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Mortgage or pay cash?
Old 11-30-2020, 10:25 AM   #1
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Mortgage or pay cash?

I'm 62 and single, and feel like I have (but just barely) enough $$$ for the rest of my life. When my late wife and I were in our early 50s we paid off our current house. What a great feeling!

Now that I'm a widower, I am purchasing a brand-new single family home in an Active Adult community. House should be ready next May. Once I'm in the new home, I will get my current home (of 27 years) on to the market. Figuring all expenses (20% down payment on the new place, new furniture, getting the current home up to snuff to sell, real estate agents), I expect to clear around $600K.

I have absolutely NO thought of paying cash for the new home, though I could easily do so. With 30-year rates under 3%, I feel like paying that out over 30 years (or not ever paying it off; the more likely scenario) is a no-brainer, so that I can put the $600K into the market, probably at a very conservative AA (something like 35/65; I'm all about preservation of capital.)

Am I missing some things? What would you do? TIA.
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Old 11-30-2020, 12:07 PM   #2
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I would do the same thing. Current interest rates are low, and it does not bother me to have a mortgage, it fits our budget without problem.
Some folks sleep better by having the mortgage paid off. So it depends on which camp you are in.
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Old 11-30-2020, 12:30 PM   #3
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Quote:
Originally Posted by sakowitzm View Post
I'm 62 and single, and feel like I have (but just barely) enough $$$ for the rest of my life. When my late wife and I were in our early 50s we paid off our current house. What a great feeling!

Now that I'm a widower, I am purchasing a brand-new single family home in an Active Adult community. House should be ready next May. Once I'm in the new home, I will get my current home (of 27 years) on to the market. Figuring all expenses (20% down payment on the new place, new furniture, getting the current home up to snuff to sell, real estate agents), I expect to clear around $600K.

I have absolutely NO thought of paying cash for the new home, though I could easily do so. With 30-year rates under 3%, I feel like paying that out over 30 years (or not ever paying it off; the more likely scenario) is a no-brainer, so that I can put the $600K into the market, probably at a very conservative AA (something like 35/65; I'm all about preservation of capital.)

Am I missing some things? What would you do? TIA.
I would do the same.
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Old 11-30-2020, 12:58 PM   #4
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Following this thread, as I am in a similar boat.
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Old 11-30-2020, 01:29 PM   #5
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Agreed. The only thing to consider is that a 35/65 may be a bit too conservative. At least historically, dropping to 35% equities has actually increased the chance of failure in a 30 year retirement. This chart might not display in FIRECalc, depending on your flash set up, but here's a screenshot I've archived:


-ERD50
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Old 11-30-2020, 01:54 PM   #6
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We are in the middle of buying a house, was going for a jumbo loan because if they want to lend me sub-3% I'll borrow as much as I can, but that didn't work out (DW was out of work too long this year due to Google screwing up her visa and how long it took to fix things with the pandemic slowing it all down), so I had to draw down my investments a lot more and get a conforming loan and am grumpy about it. :P
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Old 11-30-2020, 01:58 PM   #7
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I don't like mortgages (or any loans for that matter) but at current rates, I'd seriously consider it for a "larger" purchase, like a new house...
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Old 11-30-2020, 08:07 PM   #8
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i would pay cash, in fact we likely have one more move ahead before the big sleep. our plan is to pay cash and to "repay" that expense from the sale of our current home which we own free and clear.
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Old 11-30-2020, 08:29 PM   #9
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I loathe any debt. But I get why some folks might think they can do better investing with these low mortgage rates. But it’s not for me because we are in uncharted waters with all the craziness and debt. If a bubble pops, I want to know I have a place to sleep.
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Old 11-30-2020, 08:34 PM   #10
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I loathe any debt. But I get why some folks might think they can do better investing with these low mortgage rates. But it’s not for me because we are in uncharted waters with all the craziness and debt. If a bubble pops, I want to know I have a place to sleep.
precisely. with no debt all things become possible.
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Old 11-30-2020, 08:37 PM   #11
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@sakowitzm It sounds from your original post you have committed to constructing, buying and moving into the house in the active lifestyle community. It is correct?

If not, consider renting. I don't prefer, and wouldn't pursue the path you propose to take in the original post. I would rent, or pay cash for a very small and modest home.

I also loathe debt, as others have mentioned.
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Mortgage with no income?
Old 11-30-2020, 10:36 PM   #12
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Mortgage with no income?

Quote:
Originally Posted by sakowitzm View Post

Am I missing some things? What would you do? TIA.
Do you have an income? If not, are you sure you can get a mortgage at a decent rate? Regardless how many assets you have, mortgage without income seems to be a dicey proposition. I'm going to be in that boat here in another month when I FIRE and am wondering how long I'll be able to claim I have income and get a mortgage myself. I'm assuming at some point, which may have already passed, getting a decent mortgage will be a non-starter for me.
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Old 12-07-2020, 10:20 AM   #13
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Thank you all for the feedback.
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Old 12-07-2020, 11:05 AM   #14
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We just went through this @ age 54. We got the biggest mortgage we could @ 2.75% 30 year fixed. Figured if we change our minds, we could just pay it off. We are now in the house and the $514k we would have used to pay cash is now in our 60/40 portfolio. What convinced me was seeing that our P&I in 30 years is $13,803 in today's dollars (2% inflation) vs. $25,003 in todays dollars. The NPV of this mortgage is $554,235. All we have to do is make 0.75% real return on our 60/40 portfolio over the next 30 years. And if inflation goes up to 2.75%, the mortgage is free. If inflation goes above 2.75%, the bank is paying me for the mortgage. Too good to pass up.
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Old 12-07-2020, 07:53 PM   #15
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I would pay cash. It may be just me, but I consider debt a "facade", not living within your means, tricks, smoke and mirrors, "looking good to others" and not being truly honest (to others and to yourself).

"Mortgage and invest the difference" falls into the same category (a form of speculation in a way :-) )

I know, it feels a bit extreme, but that's my philosophy of life... Has served me well so far.
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Old 12-07-2020, 08:03 PM   #16
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Originally Posted by smihaila View Post
I would pay cash. It may be just me, but I consider debt a "facade", not living within your means, tricks, smoke and mirrors, "looking good to others" and not being truly honest (to others and to yourself).

"Mortgage and invest the difference" falls into the same category (a form of speculation in a way :-) )

I know, it feels a bit extreme, but that's my philosophy of life... Has served me well so far.
It's not really "going into debt" if you have a positive net worth. Mostly, we are talking about people who have the savings to pay off the house with room to spare, not mortgaging anywhere near their last dime. They are in a fantastic position to take advantage of historically low interest rates.

The market over the long run has historically exceeded those rates, so it is a very safe 'bet'. Yes, it's still a bet, but one w/o much downside, and way on your side. It's a personal choice to do it or not, but it really shouldn't be looked at as being too risky for people in that profile.

-ERD50
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Old 12-07-2020, 08:15 PM   #17
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So we are betting, in a way, that the market always goes up (at least over looooong period).

I still call it debt, even if the net result is positive asset figure. Why: because I would make the Bankster happy, and I don't want that :-)
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Old 12-07-2020, 08:17 PM   #18
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We refinanced into a 15 year, 2.75 mortgage 9 months before we retired. The principal is approximately 1/2 of our yearly spend and the monthly payment is miniscule. We saw and continue to see no reason to pay it off early. (portfolio is 66/33 right now).
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Old 12-07-2020, 10:00 PM   #19
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So we are betting, in a way, that the market always goes up (at least over looooong period). ...
No. Not that it always goes up. But historically it always has over all the 20 and 30 year periods. And on average, it's gone up a lot. With odds like that, many of us feel it is a perfectly reasonable 'bet' to place, with a reasonably modest amount of our net worth.

Life involves risk, if you take no risk you are unlikely to gain, or even stay afloat. A too 'conservative' portfolio (low allocation to stocks) has much more risk of failure historically than a 100% stock portfolio.

It's a reasonable choice, it's not "a "facade", not living within your means, tricks, smoke and mirrors, "looking good to others" and not being truly honest (to others and to yourself)."

Don't do it if you don't want to, but don't paint it as something so negative, that's just silly.


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...
I still call it debt, even if the net result is positive asset figure. Why: because I would make the Bankster happy, and I don't want that :-)
I don't care if the "Bankster" is happy or not, as long as I'm happy. And a 3% long term loan makes me happy. I'm already way, way ahead in my refi ~ 2003.

Quote:
I know, it feels a bit extreme, but that's my philosophy of life... Has served me well so far.
Maybe, maybe not. Many who choose a very conservative path will need to work many more years for a secure retirement. There are consequences.

-ERD50
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Tax Implications of using cash?
Old 12-08-2020, 08:12 AM   #20
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Tax Implications of using cash?

Taking out a low interest mortgage instead of paying cash should mean the cash you would have spent on the house will now be available for everyday living expenses. If so, you should be able lower the amount you would need to pull from tax deferred retirement accounts each year. Limiting the money you pull from tax deferred accounts over the life of a 15 or 30 year loan should mean a larger percentage of money you do pull will be taxed at a lower tax bracket rate, not to mention possibly setting you up for larger health care subsidies and education costs. In most cases I would think the savings from lower taxes would easily make up for the interest you are paying for the mortgage, even if you don't itemize. Or am I missing something?
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