Pay Cash for Primary Residence?

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Chindsey
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Pay Cash for Primary Residence?

Post by Chindsey » Thu Jan 24, 2019 12:13 pm

My wife and I will be purchasing our first home within the next six months. We have decided to move and settle down closer to family while our kids go through school. We will be living in the home for at least the next 17 years.

While I know the ultimate decision is largely a personal one, we are trying to decide whether it would be more prudent to pay cash for the home or put down a large percentage of the purchase price (maybe 50%?) in cash and take out a mortgage for the balance.

We are looking at homes in the $350,000 - $400,000 range and would pay for the home with money in our taxable account.

- Both of us are in our late 30s.
- Current annual gross income of ~ $240,000.
- Annual gross income may decrease to ~ $140,000 after the move/purchase.
- Current net worth of ~ $1,450,000
- Emergency fund of ~ $40,000 (Cash at big bank)
- Taxable account of ~ 510,000 (All in Vaguard's Federal Money Market Fund)
- TSP 1 of ~ $315,000
- TSP 2 of ~ $270,000
- Roth 1 of ~ $125,000
- Roth 2 of ~ $75,000
- 529 1 of ~ $60,000 (Child is almost 5 years old)
- 529 2 of ~ $50,000 (Child is almost 2 years old)
- HSA of ~ $7,000

Please let me know if any additional information would be helpful.

Thanks in advance.
Last edited by Chindsey on Sat Jan 26, 2019 7:10 am, edited 5 times in total.

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RickBoglehead
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Re: Purchase Primary Residence for Cash?

Post by RickBoglehead » Thu Jan 24, 2019 12:15 pm

It's a personal decision.

I've purchased 3 homes, putting down 20% each time, and choosing to invest my money and have a 30 year mortgage. Haven't owned a home longer than 12 years yet (this one). My current mortgage is 3%. I'd rather invest my money and usually do much better than 3%.

That said, when we retire in a few years and sell this house and a small inherited property, we MAY choose to pay cash for our next home.
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chevca
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Re: Pay Cash for Primary Residence?

Post by chevca » Thu Jan 24, 2019 4:45 pm

Pay cash, have no mortgage, go down to one income, have no worries, and be happy. :happy

That's what I would pick anyway.

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LilyFleur
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Re: Pay Cash for Primary Residence?

Post by LilyFleur » Thu Jan 24, 2019 4:53 pm

After I divorced, I paid cash for my little home. My Mom, a CFP, said some might say I could better invest my money elsewhere. She also said that many women find that the peace of mind of owning their home free and clear is worth it. I am at a different place in life than you as my children are in college now.

It sounds like you may be going down to one income when you buy your house. If owning it outright would give you more peace of mind to choose that lifestyle, go for it! You have the option to put a mortgage or a HELOC on it later if you need to pull some cash out.

Nissanzx1
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Re: Pay Cash for Primary Residence?

Post by Nissanzx1 » Thu Jan 24, 2019 5:00 pm

I'd pay cash and have the piece of mind personally. But only if you are committed to saving for retirement (and you are!). No brainer!

z91
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Re: Pay Cash for Primary Residence?

Post by z91 » Thu Jan 24, 2019 5:03 pm

Simplify your life; buy it in cash and stop worrying about what to do with all the taxable money, also no payments to worry about, just insurance and property tax.

Have fun.

pdavi21
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Re: Pay Cash for Primary Residence?

Post by pdavi21 » Thu Jan 24, 2019 5:13 pm

I would do it in your case. I did with similar ratios and don't regret it.

Mortgages tend to have some fixed costs and requirements (like insurance) that can increase your costs and reduce your choice. Plus they tend to be guaranteed negative assets (besides underwater foreclosure).
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

dpm321
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Re: Pay Cash for Primary Residence?

Post by dpm321 » Thu Jan 24, 2019 6:56 pm

One other potential plus for buying with cash is that you can sometimes get a better price on the house with a cash offer. Especially if you can also offer a quick close.

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AerialWombat
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Re: Pay Cash for Primary Residence?

Post by AerialWombat » Thu Jan 24, 2019 8:17 pm

I currently buy 1-2 houses per year, 10% down or less, and move every year, in order to build my rental portfolio.

When I buy my last house, likely in a year or two, it will be all cash, for sure. That peace of mind is precious.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

Sasquatch
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Re: Pay Cash for Primary Residence?

Post by Sasquatch » Fri Jan 25, 2019 3:15 pm

I’m in my 50s and just paid off all of our debt. There may or may not be a spread on opportunity cost on the money but debt free has always been a goal and it feels great.

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grabiner
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Re: Pay Cash for Primary Residence?

Post by grabiner » Fri Jan 25, 2019 9:53 pm

From a financial standpoint, a mortgage is equivalent to a negative bond portfolio. A 15-year mortgage has a duration of about 7 years. Therefore, buying a low-risk bond portfolio with a 7-year duration (Vanguard Long-Term Tax-Exempt Admiral shares, with a 2.92% yield) and taking out a mortgage of an equal value is close to risk-neutral. If the mortgage would cost more than 2.92% after tax, it's better to pay the cash.

And since you have that cash all in a money-market fund, there is no cost in getting the cash, so that is the right comparison. Unless you donate a lot to charity, it's probably better to pay cash, because you won't be able to deduct most of the mortgage interest. A $300K mortgage at 4% would have $12K in interest in the first year; with the $24,400 standard deduction and the maximum $10,000 in state taxes, you would get no deduction at all if you donate less than $2400 to charity, and a deduction of only half the interest if you donate $8400 to charity.
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J295
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Re: Pay Cash for Primary Residence?

Post by J295 » Fri Jan 25, 2019 9:57 pm

cash.

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goodenyou
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Re: Pay Cash for Primary Residence?

Post by goodenyou » Fri Jan 25, 2019 10:09 pm

I am about to build my next house. I haven't sold my current house, but it's paid off. I may have a tough time selling it, and will probably sell it at a significant loss just to free up the equity to buy my next house. I'm in a really tough market with few buyers. The next house will be significantly smaller, but much more expensive due to the location and cost of land and building. I want to pay cash for my next home as well. I've really gotten used to having no mortgage. When I build this new house with cash, I am going to be very aware of all the costs of each item going into the house. I was not as vigilant about the costs of the first house since it was wrapped up in the mortgage and each overpriced items addded "very little " to the monthly payment and was hidden in the cost. When I wrote the check to pay off my current home, it really hit us that we paid for many stupid and wasteful things. I agree with cash.
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Ben Mathew
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Re: Pay Cash for Primary Residence?

Post by Ben Mathew » Fri Jan 25, 2019 10:24 pm

Since you have a large taxable account invested in low yield bonds, and the mortgage interest will mostly not be deductible, you are the ideal candidate to pay cash for the house.

Think of the mortgage payoff as replacing some of the bond portion of your portfolio. So with no mortgage, you should be investing your portfolio more aggressively than you would have if you had taken out a mortgage.

noco-hawkeye
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Re: Pay Cash for Primary Residence?

Post by noco-hawkeye » Fri Jan 25, 2019 10:42 pm

The way I look at it is by using prioritized buckets :

The first item is retirement saving. Before considering cash you should have at least 10x expenses in your retirement accounts, closer to 20x would be great.

The second item is kids college expenses. This one is tougher to have a rule on, since some people do not choose to pay for 100% of college, the type of college - lots of variables here. The point being that keeping a mortgage and avoiding school loans would be the trade I would make. Not everyone would agree with this. Also keep in mind this is only considering how much you want to help your kids - not how much your kids school costs.

Once your retirement savings is looking solid and college obligations are nailed down, then spending cash for a home seams reasonable to me.

Looking at your numbers you are kind of at the point where the 529 balance looks great, and other savings look pretty solid too. I think you are ok with paying cash for the house - but you will definitely want to throw some of that extra cash flow back into savings for a while.

Topic Author
Chindsey
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Re: Pay Cash for Primary Residence?

Post by Chindsey » Sat Jan 26, 2019 6:55 am

Thanks, all. This is exactly the type of feedback I was hoping for — how to go about deciding between paying cash versus taking out a mortgage based upon our personal situation.

Up until a week or so ago, the money in our taxable account was split between Vanguard’s Short-Term Tax-Exempt Bond Fund (~ $340k) and Total Stock Market Index Fund (~ $170k). I transferred all of the money to the Federal Money Market Fund to eliminate our exposure to any volatility and thus give ourselves the option to pay cash if we so choose. I realized a long-term gain of ~ $52k on the sale of the stock.

If we decide to pay cash for the home, we would use future cash flow to build it back up.

Our current retirement savings of ~ $785k is ~ 10 times our current annual expenses. I anticipate our annual expenses would decrease if we decide to pay cash and did not carry and mortgage, and they definitely will decrease a bit when our first child is done with daycare (this summer).

EnjoyIt
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Re: Pay Cash for Primary Residence?

Post by EnjoyIt » Sat Jan 26, 2019 7:39 am

I'm sorry Chindsey, but I think you are paying a very high price for the psychological benefit of not owning a mortgage in the form of paying capital gains tax on top of lost revenue from investing.

I find this forum to be very strange when it comes to mortgages. Generally we try to take emotions out of investing, but once mortgages are involved many say pay it down ASAP while forgoing significant lost revenue from investments in the feel good situation of being debt free. You are young and employed. There is really no good reason to tie up 1/3 of your net worth in a single house.

SandysDad
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Re: Pay Cash for Primary Residence?

Post by SandysDad » Sat Jan 26, 2019 9:06 am

grabiner wrote:
Fri Jan 25, 2019 9:53 pm
From a financial standpoint, a mortgage is equivalent to a negative bond portfolio. A 15-year mortgage has a duration of about 7 years. Therefore, buying a low-risk bond portfolio with a 7-year duration (Vanguard Long-Term Tax-Exempt Admiral shares, with a 2.92% yield) and taking out a mortgage of an equal value is close to risk-neutral. If the mortgage would cost more than 2.92% after tax, it's better to pay the cash.

And since you have that cash all in a money-market fund, there is no cost in getting the cash, so that is the right comparison. Unless you donate a lot to charity, it's probably better to pay cash, because you won't be able to deduct most of the mortgage interest. A $300K mortgage at 4% would have $12K in interest in the first year; with the $24,400 standard deduction and the maximum $10,000 in state taxes, you would get no deduction at all if you donate less than $2400 to charity, and a deduction of only half the interest if you donate $8400 to charity.
Above is the best way to think about it outside of emotions.

In addition to that I think the poster who described the emotional side of it:
“but I think you are paying a very high price for the psychological benefit of not owning a mortgage in the form of paying capital gains tax on top of lost revenue from investing. “

has a point but overall I disagree with the point. It seems
Counter intuitive to many but thinking of your mortgage as a negative bond and calculating the equivalent duration yield and cost vs a bond fund is the way to go.
When analyzed this way many people with large mortgages actually have a negative bond allocation at significant cost. Given the tax law changes the actual cost of having a mortgage has increased for most and has tilted the math significantly in favor of not having mortgage debt on personal residences for majority of people when possible (some don’t have a choice like you).

fasteddie911
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Re: Pay Cash for Primary Residence?

Post by fasteddie911 » Sat Jan 26, 2019 9:35 am

I don't think you can go wrong with either, just whichever you feel good about. In all likelihood in 17yrs or whatever in won't be a huge enough difference to feel any regret one way or another. Personally I don't like debt and having lower monthly expenses w/o a mortgage appeals to me, so I'd pay cash.

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Watty
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Re: Pay Cash for Primary Residence?

Post by Watty » Sat Jan 26, 2019 9:53 am

There is a wiki on this choice if you have not seen it.

https://www.bogleheads.org/wiki/Paying_ ... _investing

Investing the money and earning a higher rate of return is harder than it sounds because you have a sequence of returns risk. Here is simplistic example of that which I have posted before.
 If you do not pay it off then you will have more sequence of returns risk. For example in rough numbers if you just kept a $100K mortgage and also put $100K into a separate investing account which you also pay a $500 a month mortgage out of then;

a) If you get unlucky and get a modest 10% decline in the portfolio the first year then it would be down to $90K
b) You would also need to pay the $500 a month mortgage($6,000) so your portfolio would be down to $84K
c) To break even the next year you would need to gain back the $16K and another $6,000 for the next years mortgage payments which is $22K. That would take a 25.6% return on the remaining $84K just to break even.
If you income is secure then paying cash would make a lot of sense. If you had a paid off house few people would take out a new mortage just to invest the money and that is just about the same question.

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dwickenh
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Re: Pay Cash for Primary Residence?

Post by dwickenh » Sat Jan 26, 2019 9:54 am

You have the ability to go all in, or compromise. I think you will feel better going all in and having no mortgage. Grabiner's post above really lays it out with common sense ruling instead of emotions. You have this thought out correctly, sometimes you just have to not second guess yourself.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

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grabiner
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Re: Pay Cash for Primary Residence?

Post by grabiner » Sat Jan 26, 2019 10:46 am

Chindsey wrote:
Sat Jan 26, 2019 6:55 am
Thanks, all. This is exactly the type of feedback I was hoping for — how to go about deciding between paying cash versus taking out a mortgage based upon our personal situation.

Up until a week or so ago, the money in our taxable account was split between Vanguard’s Short-Term Tax-Exempt Bond Fund (~ $340k) and Total Stock Market Index Fund (~ $170k). I transferred all of the money to the Federal Money Market Fund to eliminate our exposure to any volatility and thus give ourselves the option to pay cash if we so choose. I realized a long-term gain of ~ $52k on the sale of the stock.
Paying that capital-gains tax may have been a mistake, but it's done now, so you should just look at the rate comparison.

I was in your situation in 2010. I could have paid cash for my home, but I would have had to sell stock for a huge capital gain. I sold only enough stock so that I could make the 20% down payment, with the intention of selling more stock if needed (if either I decided to pay cash or needed to put more down). When the home appraised for less than the selling price, I sold only enough additional stock to cover the new down payment.
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Chindsey
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Re: Pay Cash for Primary Residence?

Post by Chindsey » Sat Jan 26, 2019 11:06 am

David - Given that we have no idea what the stock market is going to do today, tomorrow, or months from now, at the time, I figured it was better to sell the stock and realize the (long-term) gain to ensure I have the option to pay cash when it comes time to buy the home. In addition, whether or not we end up paying cash, I figured it would be prudent to hold the remaining money in our taxable account in a money market account for near-term expenses (house-related and otherwise).

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Watty
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Re: Pay Cash for Primary Residence?

Post by Watty » Sat Jan 26, 2019 11:26 am

Chindsey wrote:
Sat Jan 26, 2019 11:06 am
Given that we have no idea what the stock market is going to do today, tomorrow, or months from now, at the time, I figured it was better to sell the stock and realize the (long-term) gain to ensure I have the option to pay cash when it comes time to buy the home. In addition, whether or not we end up paying cash,
With long term capital gains taxes it may just be about when you pay them, not if you pay them.

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Re: Pay Cash for Primary Residence?

Post by Lafder » Sat Jan 26, 2019 1:06 pm

Pay cash. It will make your offer more competitive and may get you a better price.

No need to wait for all the documents needed to get loan approval etc. Do still get inspections.

I am quite sure the best mortgage rates you can get are MORE than any money market so you are "making more money" not paying the mortgage interest month one vs the interest interest income from the money market month one.

You can always take out a loan later.

Keep in mind, the amount you would be paying to a mortgage you can trickle into investments over the lifetime of owning the home.

Congrats on having the options!

100k plus in taxable savings is a solid emergency fund and you can start rebuilding it with the equivalent to the mortgage.

lafder

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willthrill81
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Re: Pay Cash for Primary Residence?

Post by willthrill81 » Sat Jan 26, 2019 1:15 pm

In your situation, I definitely think that paying cash makes sense.

Also, a home valued at no more than about 150% of your annual gross income is, mathematically, very affordable. You don't seem to be buying 'too much house' at all.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Topic Author
Chindsey
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Re: Pay Cash for Primary Residence?

Post by Chindsey » Wed Jan 30, 2019 8:54 am

Thank you all for your time. Your insightful comments have been extremely helpful.

So long as we are able to find a home that enables us to maintain ~ $100k in the money market account once all is said and done (probably a purchase price of no more than ~ $375k), we are leaning toward paying cash. We will then dollar cost average back into index funds in our taxable account with future monthly income that otherwise would have been directed toward the mortgage payment.

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Chindsey
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Re: Pay Cash for Primary Residence?

Post by Chindsey » Mon Jun 24, 2019 9:23 am

Good morning, all.

Update -

We are currently under contract and scheduled to close on a home with a purchase price of $410,000.

After much due diligence and soul searching, we decided to pay cash for the home.

Between the move, pro-rated property taxes, attorney fees, furnishing the home, minor repairs, etc., I expect the total cost to be ~ $440,000.

While it is more than I was hoping to spend (I am absolutely terrified to write/sign the check!), the home checks all of the boxes, and ... happy wife, happy life :happy .

After the purchase, not including the paid-for home, the details of our financial situation will be:

- Again, both of us are in our late 30s.
- Our soon-to-be annual gross income will be ~ $195,000 (formerly ~ $240,000)
- Our net worth will be ~ $1,140,000
- Emergency fund will be ~ $20,000 (Cash at big bank)
- Taxable account will be ~ 130,000 (All in Vaguard's Federal Money Market Fund)
- TSP 1 is currently ~ $340,000
- TSP 2 is currently ~ $295,000
- Roth 1 is currently ~ $142,000
- Roth 2 is currently ~ $83,000
- 529 1 is currently ~ $67,000 (Child is 5 years old)
- 529 2 is currently ~ $57,000 (Child is 2 years old)
- HSA is currently ~ $10,000

With our monthly daycare costs decreasing to ~ $1,300 (for three more years) and our other most significant monthly expense being our property taxes (at ~ $1,400), we plan to slowly beef back up our taxable account with excess monthly cash flow.

Thanks again,

Chindsey
Last edited by Chindsey on Mon Jun 24, 2019 8:02 pm, edited 1 time in total.

student
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Re: Pay Cash for Primary Residence?

Post by student » Mon Jun 24, 2019 9:30 am

Thanks for the update. Enjoy your house...

wolf359
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Re: Pay Cash for Primary Residence?

Post by wolf359 » Mon Jun 24, 2019 9:57 am

Chindsey wrote:
Mon Jun 24, 2019 9:23 am
With our monthly daycare costs decreasing to ~ $1,300 (for three more years) and our other most significant monthly expense being our property taxes (at ~ $1,400), we plan to slowly beef back up our taxable account with excess monthly cash flow.
I hope you mis-stated property tax, and it is actually $1,400 per YEAR as opposed to $1,400 per MONTH.

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Chindsey
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Re: Pay Cash for Primary Residence?

Post by Chindsey » Mon Jun 24, 2019 10:22 am

I wish I had misstated the property taxes. We'll be paying them for as long as it takes to put our kids through school :oops: .

That said, we're "happy" to do it. And it's one of the reasons why we decided to pay cash for the home.

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willthrill81
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Re: Pay Cash for Primary Residence?

Post by willthrill81 » Mon Jun 24, 2019 9:00 pm

OP, good for you. I'm glad that it all worked out well for you and wish your family the best. :beer
wolf359 wrote:
Mon Jun 24, 2019 9:57 am
Chindsey wrote:
Mon Jun 24, 2019 9:23 am
With our monthly daycare costs decreasing to ~ $1,300 (for three more years) and our other most significant monthly expense being our property taxes (at ~ $1,400), we plan to slowly beef back up our taxable account with excess monthly cash flow.
I hope you mis-stated property tax, and it is actually $1,400 per YEAR as opposed to $1,400 per MONTH.
Some of the homes we looked at around 9 years ago in North Dakota were under a special flood assessment, and the taxes on a $200k home were about $8k annually.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Lee_WSP
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Re: Pay Cash for Primary Residence?

Post by Lee_WSP » Mon Jun 24, 2019 11:24 pm

If you would not be putting the mortgage into an asset that has an expected return significantly higher than the interest rate on the mortgage, there is no point in having the mortgage.

Get past that hump and it's just a personal decision as to whether you want the leverage to try to get more returns or if you'd rather just not have a payment. Both are good options, but one is more risky.

Blue456
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Re: Pay Cash for Primary Residence?

Post by Blue456 » Tue Jun 25, 2019 7:25 am

Cash. Never go into debt.

msk
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Re: Pay Cash for Primary Residence?

Post by msk » Tue Jun 25, 2019 9:04 am

NW $1.45 million. Pay cash for the home and stick the rest in 100% stocks. Maximise your tax advantaged accounts with 100% stocks. Enable Margin in your taxable account. You do not need an Emergency Fund (you'll be fine with Credit Card and Margin). What a waste of investment time so far: money market account :confused

FI4LIFE
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Re: Pay Cash for Primary Residence?

Post by FI4LIFE » Tue Jun 25, 2019 9:10 am

For what it's worth, we are in the almost exact same position as you with similar age, costs, NW, salary and phase of life and I think you made a wise decision.

ohai
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Re: Pay Cash for Primary Residence?

Post by ohai » Tue Jun 25, 2019 9:20 am

OP, what do you think your investment return would be if you did not use that money to pay for the house? Would it be more than your mortgage rate?

In your case, the house is 25% of your net worth. You have the ability to tolerate risk by holding investments rather than locking it up in a house.

wolf359
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Re: Pay Cash for Primary Residence?

Post by wolf359 » Tue Jun 25, 2019 9:38 am

Chindsey wrote:
Mon Jun 24, 2019 10:22 am
I wish I had misstated the property taxes. We'll be paying them for as long as it takes to put our kids through school :oops: .

That said, we're "happy" to do it. And it's one of the reasons why we decided to pay cash for the home.
Wow. Just wow.

I thought my property taxes were high. Apparently, they're not so bad. Your rate is almost 4X higher.

Yes. Cash for the house is good.

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grabiner
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Re: Pay Cash for Primary Residence?

Post by grabiner » Tue Jun 25, 2019 9:48 am

ohai wrote:
Tue Jun 25, 2019 9:20 am
In your case, the house is 25% of your net worth. You have the ability to tolerate risk by holding investments rather than locking it up in a house.
The house is 25% of your net worth whether it has a mortgage or not. If your $400K house loses 20% of its value, your net worth declines by $80K, whether that causes your home equity to decline from $80K to zero (with a mortgage) or $400K to $320K (with no mortgage).

The mortgage does give you liquidity; it's easier to spend money if you have $320K in bonds and a $320K mortgage than if you have no bonds and no mortgage. However, this isn't particularly relevant to the OP, who has more in cash in a taxable account than the home price.

Your risk level depends on how much you hold in risky assets, which you can increase even without a mortgage, by selling bonds to buy stock. The mortgage only increases your ability to take risk if your investments are 100% stock. (It may still be a good or bad way to take that risk; I don't pay down my own mortgage because the rate is so low that I can earn more on bond investments.)
Wiki David Grabiner

ohai
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Re: Pay Cash for Primary Residence?

Post by ohai » Tue Jun 25, 2019 11:05 am

grabiner wrote:
Tue Jun 25, 2019 9:48 am
ohai wrote:
Tue Jun 25, 2019 9:20 am
In your case, the house is 25% of your net worth. You have the ability to tolerate risk by holding investments rather than locking it up in a house.
The house is 25% of your net worth whether it has a mortgage or not. If your $400K house loses 20% of its value, your net worth declines by $80K, whether that causes your home equity to decline from $80K to zero (with a mortgage) or $400K to $320K (with no mortgage).

The mortgage does give you liquidity; it's easier to spend money if you have $320K in bonds and a $320K mortgage than if you have no bonds and no mortgage. However, this isn't particularly relevant to the OP, who has more in cash in a taxable account than the home price.

Your risk level depends on how much you hold in risky assets, which you can increase even without a mortgage, by selling bonds to buy stock. The mortgage only increases your ability to take risk if your investments are 100% stock. (It may still be a good or bad way to take that risk; I don't pay down my own mortgage because the rate is so low that I can earn more on bond investments.)
If he takes the mortgage, he has more liquid assets to invest, thereby increasing his risk. My recommendation was to invest the mortgage proceeds in stocks or something else.

If he had a high home price to net worth ratio, then it would be less wise to borrow to invest in stocks, as risk of insolvency or just poverty are much higher from home price declines.

gips
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Joined: Mon May 13, 2013 5:42 pm

Re: Pay Cash for Primary Residence?

Post by gips » Tue Jun 25, 2019 11:18 am

we had a 2% mortgage so it didn't make sense to pay off the loan. I retired and we wanted to purchase an apt in nyc. Due to the coops debt to income ratio requirements, we had to pay off the mortgage (I know, makes no sense).

Intellectually, I was unhappy with the move but emotionally, it feels great not to have a mortgage. My advice is to pay cash, you can always secure a home equity line (our 2% was from penfed) if you change your mind. Having said that, I don't know if penfed and other companies still offer low apr home equity lines.

luck (but you really don't need it!)

Topic Author
Chindsey
Posts: 139
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Re: Pay Cash for Primary Residence?

Post by Chindsey » Tue Jun 25, 2019 11:36 am

Thanks, all.

We recognize that our need, ability, and/or willingness to take risk will necessarily change with a paid-for home.

We would appreciate any and all thoughts you may have on an appropriate post-home-purchase asset allocation within and across our primary accounts.

Our net worth, excluding the paid for ($410,000) home, will be ~ $1,145,000.

Note: DW and I are in our late 30s.

- Emergency fund will be ~ $20,000 (Cash at big bank)
- Taxable account will be ~ $130,000 (Vanguard Federal Money Market Fund)
- TSP 1 is currently ~ $340,000 (TBD)
- TSP 2 is currently ~ $295,000 (TBD)
- Roth 1 is currently ~ $142,000 (100% VTSAX)
- Roth 2 is currently ~ $83,000 (100% VTSAX)
- 529 1 is currently ~ $67,000 (100% VTSAX - Child is 5 years old)
- 529 2 is currently ~ $57,000 (100% VTSAX - Child is 2 years old)
- HSA is currently ~ $10,000 (100% SPTM)

Thanks again,

Chindsey

Topic Author
Chindsey
Posts: 139
Joined: Mon Jun 03, 2013 5:09 pm

Asset Allocation After Home is Paid For?

Post by Chindsey » Wed Jun 26, 2019 9:45 am

Post home purchase ...

Assuming we keep ~ $150,000 in cash/short-term bonds, would it be prudent to set the asset allocation for our TSP accounts (combined ~ $635,000) to 100% stocks? Something closer to 70%?

For the time being, I am comfortable leaving our Roth IRAs (combined ~ $225,000) at a 100% stock allocation.

At two and five years old, I *think* I am comfortable leaving the kids' 529s accounts (~ $124,000) at a 100% stock allocation.

How should one go about determining his/her need, ability, and willingness to take risk once a primary residence is paid for?

Any and all thoughts would be appreciated.

Thanks again,

Chindsey

gips
Posts: 539
Joined: Mon May 13, 2013 5:42 pm

Re: Pay Cash for Primary Residence?

Post by gips » Wed Jun 26, 2019 11:09 am

we used bond allocation = age but left it 60-40 eq/bond after I reached age 40. We completely ignored the equity we had in our home when analyzing asset allocation.

Lee_WSP
Posts: 608
Joined: Fri Apr 19, 2019 5:15 pm
Location: Arizona

Re: Asset Allocation After Home is Paid For?

Post by Lee_WSP » Wed Jun 26, 2019 12:14 pm

Chindsey wrote:
Wed Jun 26, 2019 9:45 am
How should one go about determining his/her need, ability, and willingness to take risk once a primary residence is paid for?
Other than reducing your monthly absolutely necessary expenses. I do not see why anything would change.

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