@Hoggirl - I’ll be curious to hear what you agree with/don’t agree with once I’ve read it! I’m still in the beginning stages of researching these topics (about a year in) so still am forumulating what makes the most sense. The only financial concept I’ve entirely settled on is to strive for ‘no debt during retirement!’!
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Same here. I understand and respect others who opt for different schemes, but our comfort level is no debt….house paid off. (Same for cars, but that has been true for us since 1989.)
Having said that, I did look the other day at amortization curves on 2% mortgages. MUCH more appealing than our 12% home loan in 1985.
Example done for 100,000 (for easy math to estimate other amounts), 30 years, 2% …
$370 monthly payment, 33K interest over the live of the loan, after 10 years, 27K principal paid
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In contrast, a 12% 100K loan for 30 years has $1029 payment. Total payment $370k over life of loan. At 10 years, less than $7k principal (equity). You can see why the sky high home prices are tolerable to buyers when mortgage rates are low… as opposed to this 12% example.
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Low interest rates are also a driver of sky high home prices.
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Yes, I’d agree on that. That is a big disadvantage for cash buyers. Also adds more risk for house depreciation, especially for young buyers that might not stay long enough to ride out any dips.
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Thanks, Colorado_mom. That’s really interesting and informative. $370 a month is not bad! If we did do a mortgage on next house, we’d need far less than we did as new homeowners 20 years ago - smaller place, more $$ after sale of current home (maybe even a $75k mortgage?).
Something to think about (particularly b/c some of the houses I’ve looked at where we could pay all cash are not that attractive, LOL).
Reminder (to others skimming thread) - My examples were for $100,000 mortgage, for easy math to estimate other values.
The $370 was the 2% extreme example. At 3% it would be $422 (or $691 for 15 year). And of course taxes/insurance would increase monthly payment, but that’s the case whenever you own… mortgage or not.
Some people opt to take a mortgage (even if not needed) and then decide later whether they want to pay down more quickly.
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I used that amortization schedule to verify my early 80s mortgage was about 17%, it was a market boom with everyone insisting we haaad to get into the market ASAP
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Yep…our first 1980’s mortgage was something like 14%. We refinanced that one down…and reduced to 15 years…and our monthly payments went down.
We don’t have a mortgage now, and our intention is to keep it that way for cash flow purposes. But we have discussed purchasing a second place…so that plan might go out the window.
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A good friend of mine, subject to both WEP and GPO, had her husband pass and he had refused to take disability leading up to his death. It was a double whammy as she can can’s collect a dime of his SS.
H’s first house, which he purchased in late 1980, had a 14 or 15% mortgage. We bought a new house in 1986, and the mortgage was 9.9%. We refinanced that mortgage a number of times before paying it off in 2007. It’s great that rates are so low now, but I’m still pleased to be mortgage-less.
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Yeah, we bought a coop in NYC in 1982. IIRC, our rate was 16 1/2%. The mortgage amount was low but the interest rate sure wasn’t. We refinanced just a year or two later at something like 12%, and we thought we had died and gone to heaven.
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Something to think about….if buying now at low interest rates, it’s unlikely you will be able to refinance in the future for a lower rate…
The other side is if you buy at the height of the market with low rates, you may encounter problems if you need or want to sell at a higher price in the future if the rates increase. When I started practicing in the early 90s there were so many people that had to bring money to their closings because they had purchased at the RE price apex in the 80s, the market declined and they couldn’t sell their homes for enough to payoff their mortgage. I can definitely see that happening again given the crazy real estate market.
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One of my relatives is a housing expert – very smart guy who was responsible for residential housing policy for a major city and now think-tanker. He told me that part of the big driver of real estate price increases during the Pandemic was that households whose incomes did not drop had markedly reduced expenses and might have accumulated an extra $200K or $300K that was burning a hole in their pockets. So, they were opting to put that money to work in RE.
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Some claim that large investors buying houses for the rental income are making the housing market more competitive and expensive for buyers:
But others disagree:
Of course, retirees downsizing to less expensive houses are likely to benefit from higher house prices.
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That’s true. But as discussed in the downsizing thread, often retirees are transitioning to smaller/easier (often newer) places that are not necessarily less expensive.
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As someone trying to get my kids into college all I have is home equity to pay for it. So I will have no savings, no equity, when they are done with college hopefully when I’m 62. I can’t for a moment contemplate all those considerations.
I certainly prioritized retirement savings over college savings but in the end I made room for both. It’s amazing how much a small monthly investment can earn with compounding interest, etc. It seemed like the right thing to do and now it’s certainly paying off. Having those monies come out automatically made it so I never really missed them either.
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UCDProf - I was always told - you can borrow for your kids’ college education, you can’t borrow for your retirement. Just something to think about - to make sure you take care of yourself!
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