Post # 1
We just bought a home and are going through all of the closing procedures. We are able to buy the house in cash and still have a nice nest egg of savings plus yearly income. Our financial advisor told us he would rather us get a mortgage on it, and then have that money free’d up to invest. Our interest rate is 4.49, I guess I just don’t see us making enough money on the mortgaged amount of the house in investments, to make it worth paying a crap load of interest to the bank when we don’t have to? I’m not sure if that makes sense or not, but I guess the main question is, if you were able to, would you rather pay for your house in cash, or use that money to invest, and have a mortgage on the home?
Post # 2
It completely depends on where you are, what your mortgage rate is, what a typical stock interest rate is in your area, if you would need the cash for something else in 5-20 years or how much you value peace of mind. There is no right answer.
Personally I would probably put down a 50 or 60% deposit so the monthly mortgage is low and then invert the remaining portion. That would tick most boxes for me, peace of mind that we own a big portion of the house, the freedom a lower mortgage offers you so we could still reduce our hours or have one SAHP if we wished while still having a nice nest egg invested for retirement.
Post # 3
I would buy the house if you’re able to still invest a portion afterwards. My own financial advisor told me that he thinks real estate is one of the best investments. You can make more % wise investing the money but there is also higher risk there, if the market crashes etc. The housing market is fairly stable, plus it’s nice to live without a mortgage hanging over you in case life ever throws you a curveball. It’ll also allow you to put more into savings and investments over time.
My parents bought all vehicles and homes in cash once they were able to afford to do so. Living debt free has helped them a lot, especially now that they are retired and have a very healthy nest egg.
Post # 4
1000% cash. Your financial advisor has a vested interest in having you invest your money. There are no guarantees how much return you’ll get on your investments and I’m highly skeptical it would come close to what you’d be paying in mortgage interest.
As a seasonal tax specialist I’ve seen people pay out more in management fees to their investors than they earned back in investment interest- even those with considerable investments.
Plus if your life circumstances should happen to change- job loss or illness etc- it would be far more beneficial to not have a mortgage than to pay penalties cashing in investments early to cover your mortgage.
Post # 5
Have a mortgage company show you your compounded interest payments over 15 or 30 years to determine this. Your first years of paying a mortgage are mostly interest, so unless over that time you truly think you can make more than what you’re paying in interest, I would pay cash. Did you make your offer as a cash offer? I hope you did as cash offers usually give you more negotiating power on price and contingencies. We paid cash and later took out a mortgage to cover other expenses. You can always refinance if you pay cash and determine a better use for the money, but if you don’t have a solid plan and idea of how you could get a decent return by investing it, I would pay cash.
Post # 6
whitums : Unfortunatley we did not make our offer in cash, but, I don’t assume we would have had much more bargaining power, as the houses in that area, at that price range have been selling in about 2 or 3 days, so that isn’t a huge worry for me.
What you said is actually what got me thinking, we recived our initial mortgage paperwork yesterday, and it breaks down the first 5 years (we only really plan on living here for 3 years max anyways) and it said in the 5 years we will pay $61k and 16K of that will be priciple, the rest will be interest etc. so about 45k of pointless cost, but like 10k of closing morgage costs brings us to about 55k in 5 years. the amount we were planning to mortgage after our downpayment was 185k… so do i think we’d make 55k+ on 185 in five years? I’m not sure, and even if so, I would want it to be more like 65 or 75k to make it really worth it.
Post # 7
- Wedding: August 2019 - City, State
whitums : I agree with this. Cash offer vs getting the bank involved are very different positions. If I had the funds, I’d pay it all in cash. If that left me with $0 liquid, I might do 75% down. It sounds like you’ve got enough capital that even if you DID pay for it in all cash, you’d still have enough money to function, so I’d go for it.
As an aside, if I were in your position, I might also seek the help of an objective finance coach not attached to any of your investments/gains.
Post # 8
We had to make a cash offer to get our vacation property. We actually would have preferred a mortgage with a larger than normal down payment, but cash is king when it comes to real estate. And we lost out on a couple properties to cash offers, so we had to up our game.
In the end, paying cash has worked out fine and we are building up our savings again.
Post # 9
With the new tax code (and assuming your property taxes are not outrageous since they are now capped at 10% per year for state income tax + property tax combined), I would still take out a mortgage and then use dollar cost averaging to invest most of the rest. And then cash reserves equal to 6-12 months living expenses stay in the bank account. The stock market has averaged 10% returns consistently when looking at long periods of time over many, many decades and US housing has averaged well under 5% average annual appreciation.
While your house may be the largest “investment” you make, it’s also almost entirely illiquid, meaning you can’t guarantee you’ll be able to dump it fast in a major financial emergency like you can with stocks. It also requires a constant flow of money in for maintenance and repairs so while you “make” money when you sell, after you adjust for repairs and inflation, you will still have done a lot better in the stock market.
The real benefit to owning property with no mortgage is that in some states your “homestead” is protected in bankruptcy meaning there’s a cap on the amount your debtors can seize when they sell it. You might still lose your home but you’d walk away with $35k or $75k or whatever the homestead exemption is vs $0 if you still had assets in the stock market that exceeded your debts.
The financial markets create wealth. Housing typically does not unless you are a savvy real estate investor with a large portfolio. The average person will make a lot more money in the stock market.
Post # 10
sollyb : Upon seeing your update, you should absolutely NOT be buying any house if you only plan to live there 3 years. 5-7 years is the minimum time of ownership needed to historically break even when selling after including all the closing costs and realtor fees.
Just rent something cheaper than the monthly mortgage would be and you’ll come out ahead financially. No maintance, no repairs, no expensive financial transactions.
The US housing market is cooling off so what you may have just seen appreciation wise in the last 3 years is not guaranteed to repeat itself.
Post # 11
- Wedding: August 2018 - Location
Does your financial investor get kick backs on investments you purchase through him? Always pay for a house cash if you can. That’s amazing.
Post # 12
sollyb : it depends on the interest rate. Once it’s creeping up to 5% or so I’d rather pay cash. My mortgage now is 3.75% and my investments are making far more than that so I’m not rushing to pay off the mortgage.
The only other consideration would be cash flow. If one of us wanted to be able to stay home with kids I’d choose no mortgage regardless of interest rate just to keep our expenses low while living on one income.
Also don’t buy if you plan on selling in 3 years. Selling a house is SO EXPENSIVE. You’ll lose 6% to realtor fees right off the bat plus whatever the market does (could go up, could go down). Would you be able to rent it out and move in 3 years instead?
Post # 13
We bought our house in cash. We could have afforded more but we bought a house on the lower end of our budget so we could have a couple hundred thousand still left in savings and in our 401k . We wouldn’t have bought with cash if it would have taken up all our money but it was important to us to not have a mortgage. We’re debt free so now the majority of our money can go into savings whereas with a mortgage the majority of our money would have went to the bank. We also ended up paying less than we originally offered and beating out someone going through the bank because we could guarantee a quick closing. Of course it still was a huge chunk of our money and we didn’t make the decision lightly but in the end it was the right decision for us. We’re also planning on staying in this house for a while, if not forever.
Post # 14
If I had cash to purchase outright, plus a large cash buffer for home repairs and taxes, plus a healthy 6 month emergency savings fund, I would choose cash. It’s great to be in that position.
Living in a very HCOL area there was no way we could have bought our home with all cash, so we have a mortgage. We have built up some savings that could potentially go into the principal but we are choosing to invest elsewhere. ETFs, CDs..
Like pps, I really wouldn’t buy a home with a 3 year horizon. Not in this market.
Post # 15
Interesting thoughts on renting the home, I really appreciate those insights for sure!! I have no problem with renting a home, but we do rent a home elsewhere for 6 months of the year due to my husbands career. So the home we are buying is really nice to be able to have somewhere to keep all of our stuff and have somewhere to go back to. And as always- things don’t always go as planned- we may end up staying there for a long time haha. I just say 3 years because it is not a huge home, and we may decide to start a family, so we will see!
Thank you for all of your advice, as I know our FA will be slightly biased, and I see so many pros and cons on the internet. As a snapshot, we have no other debt, would still have a few hundred thousand in 401k and other investments if things were to go sideways.