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Old 12-07-2009, 10:43 AM
11,256 posts, read 43,703,940 times
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There's a lot to be said for having no mortgage, in terms of financial security and the mental satisfaction of knowing your residence is all yours.

I made that choice as part of my retirement planning when I was in the prime working/earning years of my life. My farm/ranch was paid off the day I closed on it, and that's my primary residence. I've got entertainment, income, and a place to live all in one.

Along the way, I also used my remaining cash flow to buy other properties. I've got a second home in a major Colorado ski resort, as well as other income properties. All paid for, free and clear. That brings in the bulk of my income now, and a lot of freedom. For the moment, even though I can draw SS, I still work 40-70 hours per week at my rep business and my farm/ranch (which is a continuing operation even in the winter with all the livestock).

A lot of financially savvy people tried to show me how to leverage my career modest earnings (from my auto repair shop biz) to an even larger portfolio of assets. I didn't get warm fuzzies from their schemes and plans, and I watched many of them have a lot bigger portfolio at times than I'd ever have ... and I've also watched some go down in flames as the markets and the rules changed in various investment programs.

Owning your own house may not be a glamorous investment, but it's worth the peace of mind to me. It might be, for you, too. I just couldn't see playing the investment game to raise enough cash flow to then pay it out for a mortgage when/if I choose to retire.
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Old 12-07-2009, 11:43 AM
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Originally Posted by Teak View Post
Owning the house with NO mortgage is a great feeling, but a wise financial decision too I believe.
Well, one out of two ain't bad.
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Old 12-07-2009, 11:55 AM
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,851 posts, read 40,317,103 times
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diff'rt stroke fer dif folks (and related $$ issues)
for me... No pension, no healthcare, no inheritance, no rich spouse, no job, retired pre-50. I need cash flow and cheap mortgages can enable that process. I also cannot see sitting on house equity, when those $$ could be WORKING for you. (unless you have plenty of $$ as noted above. I'm 'shoestring' material , my house is one of my lenders, and a cheap one at that. - You must be disciplined and conservative! I also see a need to have an inflation hedge (income real property for me + investments and homes overseas, I don't see a primary residence as an inflation hedge OR a strong asset with an aging populace that is getting wealth recalibrated). I work with too many seniors who are now strapped with a primary residence which holds the majority of their assets and they are literally stuck in a dangerous place, not the correct level of care OR personal safety. I will be renting when I am within 10 yrs of needing to change levels of care., as if I can predict that (RE Assets, by the way, are considerable less valuable today than 2 yrs ago, so no more 'cruise ship style' retirement living condos for the middle class elderly) Hint - IF you buy, buy smart, and a place you can die in.

I'm borrowing against current primary residence, BUT have one housing investment prop free and clear (emergency shelter), I could write a check to pay off the primary if I was no longer getting funds so CHEAP (3.25% LIBOR ARM) AND banks were lending against income properties.

My leverage of primary residence ONLY goes against CASH FLOWING real estate that I buy at a minimum of 30% BELOW market rates, and lending is kept low enough to pay-off if necessary from cash / bond reserves of portfolio. BUT I am using my house as a bank, as I have done with my entire portfolio on occasion (I also use margin accts to build houses and buy distressed properties, much ez'r than going to a bank, filling out forms, paying fees, and getting raped by some 'momma's boy' in shiny 'dingle-berry-shoes).

This ends up being a personal choice and comfort level and can go either way without a problem (If you can handle it...). I got to watch the sheriff evict my parents from my gorgeous childhood ranch home in a beautiful valley. We thought it was all but $10k paid off, but dad had some shyster business partners that cleaned us out when dad became disabled. I also watched my inlaws lose everything including 3 houses in the real estate downturn of the 80's. Thus I'm pretty conservative, but today's economics (and a potential 40+ yrs in retirement) require some flexible thinking.

I was under the thought that primary home should be paid off UNTIL it become virtually impossible to get loans on commercial and investment props, AND many of us are currently 'house-rich', and cash poor, so... I paid off one investment rental with a very small home equity loan on primary home ($30k, currently at 1.6% interest). That gives me a safety net of having one property paid off. It is not my dream home, but it is right next door, so = the same pristine view, and no potential for neighbors to block the view (fed protected scenic area). It is 'retreat quality' location, but a crummy mobile home (I will move a NICE RV onto the joint if I have to live there + I have very little capital 'sitting' as I would in a primary residence).

Consider your needs and take some 5 and 10 yr snapshots to get a perspective. I will warn that you don't want a nice rural home with $500k sunk into it and a high tax and maint liability, if you or your spouse ends up in a LTC or rehab facility, or you MUST move to care for an adult child or family.

I recommend putting on your 'gumby' suit and 'adapt to life!
btw; Gumby is a 'boomer' 1953 Gumby - Wikipedia, the free encyclopedia
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Old 12-07-2009, 12:08 PM
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Well, I guess I'll have to step up to the plate and be the lone contrarian voice here. I think that paying cash for a house in this low interest environment is beyond idiotic.

You can get a mortgage these days for about 4.25%, which is an effective rate of about 2.75% (depending on your tax bracket). Does anyone in their right mind think that interest rates and rates of return are going to stay at these historically low levels for any significant period of time? Do you seriously want to basically bury hundreds of thousands of dollars in your backyard for a return of 2.75% when bonds will be paying two, three or four times that rate in a few years?

I think that it is sublimely ironic that when firguring how much money one will need in retirement, people routinely plug in a "conservative" growth rate of 8% on their investments; but when it comes time for the rubber to hit the road, rather than actually invest in a well-diversified portfolio of investments that will return the 8%, they would rather stick with 2.75% because "psychologically" it "feels" better.

Ask yourself this: Have you ever heard of any real estate mogul paying cash for his latest acquisition even though he could easily afford to?

Now ask yourself this: If the richest men in the world get mortgages on their real estate purchases, why do you think that paying cash makes better financial sense?

EDIT: While I was composing my post, I see that SteathRabbit also weighed in on the merits on not owning a house free and clear, so I'm not the lone contrarian afterall. :-)
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Old 12-07-2009, 12:24 PM
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good point madman about how most think about achieving 7-8% but chicken out when the time comes. thats why it may be a great idea for real estate moguls to invest the money and take a mortgage but a poor one for most retirees.......

considering how most small investors do when left to their own devices and investing they would do better with the house.

most retirees would either end up putting it in low interest yielding accounts and paying more interest then they get or making poor investments ...madman ,honestly do you think most retirees would do well investing on their own????? i would like to think so but market research shows otherwise. also i can only speak for myself but i think alot of us think along the same lines. after decades of building that real estate business up on leveraged money its no longer a risk we want in retirement .

most of us are not looking to get richer anymore.... now its different goals....

heck i can buy a simple index fund and get a better return by taking a mortgage but i think for most of us its not about more gains . its about now enjoying the money we made by tolerating that risk all our lives..

i like that security of owing nothing on my home.. i need a certain return to make my numbers work .. im interested in achieving that return but im no longer interested in committing anymore capital at risk then i have to. about 40% in equities should meet my goals now. i was always 80-100 % before retirement mode.

as i said if you won the game why play...

thats not to say that those out there that didnt win the game yet may very well committ more capital to risk as they are still trying to accumulate more .. but for those that met there goals and will have the return they need they really dont need to take on more risk at this stage unless they really want to

Last edited by mathjak107; 12-07-2009 at 12:40 PM..
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Old 12-07-2009, 12:25 PM
Location: Alaska
5,356 posts, read 16,411,284 times
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Originally Posted by mathjak107 View Post
we recently had to make that decision and while long term there is no question i would have done many times better taking the mortgage and investing elsewhere we opted to pay cash. it was very tempting to take a mortgage at these historically low rates. but i dont look at the 2 as if they were the same or interchangeable.. my home is my home and where i invest is a different mindset.

the rules of the game changed as we got closer to retiring: for us its no longer about growing richer,its about not growing poorer. WE ALREADY WON THE GAME SO WHY KEEP PLAYING. we made it to the point of being able to pull the plug on working. . its now about putting as much as we can in our financial lives not only on auto-pilot but only taking just enough risk to meet our income goals and to keep risk as low as we can to meet those goals.

owning our home outright is such a comforting feeling when you enter retirement with one of the biggest costs out of the way and off the radar...

its just making it easier for me not to fear giving up the old paycheck.

while its only a psycological feeling i find that feeling of owning my home outright priceless.

people also need that extra discipline to invest that money and not spend it , as well as having the stomach to tolerate the markets themselves.

everyone thinks they have a high tolerance for risk until the downturns..

just make sure you dont leave yourself house rich and cash poor either. that makes for a pretty miserable retirement too
I think that sums it up quite nicely. When I first started actively planning for retirement, I figured I'd have to take more investment risk well through retirement. Now that we're closer and have a better handle on our income vs. expenses, I find my thinking is more risk adverse and I'm slowly moving from higher risk equity investments to lower risk ones.

Likewise, while we likely won't be paying off our mortgage by retirement, it will be paid off early over 2-3 years following (due to college related tax reasons). The mortgage, property tax, and insurance expense is our largest expense category, so by greatly reducing it, we'll be certain our plan will work through retirement. In other words, it will allow us to live on two of our three sources of income through most of retirement.
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Old 12-07-2009, 12:43 PM
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Originally Posted by mathjak107 View Post
...madman ,honestly do you think most retirees would do well investing on their own?????
It depends how you define "well." If you mean beating the market, then the answer is no. However, I think that a monkey (and most humans) could beat 4% over the next 15-30 years.
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Old 12-07-2009, 12:46 PM
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according to morningstar who tracks money in and out of funds and jack boogle from vanguard small investors have averaged under 4% for decades while markets averaged over 9..... dalbar reasearch also found from 1984 to 2004 the s&p returned 11.7 ,
average small investor 3.7%

1987 to 2007, s&p 500 11.8% , small investor averaged 4.5

guess that says it all.....


Last edited by mathjak107; 12-07-2009 at 01:11 PM..
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Old 12-07-2009, 12:55 PM
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I agree that to be able to buy a home with these historical low interest rates is a great opportunity because interest rates are certainly going to rise. I would borrow as much as possible and invest elsewhere.

However, there is one word of advice which is generally not considered. If you are older and poorer with low monthly income, it is wise to have much of your money in your residence. The reason is your house is excluded from the determination for extra help for people with little assets and income, but your investments will disqualify you. You may then be able to qualify for help with paying part B medicare, prescriptions drugs (part D) and there are many other programs. The biggest need is long term care in a nursing home because Medicare does not cover those costs. However, Medicaid pays Long Term Care. Medicaid is need base and uses asset determinations and excludes your house. The cost for Long Term Care can easily be $75,000 a year.

Now, I am not advocating leeching on the system. I am poor and disabled but I do not qualify for many help programs because I have too much savings. I own my house mortgage free. I am told constantly by advisers to buy more of a house or remodel to reduce my assets to get extra help--but I do not think that is right. I have just enough house that I can use, though it does need remodeling. Your car is also exempt from asset determination and I drive a 15 year old car but again I will not buy more than I need, just to qualify.

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Old 12-07-2009, 01:04 PM
Location: Las Vegas
13,921 posts, read 25,464,100 times
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I paid cash and have no regrets about it. No mortgage and I know what I own and what my bills are. Taxes and improvements are manageable and I don't have to care what the RE market does.
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