[xNYer]

Originally Posted by CFrance

Ja. Our financial advisor/broker was going to throttle us if we paid cash for our house. Much better return on investments than the interest rate on our mortgage.

The return is only better if you take risk. It is likely you can earn more than the mortgage rate with minimal risk, but the risk is still there. A fixed income investment will not yield more than the debt incurred.

if you pay cash for your house you are reducing your available investable assets. This reduces the potential income of a financial advisor.

[manaboutown]

Don't think this aspect has been comprehensively discussed yet in this thread - Mortgage Interest Deduction Limit and Income Phaseout

[ColdNoMore]

Originally Posted by valuemkt

Tomcat, not sure what you were trying to get from your "simple" question regarding "To Mortgage or Not To Mortgage", but so far you've received (IMO) a somewhat representative sampling from Village people that come from all walks of life, experiences and economic backgrounds. Made me think of the Bell Curve, which I will use to provide my input / response. For those of you not familiar with the Bell Curve, see Bell Curve
for a pictorial view of what I'll be talking about.

I choose to break my answer into three segments of the curve, the left tail, the right tail, and the populous middle. In a perfect distribution of people, the left and right tails have an equal representation. I'm not here to argue that the Villages maybe represent a skewed to the right curve .. the answers are still the same.

The left tail regarding buying a home with or without a mortgage doesnt have a choice. Based on their economic situation, they have a mortgage out of necessity, for many reasons that are beyond this scope. Their answer to your question is very simple: we wouldn't be here if we didnt have a mortgage. The right tail is the direct opposite: they have now, or more likely have had for most of their lives, the means to buy whatever they want whenever they want and perhaps view a mortgage as something "lower class" people do because they can't pay cash like us. While most of this tail aren't quite as arrogant as that, and "hide their wealth", not all of them are. They also aren't qualified to answer your question without bias. By the way, the curve can be drawn with tails of 1, 2 or five per cent on each side, depending on how you;d like to classify the data.

So that leaves the middle centered around the mean, whatever that might mean in this discussion. Obviously, we don;t know what population your tax consultant considered, and whether this population reflected your economic situation. That's important for you. We also don't know if your tax consultant also has financial planning skills, as the two arent necessarily interchangeable.

So now we finally have the base to ask the question. I'm of a certain age, financially in the middle of the bell curve, and I have the means to pay cash for my house, but I'm not sure I want to do that vs take out a monthly mortgage at X% for 10, 15 or up to 30 years (even though my life expectancy is less than the length of my mortgage). (BTW, I am intentionally going to ignore any discussion of reverse mortgages).

So, Choice ONE - What are your thoughts on DEBT ? If you are of the school that both DEBT and DEVIL start with the same letter for a reason, your choice is simple - PAY CASH and be DEBT FREE. If you would like to feel good about that decision, become a disciple of Dave Ramsey and read or re read TOTAL MONEY MAKEOVER - Dave, also starting with a D has made a living helping people get out of debt .. and others never getting into it .. Regardless of the answer to the question above, that book is a good read - for you and your children.

If you are open to debt, then the choice becomes much more complex: Is this your last house ? Are you planning to leave a nest egg to your heirs or spend your last dollar coincident with your last breath ? What is your comfort level regarding CASH on hand vs debt ? After all, SWAN is very important to all of us .. and each of us have different comfort levels of CASH and DEBT to allow us to SLEEP WELL AT NIGHT.

Some folks in this middle of the bell curve are (or consider themselves to be) very skilled at applying financial concepts. Some rely on financial planners, others consider themselves bandits and do their own planning, or ask well intentioned but perhaps lesser skilled children, friends or relatives to do it.

Many in the middle will make this an ROI (return on investment) discussion. For example, if I can get a 15 year mortgage at 3% and make 5% on my money (guaranteed ?) then it's a no brainer to take the mortgage. (If I die and still owe 90% of the homes value (LTV) do I care or not care - does that affect what I leave my heirs ?), OR if I pay cash will I feel good about NO DEBT, but be shackled from a cash availability basis and NOT be able to take those lifetime dream trips, visit the kids many times a year etc etc ..

If you are in the middle, you most likely have a an IRA or 401K that will give you a "pleasant" problem to have after AGE 70 - RMDs .. Required Minimum Distributions .. some in the middle might not need that income, but decide thats an easy way to pay that mortgage .. Others might have moved all that money to ROTHs, where RMDs dont apply ..

My attempt here is to acknowledge the diversity of the population, and certainly to refrain from what is very common on nearly every topic on these blogs .. and that is ..

SIT BACK AND LISTEN FOLKS - THE SMARTEST PERSON IN THE VILLAGES HAS JUST ANSWERED YOUR QUESTION - NOT SURE WHY THE REST OF YOU EVEN BOTHERED ..

Sorry for the length of the response .. I hope you found it just a bit informative and thought provoking .

Excellent post!


In a nutshell...one size does not fit all.

[Kahuna32162]

It's killing me right now to be paying almost $1,000 a month in interest. I will be gathering the funds from multiple sources and paying off the balance in October.

[graciegirl]

Originally Posted by Villagevip

I payed cash, b/c I could...Don't like all the financial mumbo gumbo, placing large selling commissions into the hands of the advisors...There is no such thing, as a fiducial responsibility anymore...

About half the buyers here pay cash for home.