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View Poll Results: Mortgage or Investments
No mortgage pay 350k for house 51 51.52%
Mortgage with money in investments 48 48.48%
Voters: 99. You may not vote on this poll

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Old 09-03-2019, 03:36 AM
 
Location: R.I.
1,051 posts, read 639,618 times
Reputation: 4522

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Quote:
Originally Posted by organic_donna View Post
One point that no one mentioned, is the income generated from your invested assets if you took out a mortgage and now have the extra money to invest. In December 2020, when I turn 66, I will draw my social security. At that time my income will be close to $80,000. Thatís factoring in my pension, social security and a 3-4% withdrawal rate from the combined balance of my IRA and Roth IRA. I want to drawn from my IRA first to lower my RMD when I turn 70 1/2. My current house is paid off, but if I get a mortgage on my next house, I would put down $350,000 and Borrow $225,000. If I invest that money in equities it will generate dividends and capital gains income, even if I use ETFís. And bonds generate too much taxable income. I want to stay under the $85,000 threshold for Medicare costs. So I have to take that into consideration too. Or should I just pay the higher Medicare premium?
Having said that, I think the smart choice is to take a mortgage with these low interest rates. Itís considered good debt.

Correct me if I am wrong, but it looks like for your next home purchase if you plan to put down $350K and mortgage $225K then the home you plan to purchase is in the $575K range. Don't know where you plan to purchase your next home, but outside both coasts and other higher COL areas you could purchase pre-owned and in some cases new a very nice home in the $350-$375K range. If you purchased a home in this price range you could go with having no mortgage, still have $200-$225K to invest, and if this is important to you additionally have the security of owning your home outright.


Just a thought.
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Old 09-03-2019, 06:08 AM
 
Location: RVA
2,193 posts, read 1,298,487 times
Reputation: 4559
Buying a less expensive house in a LCOL area is a pretty obvious choice, so I doubt she hasn’t considered that. The point she made was that she knows where and what she wants in a price range, AND can exchange both some new (home sale) and current taxable income savings for the mortgage debt and invest in tax advantaged income generation and RMD reduction.

However, the more obvious “fault” of this argument is that re-arranging income to be possibly lower taxable to avoid the Medicare penalty is seldom a smart move. The above $85k single income penalty is all of $660/yr. & while annoyingly frustrating to be just over the income level, which I agree is not very high at all, vs $170k for married, the more sensible and possibly already planned strategy is to convert pretax IRA to Roth, to make all (or as much as possible) of the 3-4% savings withdrawals totally tax free, which while it takes more “cost” up front, (the cost of the prepaid taxes), is a gift that keeps on giving for a very long time. Yes, I know, heck of a run on sentence.

It’s odd how it is difficult for many to reconcile that there is no difference between $500k in a pre tax IRA vs, $375k in a Roth. Both end you with the exact same net income, but having the larger taxable amount seems better, when here is an example of where it definitely is not. We just have a resistance to paying the taxes in advance, even with the current reduced rates through 2025. Also, the interest on a small $225k mortgage is not enough to break the standard deduction threshold, so not a consideration, but the increased SALT of the larger home might be worth more in income reduction.

Last edited by Perryinva; 09-03-2019 at 06:23 AM..
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Old 09-03-2019, 09:22 AM
 
Location: Haiku
4,728 posts, read 2,751,990 times
Reputation: 6932
Quote:
Originally Posted by Beach Sportsfan View Post
A question for many thinking in retirement soon. With interest loans going so low how many of you Would get a mortgage and let the balance in your investments as opposed to paying house completely.

Letís assume you have 350k to buy a house with no mortgage or take mortgage and let most of that money in investments

Option #1 Pay for house completely- no mortgage
Option #2. Carry a mortgage and invest the money

This is of course assuming you can carry mortgage payments with retirement income
I like to flip these question around and ask myself if my house is paid-off, would I consider taking out a loan on it in order to invest that money? Because that is essentially what you are doing with option #2.

For me, I would not do what I wrote above, so I would not take option #2.
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Old 09-03-2019, 04:13 PM
 
1,088 posts, read 1,133,866 times
Reputation: 1443
Quote:
Originally Posted by Perryinva View Post
Buying a less expensive house in a LCOL area is a pretty obvious choice, so I doubt she hasnít considered that. The point she made was that she knows where and what she wants in a price range, AND can exchange both some new (home sale) and current taxable income savings for the mortgage debt and invest in tax advantaged income generation and RMD reduction.

However, the more obvious ďfaultĒ of this argument is that re-arranging income to be possibly lower taxable to avoid the Medicare penalty is seldom a smart move. The above $85k single income penalty is all of $660/yr. & while annoyingly frustrating to be just over the income level, which I agree is not very high at all, vs $170k for married, the more sensible and possibly already planned strategy is to convert pretax IRA to Roth, to make all (or as much as possible) of the 3-4% savings withdrawals totally tax free, which while it takes more ďcostĒ up front, (the cost of the prepaid taxes), is a gift that keeps on giving for a very long time. Yes, I know, heck of a run on sentence.

Itís odd how it is difficult for many to reconcile that there is no difference between $500k in a pre tax IRA vs, $375k in a Roth. Both end you with the exact same net income, but having the larger taxable amount seems better, when here is an example of where it definitely is not. We just have a resistance to paying the taxes in advance, even with the current reduced rates through 2025. Also, the interest on a small $225k mortgage is not enough to break the standard deduction threshold, so not a consideration, but the increased SALT of the larger home might be worth more in income reduction.
Currently I own my house and I paid $570,000 and I do not have a mortgage. I have 50% of my investments in a Roth IRA already, so I donít need to convert a large sum and pay the taxes on it. I plan to purchase my next house prior to selling my current house. My sister is loaning me $350,000 and I will take a loan on the rest. After I sell my house, I will pay my sister back with the proceeds. At that time I can either keep the mortgage or pay it off. I think the smart money says at 3.5% itís better to keep the loan and invest the difference.
Thank you for the advice on not trying to keep the Medicare premiums down. It just doesnít seem fair that married people get $170,000.
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Old 09-03-2019, 04:52 PM
 
73,205 posts, read 73,010,057 times
Reputation: 50802
Quote:
Originally Posted by TwoByFour View Post
I like to flip these question around and ask myself if my house is paid-off, would I consider taking out a loan on it in order to invest that money? Because that is essentially what you are doing with option #2.

For me, I would not do what I wrote above, so I would not take option #2.
You can’t imagine how many fail to consider that this is exactly what you are doing when you have the cash but take a mortgage .... the investing becomes a very different equation ...it is not just investing ..you are investing leveraged money .....the downside is greater and because of it you need a greater risk premium than you typically would just investing.

This is something Michael kitces did an article on .. we all like to comfortably put our money in the investment and the mortgage money in the house ..

that makes us feel better ...but the reality is it is a pile of money made up of your own and borrowed money and no matter how we try to smoke and mirror it that money we invest is effectively leveraged money
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Old 09-03-2019, 06:54 PM
 
Location: Northern California
1,254 posts, read 2,209,034 times
Reputation: 764
We moved in 2014 and had to take a new mortgage for our house in a Norcal retirement community. We didnt have 275K cash to buy the place.

Not an ideal situation but we had to move.
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Old 09-04-2019, 04:54 AM
 
Location: San Diego
3,470 posts, read 5,275,074 times
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At 66, I just refi'd my substantial mortgage. I have more than enough liquid assets to pay off my current mortgage. My brokerage gave me a 3 1/8% long-term mortgage. If I can't beat 3 1/8% in the stock market with my liquid assets, I wasted my college education. Add the tax preferences, and I'm way ahead.

Last edited by cruitr; 09-04-2019 at 05:04 AM..
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Old 09-04-2019, 05:16 AM
 
1,088 posts, read 1,133,866 times
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Quote:
Originally Posted by cruitr View Post
At 66, I just refi'd my substantial mortgage. I have more than enough liquid assets to pay off my current mortgage. My brokerage gave me a 3 1/8% long-term mortgage. If I can't beat 3 1/8% in the stock market with my liquid assets, I wasted my college education. Add the tax preferences, and I'm way ahead.
And if you took a 30 year mortgage, at some point CD’s will beat that, risk free. And don’t forget to factor in inflation. That 3 1/8 mortgage will be genius in the future. If I hadn’t invested in the stock market, my net worth would be a third of my current balance.

Last edited by organic_donna; 09-04-2019 at 05:34 AM..
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Old 09-04-2019, 06:14 AM
 
6,471 posts, read 4,877,858 times
Reputation: 13558
Quote:
Originally Posted by organic_donna View Post
And if you took a 30 year mortgage, at some point CDís will beat that, risk free. And donít forget to factor in inflation. That 3 1/8 mortgage will be genius in the future. If I hadnít invested in the stock market, my net worth would be a third of my current balance.
Your experience is not unique. Most of us see our investments grow and grow and grow over time. For a balanced portfolio, the average returns over time have been in the range of 6-8% annually with even higher returns for those who are invested with higher allocations and less concerned about the possibility of short term setbacks.

This is why it is so hard for me to understand why 50% of those who answered the poll would buy a house outright instead of taking a mortgage and investing. They tie up their money in a house and lose a lot of money over the long term. It makes no sense but seems to be some sort of emotional decision that makes them feel good.
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Old 09-04-2019, 06:51 AM
 
1,088 posts, read 1,133,866 times
Reputation: 1443
Quote:
Originally Posted by jrkliny View Post
Your experience is not unique. Most of us see our investments grow and grow and grow over time. For a balanced portfolio, the average returns over time have been in the range of 6-8% annually with even higher returns for those who are invested with higher allocations and less concerned about the possibility of short term setbacks.

This is why it is so hard for me to understand why 50% of those who answered the poll would buy a house outright instead of taking a mortgage and investing. They tie up their money in a house and lose a lot of money over the long term. It makes no sense but seems to be some sort of emotional decision that makes them feel good.
If you buy a house for $500,000 and pay cash, your money is tied up in that house. Whether you have a mortgage or pay cash, the house will appreciate at the same rate. The question is, where will your money give you a higher rate of return over 30 years. I say investing, but I have not carried a mortgage for over twenty years. Having a mortgage does not make me lose sleep at night.
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