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Old 05-26-2015, 12:44 PM
 
6,284 posts, read 4,740,348 times
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Quote:
Originally Posted by bluemonday View Post
I am 37 and my husband and I have a paid off mortgage. Its all pretty fresh, but I have to say it is nice not having that mortgage bill come in the mail every month, and seeing hundreds of dollars go to interest. It adds up overtime, and it is not money you will ever get back (unless you like spending $1.00 to get $0.30 per dollar back on interest come tax time).
I don't spend $1.00. The mortgage money I borrowed is invested. It returns the $1.00 I need to pay the mortgage. And it returns an additional $1.00 and I get a small amount back from income taxes.
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Old 05-26-2015, 12:47 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,420,368 times
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Quote:
Originally Posted by bluemonday View Post
I am 37 and my husband and I have a paid off mortgage. Its all pretty fresh, but I have to say it is nice not having that mortgage bill come in the mail every month, and seeing hundreds of dollars go to interest. It adds up overtime, and it is not money you will ever get back (unless you like spending $1.00 to get $0.30 per dollar back on interest come tax time).
Yes interest is an expense for money. It's WHAT you do with that money! First you have the government rebating 30% of that expense but you also then have the INCOME on that money and because the expense is FROZEN then you have inflation chipping in also.

Imagine someone paying only to their mortgage and not investing in their early years.
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Old 05-26-2015, 12:52 PM
 
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As I said before, it's all a matter of subjective risk tolerance and the investment returns are known only with hindsight.
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Old 05-26-2015, 01:23 PM
 
4,539 posts, read 4,838,757 times
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I have no mortgage on my primary house.

I have no mortgage on my vacation house.

I rent my vacation house nine months a year to a off season tenant. I rent to a second tenant one month in summer peak time and I use it two months a year.

The profits from the ten month rental pays costs of both houses each year so I pay zero for housing and I own two homes. I am not looking to make money but by breaking even it really helps me save 50-75 percent of my paycheck each month
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Old 05-26-2015, 01:35 PM
 
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SandyJet, It is a good thing you do not have a mortgage otherwise people on this forum who accuse you of being a real estate speculator.
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Old 05-26-2015, 01:49 PM
 
Location: SF Bay & Diamond Head
1,779 posts, read 1,420,368 times
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Quote:
Originally Posted by jrkliny View Post
SandyJet, It is a good thing you do not have a mortgage otherwise people on this forum who accuse you of being a real estate speculator.
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Old 05-26-2015, 01:49 PM
 
906 posts, read 651,450 times
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Quote:
Originally Posted by rjm1cc View Post
Homes have maintenance costs so do not assume they are cheaper.
Interest is low now so I would not rush to pay off a mortgage. Probably 30 year mortgage.
Start your retirement savings now. Do not delay and do not pay off the house before you start saving. You want your savings to have a lot of years to earn money.
You want as little in the way of fixed monthly payments as you can in retirement.
Quote:
Originally Posted by BeerGeek40 View Post
Finally ---- someone who GETS it! I paid off my mortgage last year at age 45. Done for good with banks, mortgage statements, and interest being flushed down the drain.

You are on the right track.
1. Small mortgage. Yes sir! Buy a moderate sized house you can afford rather than trying to keep up with the Jones's
2. You didn't mention this one, but put 20% down when you purchase, if you can, in order to avoid PMI, private mortgage insurance (a good deal/bad deal: good deal for the bank. bad deal for you).
3. Take out a 20 year mortgage -- yes, they exist, and then pay it down as quickly as you can. It took me about 12 1/2 years.
4. Ditch the landlord. Another person you can do without in your life, making rules for you and making life more complicated than it needs to be. Raising your rent, and tying you into a lease. Run your own life, your way, in your own house.
5. Disregard some of the advice of rjm1cc. Do not take out a 30 year mortgage just because interest rates are low. It's more important to get the house paid off, than to be throwing a ton of money into your retirement account when you won't be able to touch the money for another 30 years. He/she is correct about maintenance costs, so do your homework on whatever house you do decide to buy.

Good luck.
Quote:
Originally Posted by mathjak107 View Post
i agree with all except the don't take a 30 year mortgage part.

that can be a mistake . you can pay a 30 year off in 15 or 20 years years but if money gets tight you cannot pay a 15 or 20 year off in 30.

take a 30 and pay it off earlier , at least you have that choice .

Yep I would do 30 years. That way you can use other money to incest and make much more then what you would be paying on your mortage monthly

other reason are if you lose your job or whatever you will still have a low mortgage you can make. Basically you control your payments. Lets stressful. You can still pay your mortgage off in no time
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Old 05-26-2015, 03:26 PM
 
Location: Myrtle Creek, Oregon
12,275 posts, read 12,516,106 times
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Quote:
Originally Posted by mathjak107 View Post
you can use the mortgage money for lot of things once it is paid . but you can only do it because you cut an expense from the budget. income stays the same..

yes income can stop growing too and when it does the expenses just become greater. which is why a home generates no income,


actually for many retirees their income is still growing . investments have taken over where the pay check ended.
appreciation of the home is irreverent . any asset you buy even as a renter can appreciate .

i am not saying that ownership can't be a good thing , only that your premise of it generating any income is flawed. it is an expense -100% an expense.

how you invest any money saved or where ,whether in the house or other assets is a different story.

if you are looking at it as an roi it is actually costing you the rent you are not collecting on the money you have invested by using it yourself.

as i said , if we buy that co-op and pay cash we will give up the 12k income we are getting now on that money but housing costs hopefully fall by more in the long term.. so ownership takes income it does not add to it. it just improves cash flow of existing income..

if you drove less is your car generating income ? of course not. you are just cutting expenses. it has nothing to do with the residual value of the car either.
Yes, I see we are talking past each other. I'm considering it from the cash flow management side, and you are considering it from the income side. My assets are growing nicely, but I'm doing everything I can to suppress income. I don't see much difference between reducing cash outgo vs. increasing income, but your definitions are your definitions. I think there are substantial tax advantages to lowering cash flow that are not reflected in the raw numbers.

I still haven't seen any indication that the wheeler-dealers who borrow against their house to invest in the market have actually analyzed all the implications. Their strategy sounds like it came out of the mouth of a fast talking investment adviser working on commission. My analysis says that if I borrowed $500k on my house and invested in the market, the 10 year annual return would range between a negative 15% and a positive 6% with a probable negative long term outcome.
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Old 05-26-2015, 03:51 PM
 
Location: Somewhere in America
12,304 posts, read 10,774,658 times
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Quote:
Originally Posted by mathjak107 View Post
i agree with all except the don't take a 30 year mortgage part.

that can be a mistake . you can pay a 30 year off in 15 or 20 years years but if money gets tight you cannot pay a 15 or 20 year off in 30.

take a 30 and pay it off earlier , at least you have that choice .
^This. When we purchased our current house, the interest rate for a 20 year and a 15 year were less than a quarter percent different than what we have on a 30 year.

My first house I paid enough extra month that I knocked it down to a 17 year mortgage when I sold it 9 years into it. My second house I only paid extra for about a year because I was being relocated due to a job. The house we're in now we hope is our final home and we make 14+ mortgage payments a year. And that 14+ includes the additional escrow not just the mortgage payment part. It's nice to know that the house will be paid off long before 30 years and that we have a cushion if we ever need it.


Quote:
Originally Posted by BeerGeek40 View Post
Mathjak you're one of the posters I most respect on here but we'll agree to disagree on this one.
MOST people won't have the discipline to continue to pay extra on a 30 year mortgage.
It's easy to do if you do it from day one. If your mortgage payment is $1500 a month for example. Plan to pay $1750 every month instead. If you do it from the start, it's money you'll never miss. I've always paid more on my mortgage and I've owned 3 houses!
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Old 05-26-2015, 05:05 PM
 
71,683 posts, read 71,801,099 times
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playing around with some simple calculators i ran a best case scenario for taking a mortgage.

in a perfect world there would never be any down years . your average return is constant year after year never selling anything at a loss.

but the real world is not like that and sequence risk is the biggest factor . that can make or break any average return and cause as much as a 15 year difference in how long an amount will last between the best out come and the worst outcome.

the more you need to withdraw the more painful the difference becomes so the worse the sequence the worse having a mortgage will be.

so ruling out any sequence risk , best possible scenario for taking a mortgage here is what i got

person A has 2 million dollars invested. they buy a 400k home and have 50k in yearly expenses plus the cost of a 400k mortgage which at 3.75% is 23k a year.

we are assuming no down payment even needed in our perfect world .

so person A has yearly expenses of 73k while the 2 million compounds at 8% invested .

person b also has 2 million but they pay cash for the house . they have 1.6 million invested and 50k in expenses since they have no mortgage to pay.

at the end of 30 years in our perfect world person A has 5,933,000 left and a 400k house plus 30 years of appreciation.

person B HAS 5,450,000 left and a 400k house with 30 years appreciation.

person A would have had a tax deduction for some of that mortgage interest for a good part of the mortgage which would improve that difference.


so in the perfect world the mortgage wins nicely.

but once you figure in the fact markets are down 1/3 of the time and look at the range of best to worst case scenarios that sequence risk causes that difference shrinks more and more until in the worst case scenario person B did better than person A .


so actual real world results will be somewhere in between the best and worst.


you may find when you run your actual numbers 30 years later based on your own sequence risk and returns there really was not a whole lot of difference in the end but each case will be different.


the higher market valuation and the lower interest rates the greater the chance returns will be lower . the lower valuations are the better returns are likely to be.

so you have to evaluate where we are now and what the likely out look is since if things go wrong up front before you catch an up cycle the damage may be hard to recover from shelling out so much more for the mortgage up front early on.

you need to see where you are in your own retirement cycle as this is important criteria too. if you had 5 years of strong gains your first few years you are golden and can pretty much do anything with out repercussions.

Last edited by mathjak107; 05-26-2015 at 05:24 PM..
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