Of course I'm being a little flippant...there are many other issues like healthcare, insurance, taxes, upkeep, etc. that would come into play also.
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Old 03-08-2015, 07:11 AM
 
Location: Grove City, Ohio
10,133 posts, read 12,383,606 times
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Quote:
You've probably heard elsewhere - "Cash is King".
Cash is King. I am sure we have all seen retired people living in a very nice housing while driving very nice cars but devoid of an cash there wasn't a lot they could do.

I like the idea of a condo but my psychological makeup would not fit well. I like owning my patch of dirt and if I want to hang pink curtains on my window I wouldn't tolerate someone telling me I couldn't. Nah, condo is out and I wouldn't like pink curtains anyway.

Leaving something for the kids? No way, I already did that. I raised them with everything they wanted and paid nearly everything it took for four years of college so they could live on their own and support themselves well. The only thing I made them do was take out a $1,250 student loan every semester so they would have some skin in the game. Other than that I paid for it all; tuition, books, apartment rental and even $100/week cash allowance all the way through four years so I owe them nothing and I've told them to expect nothing at my end.
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Old 03-08-2015, 07:16 AM
 
35,108 posts, read 40,230,180 times
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Why not purchase a smaller home that is 1/2 of the $140,000.00 and keep the rest in cash?
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Old 03-08-2015, 07:25 AM
 
71,550 posts, read 71,712,424 times
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many seniors are taking advantage of reverse mortgages to purchase. these are different from reverse mortgages you take on hmes you already own.

they require a large down payment of 1/3 to 1/2 but you never make another payment again. you do pay taxes and expenses but no mortgage payment.

the house is sold by the bank when you are no longer in it and anything left after payments of what is owed is given to heirs.


it can be the best of both worlds . getting a more expensive house in a better area and keeping cash.

i am toying with the idea myself since i would love to live in a building near our rental that is out of budget under conventional methods of purchasing an apartment and would take to much cash flow but the numbers will work if we do the above..

there are min ages for this.
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Old 03-08-2015, 08:08 AM
 
Location: Idaho
2,512 posts, read 2,276,912 times
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Quote:
Originally Posted by CSD610 View Post
Why not purchase a smaller home that is 1/2 of the $140,000.00 and keep the rest in cash?
That's what I did. Condo would not due since most in this area don't like large dogs. And, since I never used a VA mortgage before, I was able to get a nice 3.5 rate and invested the difference from the old house to the new house and moved into a state with a lower cost of living and home values.

Never needed a five bedroom house on an acre; not sure why I purchased it years ago. Now a three bedroom, with a large fenced in backyard is perfect.

People need to do what is best for them; not what is best for another person. Everyone's situation is different.
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