i trust you more than the media, but that's not what the article said. hell, if they resell it for that low, i should walk away and then buy it at the discounted price :wink: maybe you are exaggerating the discount i strongly considered not buying a house til i could pay cash, but didnt want to wait 5-10 more years. guess thats why god invented mortgages? i'll look into the short sale. otherwise would have to go fsbo. or stay put. not sure i can get a qualified buyer anyway, too many blacks in my neighborhood scare off whitey
The current housing correction won't last long and is very rare. The housing boom was rare as well, and caused the correction. At the end of the day, I'd argue you took far more risk NOT putting your money in the property and instead taking a zero down, variable rate mortgage. Plus, 20% down reduces your interest payments significantly and your house payment would either have been significantly lower or you could have paid far more to your principal. You owe less and own more, assuming you have the flexibility to decide when to sell. I know it's a matter of perspective, but I think you'd be better off with the money in the property from a risk perspective. But, it's a MOOT point :grin:. It is what it is and I think everyone agrees that walking away is muy loco and will be very painful. I think you're very smart to gather opinions on this and do the research. Huge implications.
This is a mistake for most folks as well. Having a tax-deductable mortgage is far more beneficial for most folks than dumping all their savings into a house. If you're independently wealthy (or even VERY wealthy) then I'd say that's a good option - no interest payments. But if you're somewhere between lower and upper middle-class (i.e. relying on your paycheck to live your life), having a mortgage AND investments/savings is a much better idea from a tax perspective. Maybe someone disagrees - would be interesting to see another perspective on that.
No expert here but I was always told the more you can avoid paying interest the better...more cost-effective. (Or is that cost-affective?):hihi:
Certainly. But my argument is that rent/mortgage is a cost of living (for most folks). If it would drain your liquidity to purchase a home outright, then the tax advantages of a mortgage outweigh the long term interest payments because with a mortgage your house will still appreciate, your money in investments (vice in equity) will make more money, and you'll have more cash in your pocket because you'll pay less taxes. Which is why I said very wealthy people are another matter. If you're income is based on your personal wealth and not your salary, then more than likely you don't care about the tax deduction from mortgage and would rather own the house outrite. :grin:
This is true to an extent but it has to play into your overall financial situation. I have one loan and that is on my house. Like you I don't carry a balance and I could pay down my house note with cash but at 5.5% interest what's the point. Case in point, I itemize, so the interest is tax deductible. This means you're really only paying 60-80% of that 5.5%. That means you may only be paying 3.3% interest. I always assume my investments will return more than that so it makes sense to keep a home loan and put excess cash into other real estate or the stock market. The problem with 100% loans is that you pay PMI and that is NOT tax deductible. However some programs have lender paid PMI with high credit scores. That's what I did, got a check for 600 bucks when I bought my house (don't think those programs exist anymore). Anyway, I'm rambling, but the bottom line is you have to think of your home loan as part of your overall financial health. Different strokes for different folks.
A lot of the tax accountants at my firm make this same argument, but I say they are bad at math. If you have a $200,000 mortgage at 6% you pay $12,000 in interest. You deduct that $12,000 as an itemized deduction, and assuming you are in the 25% tax bracket, you save $3,000 in taxes. You are sending $12,000 to the mortgage company to keep from sending the government $3,000. It doesn't seem prudent. If you want $3,000 in tax savings I'd say pay off your house and write your church or your favorite charity a check for $12,000. It is the same deduction on your taxes and you don't have to carry debt to do it. The easiest way for an W-2 American to become wealthy is to pay down the house early and invest that house payment in themselves.
I get what you are saying, but I disagree. The spread on invested money over interest on a mortgage is not that great. At the end of the day after you factor in risk and taxes on investments you are dealing with hamburger money. Put it like this would you take out $100,000 of equity in your house at 5% to invest it at 10%. Probably not. The spread is not that great when you factor in your beta and consider the tax implications. If you invest in non-retirement accounts vs. paying down your mortgage that is exactly what you are doing. You are borrowing against your house to invest.
