Cash vs Mortgage

[logdog]

I've been following TV for some time now and I know there are some very smart people out there, including some financial planners. We made our Lifestyle Preview a couple of months ago and immediately put our house on the market. Unfortunately, we're resigned to probably having to wait till next year for the market to start moving again. My question is, in today's economy, is it better to liquidate my mutual funds (which have lost a lot of value in the past year) and pay cash for a house or take out a mortgage and use monthly withdrawals from the funds to pay the mortgage? I have a decent government pension and military health benefits to cover day to day expenses. In the past, my goal was building wealth for retirement. But now that I am retired, is better to pay off a house and not have to worry about the stock market? Our economy seems much more unsettled these days than any time since 9/11. I would appreciate your thoughts.

[l2ridehd]

There are way too many variables to consider when making this decision. It depends on your tax bracket, if TV will eventually be your only home, or will you be a snow bird? If you plan to rent it before you actually move? What your retirement income is? Is your current home have a mortgage? I would sit down with someone you trust and go over these type things plus others and see what makes the most sense for you. Everyone�s situation is different and no one answer applies to everyone. Your bank usually has people who can review things like this for you. Ask them if they have a customer advocate or someone who can do some basic financial planning for you. But pick someone with knowledge who you trust.

[ojm]

I2RIDEHD had some excellent advice. Other questions you need to consider are 1) what mortgage rates are available compared to the current rate of return in a safer investments such as a bank CD 2) How important is the deductability of the mortgage for you. In the states where I was from, the high state income tax made seeking a mortgage and property tax deduction almost seem necessary. Here in Florida, there is no income tax. The standard deduction may be close to or greater than what you would get itemizing. 3) How risk adverse are you. Are you willing to put your money at risk while paying off a mortgage. Unless you can look into the future, there are really no right or wrong answers to these questions. I suggest you do whatever helps you sleep better at night.

[Frangyomory]

We sold our place in a great market. Put half into investments and paid about half the cost of the house here. We have a mortgage but not a high payment. We wanted to have a nice cushion in case we needed it one day and didn't mind having a mortgage at the excellent rate we got back in July 2005. We paid the bond off in full at that time.

We only have one home, this one. We both have pensions and I have social security so we feel ok, especially with our investment plan.

Plus, so far having the mortgage has worked out for us tax-wise.

Everyone needs to work out their financial picture on their own.

Good luck.

[rshoffer]

I've been following TV for some time now and I know there are some very smart people out there, including some financial planners. We made our Lifestyle Preview a couple of months ago and immediately put our house on the market. Unfortunately, we're resigned to probably having to wait till next year for the market to start moving again. My question is, in today's economy, is it better to liquidate my mutual funds (which have lost a lot of value in the past year) and pay cash for a house or take out a mortgage and use monthly withdrawals from the funds to pay the mortgage? I have a decent government pension and military health benefits to cover day to day expenses. In the past, my goal was building wealth for retirement. But now that I am retired, is better to pay off a house and not have to worry about the stock market? Our economy seems much more unsettled these days than any time since 9/11. I would appreciate your thoughts.We could have paid cash but our financial advisor AND our accountant advised us to FINANCE AS MUCH AS WE CAN... this topic came up recently and this opinion was a minority opinion.... a paid off mortgage helps most sleep better (without Ambien)

[gonzy]

It would seem to me that from a purely financial perspective that if the rate you are borrowing at is higher than the rate you can earn + tax savings from being able to deduct the interest than one should pay off their mortgage. Keep in mind that the tax consequences should play a part in the calculation. i.e. if you had $100,000 dollars earning interest you would have to pay taxes on the interest and if you have a like size mortgage you can deduct the interest provided your deductions exceed the standard deduction.

[WSOX47]

I've been following TV for some time now and I know there are some very smart people out there, including some financial planners. We made our Lifestyle Preview a couple of months ago and immediately put our house on the market. Unfortunately, we're resigned to probably having to wait till next year for the market to start moving again. My question is, in today's economy, is it better to liquidate my mutual funds (which have lost a lot of value in the past year) and pay cash for a house or take out a mortgage and use monthly withdrawals from the funds to pay the mortgage? I have a decent government pension and military health benefits to cover day to day expenses. In the past, my goal was building wealth for retirement. But now that I am retired, is better to pay off a house and not have to worry about the stock market? Our economy seems much more unsettled these days than any time since 9/11. I would appreciate your thoughts.

I agree with most of the others: Lot's of variables, including your own Risk tolerance. If, especially after the blood bath on NYSE which continues now into other Markets, the possibilty exists taht a longer range outlook could spell a chance for Savings Earnings to Exceed Mortgage Interest, even with potentailly such "instruments" as CDs. No one---well, probbaly amost, do not want Carter tyope Inflation, but CDs paid 16% or more FDIC Insured. I personally doubt double digiit reurns again, but those CDs could match/exceed say a 5.75% Mortgage--and you would have Captial to touch if needed, albeit depending on CD terms, at a cost. Also, Home Equity (HELOC) could be a cushion---either way, w/ or w/o Morgage.

Finally, you need to consider this is really a "nice" problem: havingthe $$$ to pay in full, and the ability to qualify for a Mortgage. From that perpsective: no real wrong answer. It's what makes you happy/satisfied. I don't see anything wronf, inherently, with a Mortgage. (and you may be able to BUY at a good price now!!!)

Good Luck on your decision.

[MMC24]

I've been following TV for some time now and I know there are some very smart people out there, including some financial planners. We made our Lifestyle Preview a couple of months ago and immediately put our house on the market. Unfortunately, we're resigned to probably having to wait till next year for the market to start moving again. My question is, in today's economy, is it better to liquidate my mutual funds (which have lost a lot of value in the past year) and pay cash for a house or take out a mortgage and use monthly withdrawals from the funds to pay the mortgage? I have a decent government pension and military health benefits to cover day to day expenses. In the past, my goal was building wealth for retirement. But now that I am retired, is better to pay off a house and not have to worry about the stock market? Our economy seems much more unsettled these days than any time since 9/11. I would appreciate your thoughts.

When we purchased, the housing market was not in the free fall that it is today. The asking price for the same house we purchased is approx. $40,000 less than what we paid. That said, we decided to purchase outright and paid off the bond as well. So our only expenses are utilities, taxes, insurance, etc. We now can easily live on our retirement income.

This was our personal choice and the recommendation from our financial planner based on our financial position at the time. If I had a mortgage, I would have to draw from the nest-egg to meet monthly living expenses. My sense of security would have been diminished.

So the easy answer is what ever market corrections you are able to tolerate and still be able to make mortgage payments and live comfortably in TV without financial worry is the position you should take.

[gfmucci]

If you can get a mortgage with a good interest rate - especially a 15 year mortgage - and put your money into something very safe and conservative earning 4 or 5% (CDs or Treasuries) I believe that is the thing to do right now until the market calms down.

I personally thought the housing market would recover by six months ago. But nationwide it is still receding.

Just because you have cash invested now and it is losing money does not mean you should not invest. It's just in the wrong location for today's wierd market. A "measly" plus 3% is a LOT better than minus 3%...or minus 10% or worse.

[Bryant]

If you listen to Suze Orman on Saturday nights at 9 pm, you will hear her consistently say "pay off the mortgage" especially if you are at or near retiring. You don't know what pitfalls are ahead (health, etc.), but at least you know you won't lose your house. Love that woman! :)

[logdog]

I've been following TV for some time now and I know there are some very smart people out there, including some financial planners. We made our Lifestyle Preview a couple of months ago and immediately put our house on the market. Unfortunately, we're resigned to probably having to wait till next year for the market to start moving again. My question is, in today's economy, is it better to liquidate my mutual funds (which have lost a lot of value in the past year) and pay cash for a house or take out a mortgage and use monthly withdrawals from the funds to pay the mortgage? I have a decent government pension and military health benefits to cover day to day expenses. In the past, my goal was building wealth for retirement. But now that I am retired, is better to pay off a house and not have to worry about the stock market? Our economy seems much more unsettled these days than any time since 9/11. I would appreciate your thoughts.

Shortly after I posted this question, I lost so much that the question of paying cash for a house became irrelevant. Now I made most of my money back and have accepted an offer on my house in New Mexico. I hope to be looking for a home in The Villages next month and am still weighing the benefits of cashing out of the market to buy my home versus using market proceeds to pay monthly mortgage payments. Interest rates on mortgages are low but the possibility long term inflation is very troubling. Thoughts?

[otherbruddaDarrell]

I still have a small mortgage on my home up north but have it rented to our former pastor.
House paid for,car paid for golf carts paid for= less worry and stress!:a040:

[golfnut]

If you can find a bank that is paying 5% on CD's / savings accounts please let me know....GN

[Boomer]

If you do take a mortgage, it goes without saying, I know, to lock in the rate. And make sure there is no pre-payment penalty. Also, make sure that those closing costs are something you can live with. We all know that those noble, altruistic banks have to make a couple of bucks, but do not let them charge you ridiculous closing costs. Shop it. (But I bet you already know all that stuff.)

Bottom line: In retirement, for that roof over our head, I think that we should never borrow money that we do not have already or know for sure will be coming in. Cash and cash flow. The name of the game.

What am I talking about?

If you take a mortgage, build a moat around that cash. Sit on it. Do not risk it. No matter how un-thrilling the safe return may be, at least you will know that you can waltz into the bank anytime and pay off that mortgage if you feel like it. Guard that principal in retirement. Do not risk money that you cannot afford to lose. Especially with a mortgage out there. Your return on investment might not wash the interest rate on the mortgage, but it can be a matter of where you want your money to be, especially in the short term.

I really think that 2010 is going to tell us a lot. Tax laws? Inflation? Who knows? You might want to have your cash on hand to wait and see. If inflation hits CD rates and you have a locked in low-rate mortgage in place already, well, that could get interesting and work out sort of OK maybe. But inflation is inflation and all that entails. It just depends somewhat on where you have plunked your money I guess.

Also, please keep in mind that I have no idea what I am talking about. I have no pieces of paper that say I am qualified to give financial advice. Heck! For all anybody knows, I could even be an English major. So my advice is worth exactly what you are paying for it.

This is all so individual. You need to do the Ben Franklin -- weigh the pros and cons. What lets you sleep at night?

Boomer

[downeaster]

If you do take a mortgage, it goes without saying, I know, to lock in the rate. And make sure there is no pre-payment penalty. Also, make sure that those closing costs are something you can live with. We all know that those noble, altruistic banks have to make a couple of bucks, but do not let them charge you ridiculous closing costs. Shop it. (But I bet you already know all that stuff.)

Bottom line: In retirement, for that roof over our head, I think that we should never borrow money that we do not have already or know for sure will be coming in. Cash and cash flow. The name of the game.

What am I talking about?

If you take a mortgage, build a moat around that cash. Sit on it. Do not risk it. No matter how un-thrilling the safe return may be, at least you will know that you can waltz into the bank anytime and pay off that mortgage if you feel like it. Guard that principal in retirement. Do not risk money that you cannot afford to lose. Especially with a mortgage out there. Your return on investment might not wash the interest rate on the mortgage, but it can be a matter of where you want your money to be, especially in the short term.

I really think that 2010 is going to tell us a lot. Tax laws? Inflation? Who knows? You might want to have your cash on hand to wait and see. If inflation hits CD rates and you have a locked in low-rate mortgage in place already, well, that could get interesting and work out sort of OK maybe. But inflation is inflation and all that entails. It just depends somewhat on where you have plunked your money I guess.

Also, please keep in mind that I have no idea what I am talking about. I have no pieces of paper that say I am qualified to give financial advice. Heck! For all anybody knows, I could even be an English major. So my advice is worth exactly what you are paying for it.

This is all so individual. You need to do the Ben Franklin -- weigh the pros and cons. What lets you sleep at night?

Boomer

I would advise professional advice from a trusted source. However, I would suggest considering Boomer's advice in any event. I have a piece of paper saying I am (or was) qualified to give financial advice and I couldn't have said it better.
BTW, no mortgage, bond paid off = a lot less stress.
Are you an English major Boomer?

[Tweety Bird]

If you listen to Suze Orman on Saturday nights at 9 pm, you will hear her consistently say "pay off the mortgage" especially if you are at or near retiring. You don't know what pitfalls are ahead (health, etc.), but at least you know you won't lose your house. Love that woman! :)

I felt it was important to pay the house off completely. This will be our only home. My husband had some serious health issues and if these health issues should resurface, our paid -off house can't be taken from us, but the investments can! In our case, paying off the house was the thing to do.

[Dirigo]

Debt is dumb. Cash is King."-Dave Ramsey :coolsmiley:"