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  #1  
Old 10-28-2014, 10:55 AM
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buying a house... Cash or mortgage?

What's everyone's opinion on buying a house all cash vs getting a mortgage? Within the next year or 2 I will be looking to buy a house and have the opportunity to buy it cash but don't know if it would be the smart thing to do. My main reason to buy cash is to have that financial security because my job isn't always steady.
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Last edited by THE VEIN; 10-28-2014 at 11:04 AM.
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Old 10-28-2014, 11:20 AM
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Whats the going mortgage rate nowadays anyway? We bought in April 2012 and locked in at 3.99% for 30 yrs, pretty damn good by the standards of 20 years ago.

My opinion is this, if I came into a ton of money, I'd pay off my mortgage. At the interest rate I'm at though, I'm able to float my capital and use my lender's cash at an extremely low interest rate.

The only problem with buying a house cash nowadays is you don't know what the property values, etc are going to be in a couple years, very volatile right now. If you were buying a house cash as a fixer upper to flip it and make money thats a different story.

Just make sure you can put down at least 20%, locking in a 30 yr at a low rate will ensure at least your payments are reasonable. You always have the option to pay your mortgage off early as well! Sometimes people forget this.

Also, you say main reason to buy cash is because of financial security with a job, but that counteracts, because for example a 200k house bought in cash, yes you may have no mortgage but you'll have 200k less in the bank that you could have used to float your income while you found a new job. It goes both ways.


Hope that helps man
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Old 10-28-2014, 11:57 AM
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I manage money for a living, so I'll tell you the same thing I tell my clients.

First, look at your risk tolerance and time horizon for your money. Current 30yr mortgage rates are at about 4%. Current 5/1 or 7/1 arm rates are at about 3%. A 'typical' equity market returns about 8% annually and that's compounding. So, if you have the time and risk tolerance to stomach a typical equity market, you're better off keeping your $ invested and using the bank's money for the house. Also, and I'm not sure how much you have in assets, but we do asset backed lending (against stocks, bonds etc.) at about 1.5% + 30 day libor which is .155% right now. So, a client can borrow against their account for about 1.65%. Much better than a mortgage plus you get to keep your money invested. I have lot of clients using this for investment property or second homes.

The basic rule of thumb is: if you can do better in the market than the cost of the loan, you're better off taking the loan vs paying cash.

Further, the 33 year bull market in bonds in over. Everyone keeps screaming about 'when rates go up' but we haven't seen that. We've seen the opposite in fact. Europe is negative on banking rates and deflationary, the rest of the world is frankly deflationary, so I don't really see rates moving up by any real measure anytime soon. We expect rate volatility, but we expect it to be across the curve accordingly and mirror inflation/central bank moves with some equity market influence.

That being said, I just bought a new house and got a 7/1 arm at 2.85%. Sure, in 7 years the rate will be looked at again, but in the mean time I'm saving 1.15% a year over a 30 year note. I'm still paying more than I would have paid on a standard note monthly, so it just helps me pay things off that much faster. I would have done just an asset backed line, but the mortgage deduction is large enough based on our income that it made more sense to get a low mortgage over using a line. Keep that in mind too on the cash vs mortgage route. If it wasn't for the mortgage interest deduction, many of our high net worth clients wouldn't even consider the idea.

PM me (or anyone) if you have specific questions, happy to help the forum out.
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Old 10-28-2014, 12:13 PM
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^^^Good point on the mortgage interest deduction, I forgot to mention that.

Gotta love the progressive income tax code lol

Nice tips by the way!
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Old 10-28-2014, 02:04 PM
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Quote:
Originally Posted by Ricky Bobby View Post
Whats the going mortgage rate nowadays anyway? We bought in April 2012 and locked in at 3.99% for 30 yrs, pretty damn good by the standards of 20 years ago.

My opinion is this, if I came into a ton of money, I'd pay off my mortgage. At the interest rate I'm at though, I'm able to float my capital and use my lender's cash at an extremely low interest rate.

The only problem with buying a house cash nowadays is you don't know what the property values, etc are going to be in a couple years, very volatile right now. If you were buying a house cash as a fixer upper to flip it and make money thats a different story.

Just make sure you can put down at least 20%, locking in a 30 yr at a low rate will ensure at least your payments are reasonable. You always have the option to pay your mortgage off early as well! Sometimes people forget this.

Also, you say main reason to buy cash is because of financial security with a job, but that counteracts, because for example a 200k house bought in cash, yes you may have no mortgage but you'll have 200k less in the bank that you could have used to float your income while you found a new job. It goes both ways.


Hope that helps man

Well with the job situation I'm in a union so it's whenever a job comes up. A job could be as short as a day or 2 to a couple years. Sometimes I may have a couple days lay off between jobs or as much as 6 months it's all varies and in my down time I get unemployment so I want to make sure that in my downtime I would be able to cover a mortgage payment if I had one. When it comes time to look at houses my wife probably won't be working so everything would be based off my income.
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Old 10-28-2014, 02:09 PM
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Quote:
Originally Posted by Proflyer View Post
I manage money for a living, so I'll tell you the same thing I tell my clients.

First, look at your risk tolerance and time horizon for your money. Current 30yr mortgage rates are at about 4%. Current 5/1 or 7/1 arm rates are at about 3%. A 'typical' equity market returns about 8% annually and that's compounding. So, if you have the time and risk tolerance to stomach a typical equity market, you're better off keeping your $ invested and using the bank's money for the house. Also, and I'm not sure how much you have in assets, but we do asset backed lending (against stocks, bonds etc.) at about 1.5% + 30 day libor which is .155% right now. So, a client can borrow against their account for about 1.65%. Much better than a mortgage plus you get to keep your money invested. I have lot of clients using this for investment property or second homes.

The basic rule of thumb is: if you can do better in the market than the cost of the loan, you're better off taking the loan vs paying cash.

Further, the 33 year bull market in bonds in over. Everyone keeps screaming about 'when rates go up' but we haven't seen that. We've seen the opposite in fact. Europe is negative on banking rates and deflationary, the rest of the world is frankly deflationary, so I don't really see rates moving up by any real measure anytime soon. We expect rate volatility, but we expect it to be across the curve accordingly and mirror inflation/central bank moves with some equity market influence.

That being said, I just bought a new house and got a 7/1 arm at 2.85%. Sure, in 7 years the rate will be looked at again, but in the mean time I'm saving 1.15% a year over a 30 year note. I'm still paying more than I would have paid on a standard note monthly, so it just helps me pay things off that much faster. I would have done just an asset backed line, but the mortgage deduction is large enough based on our income that it made more sense to get a low mortgage over using a line. Keep that in mind too on the cash vs mortgage route. If it wasn't for the mortgage interest deduction, many of our high net worth clients wouldn't even consider the idea.

PM me (or anyone) if you have specific questions, happy to help the forum out.
I have to be honest.... I barely understood any of this lol I'm now starting to try and understand how mortgages and interest rates work, before I didn't even care because the idea of owning a home never really crossed my mind my wife is the one pushing
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Old 10-28-2014, 05:10 PM
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Good mini tutorial by Proflyer, imo.

I would add that at the OP's guessed age, he isn't nearing retirement; thus, cop a good mort and work off 'their' money. Shop hard for a mort, as the rates and fees are all over the map, (our daughter has been in the mort/title biz for 25 yrs), and put down as much as is comfortable fiscally. Lower monthly payments are less stress to a household outflow...

If you were near/about to retire, I would rec'd the cash buy, assuming your were going to be there/or lease it for a few years.
GL, mD

PS: The OP's slightly bumpy employment may raise a flag, and some mort companies will try to jam you on rates, fees et al, because of that. I get what you are saying on the cash buy. Both options have pluses and minuses.
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Old 10-29-2014, 08:26 AM
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Thanks for all the advice guys, and no I'm not close to retirement I'm in my 20's. The money I would be using is coming from a settlement so I wouldn't have a problem making a large enough down payment or even dropping all of it on a place
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Old 10-29-2014, 10:37 AM
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#1 rule of investing, don't put your eggs in one basket.

If you're getting a settlement, do some investing while you are in your 20s and young, you'll need money to live off of when you retire and I sure hope you don't count on the government to take care of you in 50 years since the Social Security system is already bankrupt.

If you can get a mortgage, do it. Use the bank's money whenever possible and invest a portion of your settlement with a reputable advisor, keep your portfolio diversified and be smart with your money.

With cash in pocket its easy to say "hey i'll plunk it down on a house/car" etc, and be ok. But think long term, you also may want to pick up some side work if your job is not always steady,
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Old 10-29-2014, 01:53 PM
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Yes,if your job is not that steady,better buy it cash.
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