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No Lifer
- Sep 29, 2000
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A "bit"? Unless you live in the sticks off in whyoming it's going to take a damn long time to save the cash - certainly the vast majority of first time home buyers require a mortgage.yup, a few years down the road. first, though, i need to graduate and work for a bit
Originally posted by: Skoorb
A "bit"? Unless you live in the sticks off in whyoming it's going to take a damn long time to save the cash - certainly the vast majority of first time home buyers require a mortgage.yup, a few years down the road. first, though, i need to graduate and work for a bit
And lets not forget that at today's historically low rates you can break even on interest, meaning any tax deductions allow you to have a net positive.
Borrowing is a good thing at these rates. I can't see any advantage of purchasing a house with cash today.
Originally posted by: Skoorb
A "bit"? Unless you live in the sticks off in whyoming it's going to take a damn long time to save the cash - certainly the vast majority of first time home buyers require a mortgage.yup, a few years down the road. first, though, i need to graduate and work for a bit
well then i guess it's good that i've already started saving and investing eh?
Originally posted by: Skoorb
A "bit"? Unless you live in the sticks off in whyoming it's going to take a damn long time to save the cash - certainly the vast majority of first time home buyers require a mortgage.yup, a few years down the road. first, though, i need to graduate and work for a bit
Even people with money in the bank typically get a mortgage so that their taxes are helped a little more. You are really going to have to struggle to have the cash for a home at the end of college. Your profile says California, so unless you plan to live in the sticks in a rathole you are more than likely going to need a mortgage.
Besides, why pay cash on a house? Then you don't have that savings and you also don't get the tax break. If rates stay under 8 there is no reason to not get a mortgage. Anyways, I don't think you will be able to pay cash for a house in Cali unless you hit it big.
Originally posted by: nicowju
Originally posted by: Skoorb
So, you're planning on buying your first house with cash, are you?Originally posted by: nicowju
Originally posted by: Skoorb
So you bought your house with cash? Either it's a dump, or you're in the top top top bracket of people with the money needed to do that (unless you bought your first house at 45!).Originally posted by: nicowju
Originally posted by: Vic
What? From a historical perspective, that's a very low rate. In fact, as short a time ago as when Bush the first was president, rates were in double digits. You didn't think we were going to be in the 5's forever did you?Originally posted by: nicowjuouch 7.5%! This is why I will NEVER mortgage/borrow
edit: formatting
i know it's a historically low rate, but nevertheless, i guess i'm just not used to borrowing (i just don't like paying interest
um, at no point did i say i bought a house... I'm merely expressing my views on how I feel like managing my finances. and why bring my age into this? i'm still in college, and i've been working my butt off for the past few summers saving up. so get your facts straight :disgust:
yup, a few years down the road. first, though, i need to graduate and work for a bit
Why though? You have to have reason.... if you don't have a prepayment penalty you can pay more each month anyway and then refinance after a while into a 15 year.
in cali for school. not sure where i'll be after, but i'll probably be working in cali for a few years, so i'll rent an apartment (that's what most of the people i work with do) and then maybe move back to the east coast. maybe. but i'm definitely not going to be able to buy a house straight out of college... i think it's a good idea to figure out what i want to do before settling down somewhere
edit: maybe when i'm ready to buy a house (which is definitely not now), I'll change my mind. but that'll depend on a lot of things (whether I'm married, how old I am, where it is, etc).
edit: maybe when i'm ready to buy a house (which is definitely not now), I'll change my mind. but that'll depend on a lot of things (whether I'm married, how old I am, where it is, etc).
Well, let me ask you this. Are you a Shiite Muslim? My next door neighbors in my old neighborhood(rental homes) were and it was against their religion to buy a home. I always wondered why they rented because they seemed to be pretty well off but it wasn't until the other day that his wife told me. She said they have to get investors to buy a house for them and somehow pay the investors a majority of the money and then they don't pay interest. I didn't really understand how she said they had to go about it, but basically their religion prevents paying interest and there are not enough investors right now.
I just want a reason on why you want to buy a house in cash? Typically for the average person it doesn't make sense.
So where are planning on living when you get out of college? Unless you're going to crash with someone free or cheap, you're going to have to live in an apartment where every month you have to pay a little thing called RENT, which is basically giving your money to someone else.
You're ok with that, but you're not ok with paying interest on a mortgage?
reason i would rather buy a house, atm: it feels more secure; i guess it just feels better (for me, anyway) to feel that i fully own the place i live in. and anyway, i'm viewing it as a very long-term investment
Originally posted by: Jzero
So where are planning on living when you get out of college? Unless you're going to crash with someone free or cheap, you're going to have to live in an apartment where every month you have to pay a little thing called RENT, which is basically giving your money to someone else.
You're ok with that, but you're not ok with paying interest on a mortgage?
actually, yes. i'm not viewing rent as the same as a mortgage. and i've found a couple of potential roommates who are going to be staying in the area after graduation too, so we'll probably share.
So answer the question. Why do you think buying a house in cash is a better investment than a mortgage. Suprise, it isn't!
hm actually, a shorter-term mortgage might be more attractive (i.e.-15 years or less). i'd rather have the peace of mind of owning the house fully. other than that, no good reason
Originally posted by: nicowju
hm actually, a shorter-term mortgage might be more attractive (i.e.-15 years or less). i'd rather have the peace of mind of owning the house fully. other than that, no good reason
Cool.
Just as long as you realize you're losing potential gains by doing so.
can someone explain why? (in some detail?)
investing money somewhere else plus tax breaks is greater than money saved on not paying interest? with income so high, would any sort of tax breaks really matter?
(example numbers would be great)
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
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Just a little segue here... in my experience, most people have very skewed perceptions about financing. For example, I've met many people who pay cash for their cars and would never take cash out of the equity of their home, but carry large ($40k+) credit card balances ...
Unless you're planning to file for bankruptcy, that makes absolutely NO financial sense. Credit cards have high-rate non-tax deductible variable interest on unsecured financing. Home loans, on the other hand, are completely secured financing (meaning that it is backed by the value of your home) with the lowest tax deductible fixed interest. It's pretty obvious which is the better deal...
Yet repeatedly during this latest refi boom with all-time low rates, I would speak with refi prospects who had a lot of equity in their home, had already been paying on their home for 5 or more years, had a large amount of credit card debt, and absolutely refused to do any other mortgage than just a straight 30 year fixed rate and term. I won't say that I didn't do quite a few of these, but even if the rate was 0% (or especially if?) I would feel like I was doing them a disservice. No wonder that particular type of prospect always grumbled so much about the rate and fees... it was a bad loan! But that was exactly the loan that most people did during the latest boom.
Ideally, they should have used their equity (those that had it) to consolidate their debt to the low fixed tax deductible interest, and taken advantage of the low rates to shorten their term to 20 or less years. Just FYI, you're not actually saving $200/mo. on your mortgage in a 30 year rate and term refi when you're tacking 3 or more years onto the back end of your loan, beginning the amortization all over again, and losing ~$2,400/yr. in tax deduction.
In my opinion, combine the typical refi in this latest boom with GW's restructuring of income tax withholdings, and a lot of people come next April are going to be surprised when they not only don't get a refund, but actually have to pay.
...Unless you're planning to file for bankruptcy, that makes absolutely NO financial sense. Credit cards have high-rate non-tax deductible variable interest on unsecured financing. Home loans, on the other hand, are completely secured financing (meaning that it is backed by the value of your home) with the lowest tax deductible fixed interest. It's pretty obvious which is the better deal...
Yet repeatedly during this latest refi boom with all-time low rates, I would speak with refi prospects who had a lot of equity in their home, had already been paying on their home for 5 or more years, had a large amount of credit card debt, and absolutely refused to do any other mortgage than just a straight 30 year fixed rate and term. I won't say that I didn't do quite a few of these, but even if the rate was 0% (or especially if?) I would feel like I was doing them a disservice. No wonder that particular type of prospect always grumbled so much about the rate and fees... it was a bad loan! But that was exactly the loan that most people did during the latest boom.
Ideally, they should have used their equity (those that had it) to consolidate their debt to the low fixed tax deductible interest, and taken advantage of the low rates to shorten their term to 20 or less years. Just FYI, you're not actually saving $200/mo. on your mortgage in a 30 year rate and term refi when you're tacking 3 or more years onto the back end of your loan, beginning the amortization all over again, and losing ~$2,400/yr. in tax deduction.
In my opinion, combine the typical refi in this latest boom with GW's restructuring of income tax withholdings, and a lot of people come next April are going to be surprised when they not only don't get a refund, but actually have to pay.
There are basically two schools of thought. Finance everything and try to beat the interest (and use some nice deductions in the process) or pay off a house as fast as you can. I believe if you get a few CPAs in the room there would be a fist-fight over it at some point.
In my income bracket it pays to reduce my taxible income. So instead of plunking down 400K cash (which would earn nicely at even 4%) I finance as much as possible on a 80/15/5% loan. 95% of my house is financed, 80% at 30 years, 15% at 15 years. As long as I'm reaping the fat deductions (which mind you are very signficant on 380K interest) and investing money saved after mortgage payment it works out very well.
Anyway, some smart tax guy came up with it for me. Probably not the best scenario for everyone, but usually it is.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
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Indeed there would.Originally posted by: spidey07
I believe if you get a few CPAs in the room there would be a fist-fight over it at some point.
I subscribe to the school of thought that one should finance everything AND pay it off as quickly as possible. That way you utilize both the tax deduction to save money plus finance your long-term debt at the lowest rates in order to pay it all off that much more quickly.
Avoid paying mortgage insurance at all costs though. Spidey has the right plan by using a "piggyback 2nd"
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