OT: Not Paying Off Your Mortgage

[zap]

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Originally Posted by saab2000

Everyone I know with a paid-off house is happy it’s paid off.

I know several who are strapped for cash and struggle to maintain the house.

So much depends on an individuals financial situation.

[Mikej]

The real question- what new bike are you getting when you cash out the house? The other thing, many of us older people are used to to the idea of paying off the mortgage, and also leaving the house to the kids. I think that in the future many of us will have to borrow against our primary residence to make ends meet, the kids can save their own money -

[54ny77]

yep. buying a home is one thing, owning it is quite another.

oh woops, there goes the a/c. poof! another n+1 bike...

housing is really just a forced savings vehicle that also carries with it tons of continual sunk costs. insurance, maintenance, repairs, upgrades, and on and on.

somehow forgotten is that a house (in whatever form--single family, condo, etc.) is supposed to be just a home. roof over the head, shelter. and a place to store bikes! historically, housing generally appreciated at the rate of long dated treasuries (the '07 crises helped revert stupid gains and get that trend back on track). if you had to sell and move on, hopefully break even or at least appreciation enough over the years to cover the commission and other transaction costs. somewhere along the way the idea came about that housing was supposed to trade and appreciate like an internet growth stock. i blame stupid house flipping and renovating shows for that.

Originally Posted by zap

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I know several who are strapped for cash and struggle to maintain the house.

So much depends on an individuals financial situation.

[bcroslin]

Seems like terrible advice until you realize you could die tomorrow and not paying your house off or saving for retirement won't matter. Obviously, don't live like a rock star on a life-ending bender but at the same time living like pauper to possibly retire one day doesn't make sense either. Ask me how I know....

[Blown Reek]

There is so much bad advice in this thread it's incredible.

[Peter P.]

Originally Posted by Blown Reek

There is so much bad advice in this thread it's incredible.

Instead of talking trash, add your opinion to the mix. I'm interested.

[Frankwurst]

I'm not a financial adviser or guru by any stretch of the imagination but personally we paid off our house as fast as possible and took the whole house payment and invest that and I'm pretty happy with the results. If my financial adviser gave me the advice your friend received I'd tell him to pack sand and find a new adviser

[Blown Reek]

Originally Posted by Peter P.

Instead of talking trash, add your opinion to the mix. I'm interested.

Unless you're guaranteed a 3.6 return, on top of any any all fees (lets be conservative... should we say 5%, 6%? after all broker fees, mortgage fees, etc.), you're automatically losing money. And if anyone's guaranteeing anything, you're already with the wrong people.

Anyway, once you get past a need-to-break-even 6%, what's the market historical return? 8%? And how much money are you playing with, high roller? $500,000? So figure out 2% of $500,000, which is $10,000, and that's going to be that additional 2% on your $500,000. And that's if you return 8%. You might, you might not.

And look at just how much you're paying the bank to use their money for the first years through an amortization schedule. Jeez.

If your house is paid off, the absolute last thing you should do is mortgage it to speculate in the market. Now if you're a billionaire (like Warren Buffet), that 1.5-2% might be a sweet couple/few million on a few billion. But for someone that's looking to leverage their house on the long-term appreciation of the American stock market, that's just bad practice.

But don't listen to me, you gotta talk with your tax guy to see if it makes sense for your situation. Past performance is no guarantee of future results. Investments are not FDIC insured. All those disclosures you should know before placing the trade.

[tomato coupe]

Originally Posted by Blown Reek

Unless you're guaranteed a 3.6 return, on top of any any all fees (lets be conservative... should we say 5%, 6%? after all broker fees, mortgage fees, etc.), you're automatically losing money. And if anyone's guaranteeing anything, you're already with the wrong people.

Anyway, once you get past a need-to-break-even 6%, what's the market historical return? 8%? And how much money are you playing with, high roller? $500,000? So figure out 2% of $500,000, which is $10,000, and that's going to be that additional 2% on your $500,000. And that's if you return 8%. You might, you might not.

And look at just how much you're paying the bank to use their money for the first years through an amortization schedule. Jeez.

If your house is paid off, the absolute last thing you should do is mortgage it to speculate in the market. Now if you're a billionaire (like Warren Buffet), that 1.5-2% might be a sweet couple/few million on a few billion. But for someone that's looking to leverage their house on the long-term appreciation of the American stock market, that's just bad practice.

But don't listen to me, you gotta talk with your tax guy to see if it makes sense for your situation. Past performance is no guarantee of future results. Investments are not FDIC insured. All those disclosures you should know before placing the trade.

You correctly cite an historical (last 60 years) annual S&P 500 return of 8%, but then you subtract a 3.6% mortgage rate and get a 1.5-2% net return, instead of the nominal 4.4% return. Over 30 years, 4.4% on $500,000 would yield over $3M, whereas 1.5% on $500,000 would yield about $1M. Either way, it's a decent amount of money.

[Ken Robb]

People often forget a couple of non-financial factors when analyzing rent vs.buy for housing. If you want to live in a house rather than an apartment it's very likely that the owner of that house will plan to move into it himself, rent it to a family member, or sell/cash out his investment within a few years and you will have to move. Moving is expensive and a PITA.
Apartments are more likely to remain rentals indefinitely but even some of those are converted to co-ops or condos so tenants have to move or buy the unit they have been renting. .
It is unlikely that you will be able to make a rental feel like "your own". Either decorating and mods you would like to make won't be allowed or their cost will be more than you will want to invest in temporary housing. If you want to have a pet that may be difficult too.

[Gummee]

Originally Posted by Frankwurst

I'm not a financial adviser or guru by any stretch of the imagination but personally we paid off our house as fast as possible and took the whole house payment and invest that and I'm pretty happy with the results. If my financial adviser gave me the advice your friend received I'd tell him to pack sand and find a new adviser

You gave up HOW many years of compound interest on your investments?

...and you're happy with that?

Go look at how much you would have had putting that $$ into the market rather than the walls of your house.

Also look at how much less you would have needed to invest to get to the same spot given the power of compound interest over the same time period you're using now.

M

[Ken Robb]

Originally Posted by Gummee

You gave up HOW many years of compound interest on your investments?

...and you're happy with that?

Go look at how much you would have had putting that $$ into the market rather than the walls of your house.

Also look at how much less you would have needed to invest to get to the same spot given the power of compound interest over the same time period you're using now.

M

I read that they took the money that were no longer going to pay a mortgage and invested it in the market not that they hid it in the walls?

[robertbb]

IMHO one of the most important things a person can do while they are able, is to ensure they have a home paid off by retirement/old age.

I believe this so much that the approach I implemented at 33 (I'm 38 now) was to buy my "retirement home" and put in place a schedule to ensure that it is owned outright by me when I stop working in ~25 years.

I chose a well-built apartment in a high quality, low density development that is quiet, private, secure and convenient to parks, transport, shops, has a lift, car garage and is in a generally in a "wealthy" area.

I saved and put a 20% deposit on it, and in the last 5 years have paid off a further 20%. By the end of the year, I'll have 50% equity and a remaining mortgage of $200k.

I recently moved out and now live with my girlfriend, and have found a tenant who's monthly rent easily covers my interest repayments to the bank (with a few hundred a month extra in my pocket).

Net result: I need to put $8000 a year into this place, for it to be paid off and all mine by the time I'll want to use it. That's about a months' salary, annually.

I also have a superannuation fund (401k) which is totally separate. That'll be bonus spending money when I hit retirement. Any other money I save above that $8,000 retirement home contribution, over the next 25 years, will go into an indexed fund.

When we start a family, I'm totally comfortable with renting our family home to give maximum agility with work, school zones, changes to transportation, if we get a bad neigbor... not to mention someone else paying the maintenance and worrying about wear-and-tear, council rates, interest payments, etc.

But a place to retire to safely... one property you know you can retreat to... non-negotiable for me.

[buddybikes]

>>

believe this so much that the approach I implemented at 33 (I'm 38 now) was to buy my "retirement home" and put in place a schedule to ensure that it is owned outright by me when I stop working in ~25 years.

I chose a well-built apartment in a high quality, low density development that is quiet, private, secure and convenient to parks, transport, shops, has a lift, car garage and is in a generally in a "wealthy" area.'

Wow that is some long term planning. When we were that age, never thought we'd be buying a house in RI on the water, we thought VT since we were doing many trips there pounding the mountains... Instead I am pounding the bike trails on a twice fused back.

[Ozz]

Don't forget, mortgage interest is no longer deductible on new mortgages (maybe all?), and most older mortgages due to the new tax law.....