FundRobot » Equity Funds » question about to carry a mortgage or not. Lets say I want to borrow 170,000 usd from a bank for a house?

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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

I want to borrow 165 000 usd mortage to buy a house... When I figure it out, this will be a 30 year mort, over the life time of the 30 years the value of the house would be 4oo,000 usd- the amount of interest I am paying is crazy.. now lets say I have the case and don't need to borrow from the bank. is it better? so the question is it better to borrow for a mortage or just pay off the house now if I have the case, what are the advantages and disadvantges

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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

pros: you own the home outright, if money is just in savings you're probably getting less in interest, intrinsic joy in owning home outright gives people confidence to be more aggressive with certain new endeavors,
cons: may be able to get higher return with those funds in the market, people don't know how to judge the true value of cash on hand, if circumstances change and you have to sell early you may be forced to accept low offer and miss out on planned equity,

just a start
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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

Buy your main residence for cash and have a secure roof over you head thats yours.

Lets say that you then decide to go into the property business, leaving your residence safe as houses, you can finance a second property purchase with bank funds and with more controlled risk knowing that your residence is safe, since any new finance exposure is secured on the second property that is not your main property. Now lets say that this second property generates rental income sufficient for you to get into subsequent property investments which in turn generate more rental income which in turn enables more property investments which in turn produces more rental, can you see a pattern emerging here ?
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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

Pay cash, if you can.
If the mortgage's interest rate is, say, 4.5% p.a. and you buy the house for cash, you get the equivalent of a guaranteed 4.5% return on your cash - hard to beat, with safe investments.

It is true that you can claim a tax deduction on the interest component of your mortgage, but only if you itemize your deductions. If you do not itemize, you can claim the standard deduction, which is worth thousands of dollars each year.
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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

As long as you have at least 1 year of savings, then I suggest that you pay the house off. You need to have at least one year in case you get laid off. It used to be 6 months, but getting a new job these days frequently takes more than 6 months.

Think of a mortgage this way. If you pay 4% to the mortgage company, and you get 1% from your investments, then carrying a mortgage costs you 3% per month.
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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

It really depends on what kind of return you would get on the cash versus the interest rate you pay. If the cash would earn more invested, then the mortgage would still make sense. However, if the cash is just sitting in a savings account earning minimal interest, then don't go with a mortgage.

Lots of other things should be considered. Your age -- closer to retirement, no mortgage makes even more sense. How long you will live in the house -- most people don't stay in the same house for 30 years.
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Default question about to carry a mortgage or not. lets say i want to borrow 170,000 usd from a bank for a house

Depends on your cash flow situation (job, inheritance, or investment income) and amount of money in the bank after you pay for the house. You do not want to be house rich and cash poor. You still have land taxes, insurance, utilities, etc as well as living expenses, and the possibility of losing your job.

If you have the cash, your better options are to do a 5 year ARM or a 10 year contract. The interest rates are much lower, and yet you have time to see what the "future" holds for you. {You won't really have much tax benefit at today's lower interest rates and high Schedule A allowance.}

The point of having a house is to avoid rising rent prices. [Hence people without cash go for the 30 yr loan. - - rent for 30 yrs is usually more than mtg for 30 years - and you do recover some $ when you sell.] Secondly, the house value will go up, but so will everything else because of inflation, so what you could sell the house for is almost a non-issue (except for the point of recovering some of your payments).
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