[NJblue]

rshoffer,

It is somewhat of a personal thing (cash versus mortgage). I'm sure your advisers were assuming that your post-tax investment returns on the amount of your mortgage would be greater than the post-tax cost of the mortgage. Historically, they are probably correct. However, you also need to include into the equation the costs of getting the mortgage; looking at just the mortgage interest rate is insufficient. In our case, they total about $4,000 (from Citizens First). This includes things like loan discount fees, application fees, appraiser fees, title insurance (for the bank's policy). Of course, your advisers would probably say that over a number of years these upfront costs become insignificant.

As long as your investments are in things other than CDs and bonds, from a purely economic perspective your advisers are probably correct (in fact, I currently owe more on my house up north than I did 28 years ago when I bought it). However, I have never owned a home outright, and I want the emotional satisfaction of doing so.

[barb1191]

WOW That sure sounds "iffy" to me. I've always invested in real estate and found it to be the biggest return on investment. No way would I want the large expense of a mortgage, even though the interest may be deductible, and to play the market would be a risk I'd rather pass on.

My advice would be to pay cash for the home where you know the money is safe and will appreciate. Regardless of the housing situation now, real estate is a far better risk, in my opinion. Why would you want the expense of a mortgage plus interest payments? If you ever need fluidity, one can always find various methods of getting your cash invested in your home via creative financing, i.e., reverse mortgage or equity loan, etc.

[Peachie]

rshoffer, I'm not a financial expert nor do I claim to be but I wouldn't secure a mortgage to buy a home for which I could pay cash. Sounds like a lose, lose situation to me. You may make tons in the market or you may be helping to shore up your advisor's money in the market until it recovers, which could be tomorrow, in 6 months or 10 years. Have you ever read Dave Ramsey's book, "The Total Money Makeover". A paid up mortgage is the new BMW in America, according to his teachings. I suggest you do more research and don't take my thoughts as gospel, then you will feel more comfortable about your decision.

[JohnN]

No lawyer, it's not that complex, unless you feel you need one.

Closing costs were a couple hundred bucks plus the partial payment for amenity fees til the end of the month. Very nominal.

[NJblue]

JohnN,

Didn't you have to pay the state and county tax stamps? These are well over a thousand bucks in our case.

[JohnN]

NJBlue,
I don't recall the line items, I'll look 'em up when I get time.

I was nickeled and dimed for courier fees and recording stamps,
but the bottom line is that it was far less than $500 and I just accepted it.

I'll look it up and note to you.

[NJblue]

Originally Posted by barb1191

My advice would be to pay cash for the home where you know the money is safe and will appreciate. Regardless of the housing situation now, real estate is a far better risk, in my opinion. Why would you want the expense of a mortgage plus interest payments?

While my plans are to pay cash, I think this logic is wrong. Your house will apreciate the same amount whether it is mortgaged or not. The real issue is whether you want to have the money work for you in some outside investment that will pay a return greater than the cost of the loan. This is basic Investment 101. Yes, there is a risk that over the lifetime of the loan the post-tax market return will be less than the post-tax interest paid on the loan. However, from a long-term historical perspective, this has not been the case. Returns in the stock market have exceeded the current loan interest rates.

As far as real estate paying better returns, if you really think so then the wise thing to do is to buy an investment property with the cash that you have on hand. That way you would have two properties that are appreciating.

[Sidney Lanier]

I'm in agreement with most of the posts that say to buy outright for cash if one is able to do so. I agree too that the advice from the financial advisers is accurate from a strictly dollar point of view. But there's also that 'emotional element' of (1) owning outright; (2) not being responsible for paying mortgage interest, tax deductible as it would be; and (3) the peace of mind of putting my head on the pillow at night not wondering what was happening with the money that I would otherwise invest in the financial markets if I had bought with a mortgage. As also noted, this is a personal consideration.

In my earlier post on this thread, I pointed out that closing costs are nominal for the buyer with a resale. I didn't mention that it was our understanding that had we been buying new construction from TV, we would have been responsible for all closing costs, that is, those otherwise required of the seller plus those appropriately paid by the buyer. Another plus to buying a resale, along with (discussed at length in other threads), the possibility that the previous owners had paid off the bond (as was true in our case), or at least had paid a portion of the bond during the time they owned the house.

[JohnN]

To clarify, when we bought, The Villages paid all actual closing costs.

We paid a couple hundred bucks for prorated amenity, bond and fire assessment plus a credit for unpaid county taxes year-to-date. All prorated stuff.

[Boomer]

Hi rshoffer and anybody else caught in the great debate over mortgages, (I think there may be two discussions going on in this thread.)

Well, I just wrote a whole big thing on the topic of mortgages, about which I had no business writing.

And then I somehow hit the wrong button and managed to delete the whole thing.

It was all about how, at our age, we should try not to borrow money that we do not have.

But about how sometimes it is just fine to have a mortgage over your aged head, even if your head is aged.

And about how having a mortgage at this age should happen only if you are sure your ROI is going to generate that payment as long as you want it to. Or at least the principal is hanging tight so you can dip in if you need to dip in. (But try not to.)

And about how if you decide to have a mortgage, you should make sure that there is no prepayment penalty, in case you change your mind.

And about how not to let anybody tell you to have a mortgage just for the tax write off because that is a bit of a crock and those numbers will not wash.

Got cash? If so, then to mortgage or not to mortgage would depend upon where that cash is living right now. And about how bad you want that cash to keep on living where it is living.

And don't get me started on title insurance. That's in another thread. And sometimes I write about prenups and sometimes I write about Long Term Care insurance. And sometimes I write about real estate. And I really should just write about how nobody should pay any attention to me whatsoever because I have no qualifications to advise in any of this stuff. Just life.

And all it ever is anyway in all this stuff is your own personal cost of sleep. Just make sure that you completely understand your own personal sleep number(s).

And the first one I wrote was way better than this. There was a bunch of other stuff in it. But that one is gone forever.

And I really need to shut up and get back to my own personal paperwork anyway.

Boomer

[coach]

I'm a Dave Ramsey fan like an earlier poster. Here is a question he would ask." In today's market, if your house was completely paid for, would you take a mortgage out on the property to invest in the market?"

My answer is no. The point many advisers don't factor in is the risk. The potential return of 10 % in the stock market needs to be balanced against the certain return of not paying 6-6 1/2% for your mortgage. When you consider risk, taxes and the joy of no debt, I would go with a home in TV and no mortgage.

[MMC24]

In other similar threads several respondents advised not to payoff the bond upfront but contrary to their wisdom, at closing time we did pay cash for the home and paid off the bond as well. There is a certain sense of security knowing our only cash outlay is for insurance, taxes, amenity fees and regular monthly expenses. First time in our lives we haven't had a mortgage and it feels great!!!! Now the only things I worry about are:
1. the Red Sox making the post season
2. improving my golf score
3. finding my way home after happy hour.

[rshoffer]

Originally Posted by NJblue

rshoffer,

It is somewhat of a personal thing (cash versus mortgage). I'm sure your advisers were assuming that your post-tax investment returns on the amount of your mortgage would be greater than the post-tax cost of the mortgage. Historically, they are probably correct. However, you also need to include into the equation the costs of getting the mortgage; looking at just the mortgage interest rate is insufficient. In our case, they total about $4,000 (from Citizens First). This includes things like loan discount fees, application fees, appraiser fees, title insurance (for the bank's policy). Of course, your advisers would probably say that over a number of years these upfront costs become insignificant.

As long as your investments are in things other than CDs and bonds, from a purely economic perspective your advisers are probably correct (in fact, I currently owe more on my house up north than I did 28 years ago when I bought it). However, I have never owned a home outright, and I want the emotional satisfaction of doing so.

We got a much better deal from Wells Fargo than Citizens First.

[JohnN]

to carry a mortgage or not?
I sleep better being debt free and not trying to beat the interest rate.
I realize lots of investment bankers say otherwise (and that's their business to do so!)

[rshoffer]

Originally Posted by Peachie

rshoffer, I'm not a financial expert nor do I claim to be but I wouldn't secure a mortgage to buy a home for which I could pay cash. Sounds like a lose, lose situation to me. You may make tons in the market or you may be helping to shore up your advisor's money in the market until it recovers, which could be tomorrow, in 6 months or 10 years. Have you ever read Dave Ramsey's book, "The Total Money Makeover". A paid up mortgage is the new BMW in America, according to his teachings. I suggest you do more research and don't take my thoughts as gospel, then you will feel more comfortable about your decision.

I just ordered the book from Amazon! I have the cash equity from my home sale in liquid (money market) assets... trying to wait for the market bottem. I will read the book. Maybe I'll pay off the house (which my wifey wants to do). Thanks for the tip.