Is it better to own a house straight up or mortgage?

[maveric]

A RW aquaintance tells me that being able to write off the taxes is better than not having to pay ALL that interest in the long run.
I'm not seeing his logic here.

[GOPisEvil]

1. You can write off the taxes AND interest if you have a mortgage.

[Wcross]

12. Pay 1.00 and deduct 15 to 36 cents off your taxes????

It makes no economic sense to have a mortgage if you can pay it off. All you are doing is pissing away money. You would be better off paying for your home and send that .64-.85 cents to your favorite charity.

[NMDemDist2]

2. I think it depends a lot on your tax status overall. only your CPA knows

for sure :evilgrin:

[radwriter0555]

3. It depends on your needs. Owning a property outright is nice when you're

retired.

Paying a REASONABLE bank note and writing off the interest is a massive benefit when one is a working stiff as it reduces your taxable income substantially.

[Bunny]

4. I gotta go with your friend.

Anyway you can reduce your interest payments seems smart to me. But don't mind me, I am clueless when it comes to finances.

[B Calm]

5. I personally felt good when I paid my house off.

[DBoon]

6. Money going to the government is bad,

money going to a mortgage lender is good.

Paying taxes helps poor people and other "losers" that republicans despise.

Paying mortgage interest helps financiers make their country club memberships, which is something republicans admire and wish to support.

This is why a republican will eagerly pay $100 in interest to avoid $30 in taxes.

[suziedemocrat]

9. "pay $100 in interest to avoid $30 in taxes." Excellent Point! n/t

[AlCzervik]

7. it's beeter to have the tax deduction and right now $$ is cheap so long as

pick the right type of mortgage for you. For example, a 30 year mortgage has a more of a tax break for a longer time but in the end you pay a lot more interest then say a 15 year mortgage. the biggest thing you need to do is pick the right one, i would stay away from interest only loans unless you are good at timing, I'm not willing to take the risk. the only other thing you want to do is have enough of a down pmt 20% in order to avoid paying PMI.

[HereSince1628]

8. Just had this conversation with a financial planner

The loan we were carrying was a bit below 5%. The financial planner said, paying rent on money is money that can't be invested.

She went on to say that the interest payments will be earning interest for someone...either me or the bank. Who would you rather have earning interest?

[jobycom]

10. It depends on what ELSE you do with the money

You can pay off the house, and then you don't owe the interest, so you have an automatic 7% return on the money you didn't borrow, plus the appreciation of the house. That's a good investment.

Or you can borrow the money at a low rate, say 7%, and use your savings to accrue compound interest, albeit at a lower rate than you are paying in interest. With the compounding, assuming a steady investment that never goes bad, you can come out way ahead, especially if you invest the amount of income taxes you get back from tax and interest write-offs (this will equal between a quarter and a third of what you paid in, roughly). Considering that inflation will make your note a lot smaller in relative terms by the end of a 30 year mortgage, you can double or more the amount of your return, even earning a low, safe interest rate.

But the latter course only works if you faithfully invest the money you save, if you never take it out of the account and disrupt the compounded interest affect, and if things don't go wrong with your investments (or your life, which could require you to pull money out earlier). Basically, in other words, the rewards of path two could be greater but the risk is also greater.

Consult an accountant or read up on it for exact numbers, of course.

[maveric]

11. So if I had the option to buy a house for cash or mortgage...

the mortgage route would be the best?
I'm concerned about the economy tanking, job market getting worse, etc...
I would hate to be in a foreclosure situation.

[jobycom]

15. That's a good reason to own it outright

First, I'm not a professional investor, so take my info as a starting point, not the final word.

There are two schools of thought, and you've seen them both. One, own your house outright, and use it as the investment for the money you spent on it. Two, borrow at a good rate and use the money you would have bought the house with as an investment to compound interest over a long period of time.

The first option has the advantage you just pointed out. You own the house. When things go horribly wrong, you don't run the risk of losing it (providing you pay taxes and keep it insured properly). There is a lot to be said for that, especially for the peace of mind and the flexibility it brings.

The second option carries more risk. If you get hit with a bad economy, loss of savings, and a loss of income all at once, you could lose the house, and even if you didn't, you could spend a big part of your savings paying the note on it, so that you don't really come out ahead, anyway. That's the risk side of the investment.

A lot of investment advisors can mathematically show you how option two CAN accrue a lot more money--as I said, two to three times more--over a 30 year period. Their arguments are very seductive, and I recommend finding a good book on the subject just to see the possibilities. These advisors will make you feel silly and naive for worrying about the little risk involved, and will show you graphs and charts about how even during times of depression your investments would in the long run balance out.

More cautious investors will say that there is still risk, and that the risk is not figured into the mathematical formula. Any business would consider the risk as a factor in such investments, so you should too. You are more solid and safe owning the house outright, and investing money not tied to your home. At the very least, you will have a home when all is said and done. The downside to that is the only way to cash in on a home is to sell it or borrow against it, so if it is your only investment, you may still wind up without cash, whereas with the mortgage option, you would have cash saved up--barring bad investments.

So basically, it depends on how much risk you want to undertake, and it depends on how you see your employability. If you have a profession with a pretty certain future of steady income, your risk would be better if you work in a field that could change, that could leave you making less, etc. It also depends on what you plan to do at retirement. Sell your home and travel? Live in your home until you die? The second option will require cash in addition to your home, so maybe the mortgage route would be better.

Also, keep in mind that if you aren't sure, but you have the money, neither decision is irreversible. You can pay off your loan at any time, or you can borrow against the equity in your home if you need. Taking one route and sticking to it, though, will probably give you the best returns.

Anyway, in other words, it really depends on you and what you want and what you can stick to over many years. I can't think of any good books right now, but Google or search your library or Amazon for books on personal investments, and you'll find someone with a title like "How you can retire a millionaire on an average income." If you need to know in a hurry, find a good financial advisor who can advise on both routes based on your goals.

[cally]

14. If the house appreciates

(with the housing bubble that is not a given) then you get the full value of the appreciation for a small down payment. Suppose you put 20 percent down on a $100,000 house. If the house appreciates 5 percent then you made a 25 percent return on your investment of $20,000. You would have to reduce this by the amount you pay for the house that is more than you would pay in rent. If you owned the house, you would only make a 5 percent return but you wouldn't have made any payments. You need to evaluate your own situation and caluculate the numbers for your particular financial situation.

[Egalitariat]

13. If you can invest the money for more than your interest rate

you're better off with a mortgage. If not, you're better off paying cash.

[jobycom]

16. A caveat to that

You can compound your savings through compound interest, and your savings would be increasing, so you can make more from a lower rate through earning compounded interest on your money over time than what you would save by not paying a mortgage note at a higher rate.

To do that, though, you have to invest steadily, and not take money out. Otherwise, you lose the benefit of compounded interest.