I am 41 and I have rented thus far. I would like to be able to retire early (as soon as possible), but probably within the next six to nine years is more likely. I will probably become a homeowner within the next year.
The cost of the home will represent about 35% of the money that I have thus far saved up for retirement. I have not factored in a small future defined benefit pension that I will start to receive at age 60 and I have not considered any future payments that I may receive from social security. If I paid cash for the home, of course a significant part of my current budget, and my retirement budget, will be reduced.
Per Turbo Tax, my effective federal tax rate for 2010 was 17.27%. Annual property taxes will be somewhere between $5,000 and $6,000 a year. I think that an itemized deduction, that includes both the property tax payment and the payment on the mortgage interest, would be greater than the standard deduction that I currently claim, since I do not itemize. On the other hand, if I pay cash for the property, I would not have to pay any mortgage interest at all, and that seems kind of attractive.
If I obtain the mortgage, the money that could be used to pay for the house could stay in other long term investments that have the possibility of greater long term return (but as you know, the stock market in the last ten years has not actually provided a great return). I also recognize that mortgage rates are the lowest they have been in a very long time, and I am not sure if that then weighs in favor of me acquiring a mortgage to pay for the home.
So, based on my situation, do you think it is better to pay cash for the home or to obtain a mortgage and make monthly mortgage payments? Thank you for your insight.
The cost of the home will represent about 35% of the money that I have thus far saved up for retirement. I have not factored in a small future defined benefit pension that I will start to receive at age 60 and I have not considered any future payments that I may receive from social security. If I paid cash for the home, of course a significant part of my current budget, and my retirement budget, will be reduced.
Per Turbo Tax, my effective federal tax rate for 2010 was 17.27%. Annual property taxes will be somewhere between $5,000 and $6,000 a year. I think that an itemized deduction, that includes both the property tax payment and the payment on the mortgage interest, would be greater than the standard deduction that I currently claim, since I do not itemize. On the other hand, if I pay cash for the property, I would not have to pay any mortgage interest at all, and that seems kind of attractive.
If I obtain the mortgage, the money that could be used to pay for the house could stay in other long term investments that have the possibility of greater long term return (but as you know, the stock market in the last ten years has not actually provided a great return). I also recognize that mortgage rates are the lowest they have been in a very long time, and I am not sure if that then weighs in favor of me acquiring a mortgage to pay for the home.
So, based on my situation, do you think it is better to pay cash for the home or to obtain a mortgage and make monthly mortgage payments? Thank you for your insight.