How about another Mortgage based thread

[disneysteve]

if I have all of the above, why do I need to have the security of owning a home?

Aside from some's emotional decision (say DH's example) or the tempation of spending the moeny, I think the decision should be based on rate of return and risk

I've said many times around here that personal finance involves more than dollars and cents.

There is a big emotional/psychological factor to paying off your mortgage, or any loan for that matter. For example, I graduated med school in 1990 and completed residency in 1993, at which time I had to start repaying my loans. The bulk of them had a 25-year repayment schedule. Had I followed that and just made the scheduled monthly payments, my DD would be a sophomore in college before I finished paying off my own education. There was just no way I was doing that. The interest on the loans was quite low, in the 3-4% range. I absolutely could have done better in the stock market. But I HATED having the loans and proceeded to pay them off in under 12 years. It wasn't the best decision financially, but if I had to do it again, I'd do the same thing. So many of my peers are still buried in med school debt. I'm not the least bit sorry that I'm not among them.

 

[crisi]

I have to jump back in as I saw a few references to this. if I have all of the above, why do I need to have the security of owning a home?

Well, if you own your home outright, you will need less emergency fund. If you get your home paid off pre-retirement, you'll need less retirement fund. So while you will need liquid assets, they will be fewer, which does allow you to take higher risks with your money should you choose to. When I played the numbers, I always played them with really safe investments - mostly CDs - because I knew I'd want to be able to get to the money I needed to pay off my house if I needed to quickly. Even there, liquidity is an issue, since if we needed that money out, there would be penalties. Putting the money that you would use to pay down your house in risky investments is like gambling with your home. But when the home is paid off, putting the extra money into riskier investments isn't as risky.

 

[fac]

I've said many times around here that personal finance involves more than dollars and cents.

There is a big emotional/psychological factor to paying off your mortgage, or any loan for that matter.

That's all the reason when people looking for dollars and cents, they should try to seperate the emotion. True?

I assume there is also a value in paying off the mortgage or student loan early, they may not be disciplined enough to invest the money. Some as people using tax refund for saving.

 

[grlpwrd]

I guess I should have added that dh is a Realtor, and even though the market is cooling off, a house always goes up in value. Also our market is still really good. The last house we sold, we were able to make 65k in 10 months, without doing anything to it.
I know "trippling" our money sounds like a lot but, if we put 10k down today in three to five years we will be able to sell it and make 40k not including the money we make every month. That's just an example of course. And, no this is not something for everyone, but it works well for us. We have been truly blessed and DH is very good with money.

I live over the bridge from you and in my particular area housing prices is constant or creeping up so I can fully understand it when you say a house always goes up in value. That is very true for the Hampton Roads area.

Like DVC Sadie stated it's a good idea to seek consultation from a CFP. If you don't want to use one then there are publications and books or websites like Kiplinger's or Black Enterprise etc which give you great ideas. Yes, it certainly depends on your family, situations, needs, etc.

 

[crisi]

That's all the reason when people looking for dollars and cents, they should try to seperate the emotion. True?

I assume there is also a value in paying off the mortgage or student loan early, they may not be disciplined enough to invest the money. Some as people using tax refund for saving.

Absolutely not. I'm currently an accounting student and they are teaching us that in corporate accounting the field is changing. Financial people once looked strictly at the numbers, but we are now being trained to evaluate and way the qualitative factors as well as the quantitative factors in a decision. That isn't to say you should blow money because it makes you feel good, but you shouldn't save it and live a miserly miserable life either.

You need to run the dollars and cents and use the difference between the two when evaluating the strength of your emotion. I could have made about $1000 a year not paying off my mortgage and investing the same money relatively safely - after I factored getting a new mortgage (cause mine was close to paid off anyway), closing costs, time and energy, tax differences, etc. When I looked at the $1000 a year additional income, I decided I'd rather have the $1000 a month now than the $1000 a month tied up earning me around $70 a month. That is the emotional part of the decision. The flexibility of having that money in my hands each month is more important to me than the additional income.

 

[bellarella]

I have to jump back in as I saw a few references to this. if I have all of the above, why do I need to have the security of owning a home?

Aside from some's emotional decision (say DH's example) or the tempation of spending the moeny, I think the decision should be based on rate of return and risk

I agree with you. I didn't say that if you had all of those things you *had* to pay down your mortgage early. I just said you shouldn't do it *until* you had those things. DH and I fall in the middle on debt issues. We paid our huge student loans off early, in large part because of the emotional factor. Since the rates on some of them were pretty low, by running the numbers, we should have held on to a few of them since it would have been pretty easy to out earn them. On the other hand, unlike a house, we couldn't sell our degrees should we need to get out from under the debt. So for us, we decided that the relatively small amount we would lose in gains by not investing the money was worth the stress we would be getting rid of by just paying them off. In a sense, we used our money to "buy" emotional tranquility (at least with the student loans). We knew there was a financial cost to it and it was worth it to us. In contrast, we are sitting on a low interest loan for one of our cars, and while I do get impatient to just write the check and be done with it, it isn't worth it for us to pay down that debt early. Unlike the student loans, which were actually emotionallly taxing on us and wound up becoming a factor in lots of other life decisions, the car loan is an annoyance, and the amount of money we would lose by paying it off is not worth the slight emotional boost it would give us.

Money is a tool. It can be used in many different ways and every individual's goals about how they want their money to work for them is different. As long as people are educated about the true trade offs they are making, I don't think there is a universal right or wrong way to spend one's money.

 

[hannahsmomma]

I live over the bridge from you and in my particular area housing prices is constant or creeping up so I can fully understand it when you say a house always goes up in value. That is very true for the Hampton Roads area.

Like DVC Sadie stated it's a good idea to seek consultation from a CFP. If you don't want to use one then there are publications and books or websites like Kiplinger's or Black Enterprise etc which give you great ideas. Yes, it certainly depends on your family, situations, needs, etc.

Hi neighbor! Actually we do have a Financial Planner and a personal banker. Also, DH's background is finance, and like I said before we have been truly blessed. I know there are areas in the country that are not doing as well as we are in the housing market and there are areas that are doing even better. For us, we are very young (I am 26 and DH is turning 30 next week ) so we have time to sit on properties that will eventually make good money for us, along with our money market accounts, 401ks, ect.

 

[fac]

When I said "if I have all of the above, why do I need the security of owning a home?" I was thinking out loud as DH was taking about paying off the balance of our mortgage which is about $200k. Then I I read bellarella's comment on "if you have a generous emergency fund, retirement fund .." which we do, I am not convinced I should pay off the mortgage.

As far as using money to buy the peace of mind/convenience, I think many of us are doing this on a daily basis but in a different scale.

crisi, I agree with the analysis you brought up. We bought/sold houses a few times and every time I knew we could maintain the mortgages and turned the old house into a rental property. While I know, in general, I can seperate emotion from my decision, I know maintaining rental properties is not for me.

I think the following basically sums up how many of us deal with "debt".

Money is a tool. It can be used in many different ways and every individual's goals about how they want their money to work for them is different. As long as people are educated about the true trade offs they are making, I don't think there is a universal right or wrong way to spend one's money.

 

[disneysteve]

We paid our huge student loans off early, in large part because of the emotional factor. Since the rates on some of them were pretty low, by running the numbers, we should have held on to a few of them since it would have been pretty easy to out earn them... So for us, we decided that the relatively small amount we would lose in gains by not investing the money was worth the stress we would be getting rid of by just paying them off. In a sense, we used our money to "buy" emotional tranquility (at least with the student loans). We knew there was a financial cost to it and it was worth it to us... Unlike the student loans, which were actually emotionallly taxing on us and wound up becoming a factor in lots of other life decisions, the car loan is an annoyance, and the amount of money we would lose by paying it off is not worth the slight emotional boost it would give us.

Money is a tool. It can be used in many different ways and every individual's goals about how they want their money to work for them is different. As long as people are educated about the true trade offs they are making, I don't think there is a universal right or wrong way to spend one's money.

ITA! You said it more eloquently that I did. I think the key is your last sentence about being educated about exactly what you are doing. I'll be the first to admit that not all of my money is where it could be earning the most, but I'm comfortable with where it is and I know exactly what I'm sacrificing to have it there and I'm okay with that. Sometimes financial decisions are made for psychological reasons. Sometimes they are made for convenience reasons, and convenience usually comes at a price. There is no ultimate right answer.

 

[dvcgirl]

ITA! You said it more eloquently that I did. I think the key is your last sentence about being educated about exactly what you are doing. I'll be the first to admit that not all of my money is where it could be earning the most, but I'm comfortable with where it is and I know exactly what I'm sacrificing to have it there and I'm okay with that. Sometimes financial decisions are made for psychological reasons. Sometimes they are made for convenience reasons, and convenience usually comes at a price. There is no ultimate right answer.

This is all very true. We're fairly conservative with our investments. Yes, we could borrow against our home and invest the $$$ elsewhere and probably do much better. However, we started saving early enough that we don't have to be so aggressive. I've read some fairly aggressive advice written in Money and Kiplingers given to folks who are playing catch-up. And so it really depends on your tolerance for risk, and where you are with respect your portfolio....

 

[DVC Sadie]

Well after this post I will slowly back away from the computer. Everyones financial goals are different, so you have to know what your goals are for the future, not only for you , but for your children/spouse/ charities/ church/ or anybody else ( doesn't matter).

In the long haul nothing has out performed real estate. I realize that most people on this board will not agree with me and thats okay.

After several PMs asking me how we were able to do what we do at our age, that is well before the standard retirement age, I told them what worked for us.

No, we don't charge or ask for a donation for our philosophy. It is fairly simple, and we have told anyone who has asked, for free, of course. Live below your income. Buy real estate when you are able and always use OPM (other peoples money) to pay off the mortgage. This system has not only worked for us but I was taught this by my parents and grandparents.

 

[disneysteve]

In the long haul nothing has out performed real estate. I realize that most people on this board will not agree with me and thats okay.

Buy real estate when you are able and always use OPM (other peoples money) to pay off the mortgage.

David Bach's latest book, "The Automatic Millionaire Homeowner" is a good basic resource for folks interested in getting into the real estate market.

 

[stemikger]

I think paying off your mortgage is a very emotional issue for me. I know I could probably make more money in a good stock mutual fund then the 6.5% interest rate I would be getting by paying off my home.

But like Dave Ramsey tells people like me who are struggling with this issue is: would you borrow money from your home to invest it in a mutual fund. Most everyone says no. So basically it is the same thing, pay off the home and be done with it. Now, with the extra money you aren't sending to your home you can send to investments.

As far as buying real estate for investments like DVC Sadi (I can't see myself doing it). The only real estate in my portfolio is the house I live in. Even though I totally agree with everything she says, I know it is not for me. There is a huge PITA factor in real estate investing, and I don't want to go there . I am the typical couch potato investor. I invest in Vanguard balanced index funds and forget about it. No PITA factor there.

 

[mickeyfan2]

David Bach's latest book, "The Automatic Millionaire Homeowner" is a good basic resource for folks interested in getting into the real estate market.

Is he the one who says that homeowners have 33 times the networth of non-homeowners?

 

[disneysteve]

As far as buying real estate for investments like DVC Sadi (I can't see myself doing it). The only real estate in my portfolio is the house I live in. Even though I totally agree with everything she says, I know it is not for me. There is a huge PITA factor in real estate investing, and I don't want to go there.

This is true. Becoming a landlord just isn't something everyone wants to do. There are other ways to invest in real estate, though. You can purchase stocks of home builders. You can invest in real estate mutual funds and real estate investment trusts (REITs). I own a real estate fund that has a 1-year return of 42.25% and a 3-year average annual return of 36.03%. So even though I don't own any actual property besides our home, I've been profiting just fine from the real estate boom.

 

[disneysteve]

Is he the one who says that homeowners have 33 times the networth of non-homeowners?

Yes. That's him.

 

[DVC Sadie]

This is true. Becoming a landlord just isn't something everyone wants to do. There are other ways to invest in real estate, though. You can purchase stocks of home builders. You can invest in real estate mutual funds and real estate investment trusts (REITs). I own a real estate fund that has a 1-year return of 42.25% and a 3-year average annual return of 36.03%. So even though I don't own any actual property besides our home, I've been profiting just fine from the real estate boom.

The easiest part about being a landlord is having a management company take care of the month to month details. Of course there are times when we have had to fix/replace an appliance but we would have had to whether we were living there or renting the property out.

We are lucky that we have had the same tenants in both homes for an average of 8 years each.

I am sure when we get older then we will get out of real estate altogether and allocate those funds differently.



I totally agree with you Steve in regards to investing in REITS. It has had a good run. We aren't too sure how it will be affected in the future with interest rates going up and fed rates climbing.

 

[sk!mom]

I think it depends on each person's comfort level with debt. Was Donald Trump debt free when his children went to college?

ITA- DH and I are very uncomfortable with debt which is why we are choosing to pay down our mortgage.

 

[sk!mom]

I could say the same thing. My husband and I earn pretty good salaries right now, but both of us grew up dirt poor (me more than him) and have no desire to revisit that portion of our lives. We're middle-aged now, and we've all heard how difficult it can be for people who lose jobs at this stage of life: it's not so easy to find an opening, we're not willing to work for entry-level salaries anymore . . . I have as much job security as anyone, but my husband's job is on the chopping block every year or two. It could easily be his turn one of these days.

Having a paid-for house means that our monthly income could, if necessary, be cut to the bone. We could keep our family running on much, much less than a family with a mortgage. It's insurance against difficult times.

I wonder if growing up poor is a common thread among those of us who choose to pay down the mortgage. DH and I both grew up poor- he more than I. Because of our past, we know the stress of having more bills than you can pay. It is very comforting for us to have a very low overhead. We can take nice vacations, let our DD be involved in several expensive activities, and save a lot while times are good but if we had a job loss or other crisis we could meet our living expenses on a reduced income.

 

[dvcgirl]

I wonder if growing up poor is a common thread among those of us who choose to pay down the mortgage. DH and I both grew up poor- he more than I. Because of our past, we know the stress of having more bills than you can pay. It is very comforting for us to have a very low overhead. We can take nice vacations, let our DD be involved in several expensive activities, and save a lot while times are good but if we had a job loss or other crisis we could meet our living expenses on a reduced income.

Same here. We didn't grow up dirt poor, but there wasn't a lot of "extras" during my childhood either. Our situation was a little different with respect to paying for our house because right at the end of 1999 we cashed out a large number of stock options. We had the option of paying for our new house with cash and investing the other half of the money, or investing it all, taking out a mortgage and going that route. Against the advice of *everyone* (including two CFPs) we both decided to pay cash for the house, and invest the other half in the market. Well, we all know what happened to the stock market in the spring of 2000....had we put all of our eggs in that basket, well, again, our financial footing would be far less secure than it is today. And we all know what happened to real estate. And so while many portfolios didn't begin to recover until late 2003, our home had doubled in value, off-setting our losses.