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View Poll Results: Mortgage or Investments
No mortgage pay 350k for house 30 54.55%
Mortgage with money in investments 25 45.45%
Voters: 55. You may not vote on this poll

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Old 07-23-2019, 06:01 AM
 
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Quote:
Originally Posted by mathjak107 View Post
you can see here from the census data how house rich and cash poor most people are . surely a case of the emperors new clothes here when it comes to being "secure or peace of mind " because of a paid off home . because reverse mortgages are so costly and reverse compounding interest ain't your friend , in a pinch this equity will not generate what most people need over the longer term as expenses rise ...for the most part many who resort to reverse mortgage type loans only postpone the inevitable . that is they end up not being able to afford to keep the house going and provide their living expenses too .

so most would benefit from being less home equity heavy and have more available " growing " liquid assets in other areas , especially to try to improve the ratio between home equity and other assets ..
I don't think anyone would dispute that being cash poor and all one's assets in a house is not a good idea, but your analysis is ignoring liabilities.


Beyond a general advice to take liquid assets, real estate assets, AND liabilities into account, it gets real hard to say any more without knowing an individual's personal situation.


I'd like to see rather than "net worth" on your graph, three bars: liquid assets, real estate assets, and liabilities.
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Old 07-23-2019, 06:03 AM
 
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net worth is less existing liabilities-- always .


so if you are talking home equity as a percentage of net worth it is what it is .

for a 65 year old having 78% of your net worth in a house is not a good thing no matter how you slice it . for an 80 year old it jumps to 80% .

so yes , most are tying up to much in their home and not enough in other assets that can grow outside of home equity .
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Old 07-23-2019, 06:14 AM
 
Location: Northern Wisconsin
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1. No mortgage.

2. I'd never spend that much on a house. Keep it simple and low cost.
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Old 07-23-2019, 07:15 AM
 
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FWIW --

We are not gamblers at all, so we will pay cash for our retirement home, even though we will be left with "only" about 200k. This is because even though we have never had an ARM, our mortgage payments have occasionally risen as much as 25% in the space of just a few years, due to an increase in insurance premiums and property taxes (due to increased valuation of our homes), which has often resulted in some very unpleasant surprises.

However, we estimate that our expenses will be only about 65% of our Social Security income (and we intend to save the rest), and we are moving to an area where property values have never increased drastically, and so if property taxes do rise, we think we could handle any increase.

Plus, of course, if we need to sell the house in our later years, we think that the fact that it is "mortgage free" would be a bonus -- that selling it would mean we would receive all the money we put into it back -- and another BIG plus is that we would have paid no interest.
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Old 07-23-2019, 07:45 AM
 
29,854 posts, read 34,929,245 times
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Quote:
Originally Posted by mathjak107 View Post
you keep seeing the "piece of mind " or feeling of comfort mentioned for paying off or not having a mortgage but the real comfort and piece of mind may be in having hundreds of thousands of dollars liquid and accessible if needed .

a house is a one way funnel with a check valve . once the money is in you can't get YOUR money out .. you can only use the house for collateral and take costly loans .

the problem is today the requirements for a heloc are the same as for a mortgage . you need the credit score , you need the income.

in 2008 people saw banks close helocs and stop loaning when they had no money to loan .

at least with hundreds of thousands in your own money you have a nice cushion and accessible money that may be able to pay off that mortgage usually at any time .


so there are situations both ways where it can be a case of the emperor's new clothes and the risks and comfort is a false sense of security
So very true and also reflective of how complex structuring our retirement for the long term can be.
Many when deciding when to take SS do so without considering how it impacts liquid assets v monthly income v income growth v liquid asset growth/preservation.
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Old 07-23-2019, 07:49 AM
 
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When possible, I believe going into retirement with a paid off mortgage. However, If I am buying a house a few years from retirement or during retirement I see the virtue in having a mortgage so that I do not have all my eggs (dollars) in one basket. This assumes that you are not selling a house for $350,000 and then buying a house for $350,000 and also assumes that you do not have a liquid assets of a few million dollars.


I liked what turf3 said. "Beyond a general advice to take liquid assets, real estate assets, AND liabilities into account, it gets real hard to say any more without knowing an individual's personal situation."

Last edited by Deoge; 07-23-2019 at 07:50 AM.. Reason: spelling
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Old 07-23-2019, 08:38 AM
 
5,321 posts, read 2,384,864 times
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I went back and looked at the OP.

Paraphrasing:

"If you have $350,000 to buy a house, is it better to pay cash or take a mortgage?"

Unfortunately this question leaves out half of the required information: what else do you have?

So, let's look at two possibilities:

1) "I have $351,000 in retirement savings and I could buy a house at total cost of $350,000. Should I pay cash, leaving myself with $1000 to cover the rest of my life?"

I guess we all know the answer.

2) "I have $4,000,000 in retirement savings, invested in a variety of instruments; would it make more sense for me to pay $350,000 cash for a house, or take a mortgage?"

The answer to that is a bit more complex, but certainly this person is not going to be hurting for lack of liquid assets should they choose to pay cash.

Obviously most people are somewhere in between which is why there is no single answer. And it's not true that your investment income will always exceed your mortgage interest. Take it over a long enough period, and that's true, but one can also cherry-pick periods where it was dramatically the other way round.
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Old 07-23-2019, 08:40 AM
 
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this why you really do need to pay attention to having a healthy proportion ... 25-50% in home equity is about the most that is considered a good healthy mix . more then that can introduce issues by being to home equity heavy
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Old 07-23-2019, 08:48 AM
 
1,694 posts, read 590,227 times
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Quote:
Originally Posted by turf3 View Post
I went back and looked at the OP.

Paraphrasing:

"If you have $350,000 to buy a house, is it better to pay cash or take a mortgage?"

Unfortunately this question leaves out half of the required information: what else do you have?

So, let's look at two possibilities:

1) "I have $351,000 in retirement savings and I could buy a house at total cost of $350,000. Should I pay cash, leaving myself with $1000 to cover the rest of my life?"

I guess we all know the answer.

2) "I have $4,000,000 in retirement savings, invested in a variety of instruments; would it make more sense for me to pay $350,000 cash for a house, or take a mortgage?"

The answer to that is a bit more complex, but certainly this person is not going to be hurting for lack of liquid assets should they choose to pay cash.

Obviously most people are somewhere in between which is why there is no single answer. And it's not true that your investment income will always exceed your mortgage interest. Take it over a long enough period, and that's true, but one can also cherry-pick periods where it was dramatically the other way round.
Or you could even add a third possibility:

3) "I have $600,000 in retirement savings, all of which is in cash or low-yielding but safe vehicles like Certificates of Deposit, and will be living on a fixed income in retirement. Should I pay $350,000 cash for a house, leaving myself with $250,000 to cover the rest of my life? or take a mortgage + risk that $350K in the stock market?"

I think the above scenario -- in which the $350K does not represent either MOST of the person's assets or a very SMALL portion of their assets -- is probably the most likely one.

Also the age at which this hypothetical person makes the decision is relevant too. Someone who is 62 will probably look at the situation differently than one who is 72. Even health will play into it: "What are the odds that I will be around long enough to come out ahead in the end, if I choose the "mortgage + investing" route?"
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Old 07-23-2019, 08:53 AM
 
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Default Why risk your security?

Let me get this straight: A lot of people don't have much by way of savings other than their necessary retirement funds which will keep them afloat. So, if they can afford to buy a house for $350K and pay for it in full, why on earth risk your money and security by, instead, owing money on it so that you can invest? It seems crazy to me. Am I missing something here?
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