Buying a new home,---Personal concerns!

[Sundance Kid]

I'm retired. Wife will retire in 1-2 years. Currently live in a two story townhouse, that's approx. 25 years old. Most of the tenants are 65+ and counting. Most are single/widowed, although we do have a couple of residents, with small kids. (That's just background information.)

It's not, where I want to spend the rest of my life. I could sell, for approx. a 50k gain, after paying realtor fees and my loan balance.
My new proposed home, would not be extraordinary but, probably in the area of 150k, to 170k. Naturally, this will require a much larger monthly payment, than we currently make.

My Question: Is it better, to make a minimum down payment and suffer higher monthly house payments, or pay 20% down to avoid PMI. Is it better, to make the largest down payment possible, to reduce monthly mortgage, or pay cash for the whole thing

Assume, that you could do any and all of the above, if you just had to! But, by paying CASH, for the full amount, you might be putting your retirement assets in jeopardy. That's not a good idea!

I know, it all depends upon my individual situation. But, I just wonder, what do other people do ?

Thanks, for your well considered opinions and responses!!

 

[haha]

It is all a guess about the future. There is no best answer before the future is known.

However, when mortgage rates are relatively low, as they are now IMO, why not take a mortgage and refinance later if rates go down?

The 20% DP is probably worthwhile, as you avoid pmi and also usually pick up a better interest rate.

One thing to consider- your current place where most are older will usually be quieter than places full of young adults or parents with children. Depends on what you value most highly.

I left a complex with lots of kids- I enjoyed the opportunity to interact with all ages. In my current building there are mostly age 30-50 working adults, no kids. It is fine, but I do miss seeing more children as the neighborhood is also largely adults.

Ha

 

[Sam]

If I were to take a loan instead of paying cash, I would definitely go with 20
% down payment to avoid PMI.

If today's mortage rate were as low as it was 3 or 4 years ago, I would definitely take a fixed 30 years at around 5%. But the rate is no longer as attractive today. Tough choice.

 

[pasttense]

A lot depends on how successful you are in investing money. If you are a successful investor you are much better off borrowing for the house and keeping you money invested. If you are not a successful investor then paying for the house is much more attractive.

 

[ScottFromUtah]

We built and moved into a new, larger, much more expensive home last year--back when we didn't know that we were going to retire. We were fortunate, but we were able to get enough money from the sale of a cabin in the mountains and our previous home to completely finance the current one without a mortgage. For us, being completely debt free is more important than the specifics of whether financially we would have come out ahead by borrowing some of the money. It's a psychological, almost spiritual thing, for us to be mortgage-free.

But both DW and I know that in about 10 years we'll need to sell the home, move into something much smaller, and partially live off the capital gains.

 

[SteveR]

I have bought and sold several homes over the past three decades and I never paid less than 20 % down. PMI is not value added to you and is a cost you should avoid if possible.

I have also never paid cash for a house. For me, the monthly payments were well within my budget and the tax break was an added benefit. As you know and as others have said, it really does depend on your personal situation; both financially as well as emotionally.

Selling now or later is dependent on many factors that only you can measure and evaluate. What might be fine for me or someone else might be the wrong thing for you right now.

Example: I bought more house than I needed (or wanted) because 1. It was the best house for our needs at the time. 2. It allowed us to invest in a good area with a high likelyhood of a decent appreciation. 3. It allowed us to defer capitol gains taxes from a highly appreciated home we sold and 4. It was what my wife wanted.

Now, my situation has changed and we are getting the house in shape for a sale in 1-2 years. We plan on downsizing and paying cash for the new home in a different area. Our income has reduced to a point that the tax deducations are not worth the added expenses and we want to spend more time doing things other than those related to maintaining a large home and yard.

Evaluate why you want to sell and what you hope to gain from it and when you want to do so. Look at how it will affect your financial situation and your taxes (including higher realestate tax) before you jump.

Good luck in what ever you do.

 

[Sundance Kid]

I appreciate the comments, of all that have responded!

My angst, has to do with locking in a 30 year mortgage, at my/our age/age's and having my monthly house payment double, or greater.

I could pay cash for the new home but, that doesn't seem realistic. So, I'll probably go for the 20% down.

It really is a matter of doing what you think you can live with!!

But, I see so many people downsizing, in their retirement years. And, here I am, trying to move up. Not because, I desire a fancy, high dollar location. I'd just like to have a nice property again. Preferably, In Colorado!

Again, I appreciate the responses!!

 

[AltaRed]

Having a mortgage or not during retirement is a personal decision, but I cannot imagine why anyone who is retired would want the responsibility (and burden) of mortgage payments, whether they are tax deductible or not. There is no assurrance investing in the equity markets will bring a better return than the 100% certainty of the debt you would be carrying. What happens if mortgage payments severely depress free cash flow?

Housing appreciation greater than inflation is also a roll of the dice over the long term as well. There is no certainty appreciation will bail you out. But the whole issue of mortgage, or not, has been beaten to death in more threads than can be counted.

 

[SteveR]

I appreciate the comments, of all that have responded!

My angst, has to do with locking in a 30 year mortgage, at my/our age/age's and having my monthly house payment double, or greater...

It really is a matter of doing what you think you can live with!!

But, I see so many people downsizing, in their retirement years. And, here I am, trying to move up. Not because, I desire a fancy, high dollar location. I'd just like to have a nice property again. Preferably, In Colorado!

Again, I appreciate the responses!!

It is truly a matter of doing what works best for you. If you can afford to carry a mortgage for several years in retirement then why not? I have one and while it would be nice to not have it the fact remains I can afford to carry it without hocking the family jewels. But, our situation is our own and what we can and can't afford is again based on your own needs and wants. Our situation is that we expect to have some very high IRA required distributions later in life (when we are too old and too disabled to use the money) so we feel better about using more now (i.e. new RV and fixing up the house).

For many folks a mortgage is a huge expense that they don't want to fund from savings or investment dollars; it is just too expensive. For others who have larger cash flows from other sources a mortgage or other payments are not as painful. Again, it is all in what fits your needs and your financial situation. If you desire a new house with more room and that makes you happy and you can do so without it being a financial hardship then why not?

 

[Achiever51]

A couple of thoughts for what it's worth.

First, I would avoid PMI if at all possible. As it's been pointed out, PMI is not value added.

Second, re locking in a 30 year mortgage. As long as you have no pre-payment penalty why not have the flexibility of paying it off monthly if you prefer-- or paying down the principle when your investments are cooking along?

Bottom line you should do what makes YOU and your spouse most comfortable. If you feel you can't sleep at night with a mortgage over your head, do what you need to to avoid it. Life's too short!

 

[nwsteve]

My angst, has to do with locking in a 30 year mortgage, at my/our age/age's and having my monthly house payment double, or greater.
I could pay cash for the new home but, that doesn't seem realistic. So, I'll probably go for the 20% down.

Sundance
I suspect you already are aware of this but there is no longer anything magic about 30 yrs. As far as I know you can find almost any amortization period you want for a loan--15 yrs are common and offer some futher interest rate savings. PMI is basically paying for insurance you do not need--not deductible and adds no value to you. Also with less than 20% many institutions insist on managing your casulty insurance and property taxes in their loans---that situation, IMHO, is just asking for possible problems you do not need as well.
As others have said, the devils are in your details of tax status, payment comfort zone, alternative use of funds, and investing proweness to name a few.
Good Luck
nwsteve

 

[mike07]

mortgage

If I were to take a loan instead of paying cash, I would definitely go with 20
% down payment to avoid PMI.

If today's mortage rate were as low as it was 3 or 4 years ago, I would definitely take a fixed 30 years at around 5%. But the rate is no longer as attractive today. Tough choice.

I agree with you 3 or 4 years ago take a fixed 30 years around 5%. I been searching for a home loan that low for a while now but no luck. Any suggestions?

 

[Peaceful_Warrior]

You don't have to pay PMI, even with $0 down!

There are ways to avoid PMI that don't require putting 20% down. The PMI is for when your FIRST mortgage lender is financing more than 80%.

So another way to avoid PMI is to put down whatever % you want (say 3%) and then get a 2nd mortgage for the remaining 17%. Your First place lender brings the 80% and you're good to go.

Your 2nd will probably be a higher interest rate than the 1st, so you need to calculate the difference. However, it is relevant to note that at least by carrying the 2nd, you are getting the tax deduction and paying down principal, whereas the PMI is a completely sunk cost.

My wife and I will be buying again soon, and financially it makes the most sense to go with a $0 down mortgage since we have a very long time horizon until retirement.