One of the things I believe in is to NOT to use your emotions when dealing with your finances. I'm new to Booglehead but been reading alot of the forum, and my understanding is the the majority here agree with that too, correct?
So if the purpose is "psychological." Or it'll prevent people from spending their savings. It would NOT be a major factor in my decision.
Some of my thoughts are:
- Interest rates are incredibly low. I remember 3.25%/4% for 15/30 year fixed mortgage. When I last was at the bank, I think I even saw 2.??%/3.??%...
- Interest paid is tax deductible, so someone around 34% tax bracket (for state plus federal), with a 4% mortgage, is really only paying about 2.6% in interest.
- If you took the extra money and invested somewhere else, how likely are you going to beat 2.6% annualized on average over 30 years?
- if you put down 20%, you won't have to pay PMI ( I think VA loans don't even have to put anything down, I could be wrong)
- I was told by a real estate agent, by fully paying off your house, it makes it much harder to take out equity during down markets. It makes the bank look worst because they would be issuing a new loan, as oppose to a HELOC. I haven't been able to verify this though.
- Living expenses may increase by alot due to insurance, property tax, home owners association, mello roos, home maintenance, furniture/appliances, etc. Which means your current 6-12 month EF may not last you 6-12 months after the home purchase.
- I don't think you can declare a homestead on your home unless you fully own it (at least I think most banks prevent you if you have a mortgage. ). This shouldn't matter too much unless you're planning to sell and have creditors after you.
These are just some of the factors I could think of off the top of my head, I'm sure there's alot more. But based on these, I would most likely put down 20%, adjust my EF as necessary, invest the remaining into whatever is most suitable. That's what, I would do, everyone's situation is different. E.g. If you have a credit card balance being charged 18% interest, I would pay that off first before investing.