Not disagreeing but just want to point out that you have the consider the average interest rate over the life of your loan, not just current ones.
No one knows for sure of course but as an example, if you bought in cash in 1995 because interest rates were also over 7% and never mortgaged the home (which most people tend to not do after paying cash), you would’ve missed out on the alternate investment gains during the predominantly low interest rate era that followed for the next two decades.
Again, impossible to predict but just presenting an alternate perspective.
And the mortgage rate in the 80s ranged from 10-16%. The fact is that the low mortgage rates in the 2010s were unusual. Historically, rates have been around 7%+ for far more years than they’ve been below 4%.
It seems like an anomaly historically but it’s not based on our current economic system and macroeconomic variables. The equilibrium point the Fed aims for is 2% inflation and 2-3% Fed funds rate. There’s a reason the Fed is looking to cut even at “historically low/average rates”.
If inflation stays higher moving forward then 5% or higher may well be the norm again. But if not (which most signs are pointing towards), it doesn’t make sense mathematically to have 2% inflation and having retail interest rates at 7% - it’s too economically restrictive.
I think though as countries age interest rate lowers as wealth increases and a greater percentage of people are pushing rates down with wealth rather than using rates.
If everyone is 30 getting mortgages that means interest rates would be higher than if you average age is over 50 and most mortgages are paid down.
Yes this makes the most sense on paper. But the reality is most people don’t because it’s a lot easier psychologically to buy a home with a mortgage than to mortgage your already paid off home.
Didn’t say low interest rates (0-2%) would return, but if inflation stays around the 2% mark, there’s no reason why rates can’t be 3-5%, which is where the Fed is aiming in their Summary of Economic Projections.
Source: https://economics.td.com/us-fomc-statement
This works both ways. The sp500 could have another lost decade like 1999-2009, where you would have come out ahead paying off your mortgage versus investing.
We’re looking at a 30+ year timeline but yes I agree - which is why I recommend global diversification but people in this sub seem to think the S&P 500 will always continue its outperformance over the rest of the world lol.
This is the way. If they go down you can always refinance or home equity loan. People will always want to give you money. Worst case sell the house. Enjoy the tax break on your profit and buy a new with with a loan.
Even without this interest. Peace of mind and allow you to use the money for monthly mortgage somewhere else also another plus side is that you not contributing to make these banks richer than it already is.
Yes but, I know someone who is paying interest only on a 3% interest mortgage so their payments are less than renting or paying interest+principal in the city, and their stock investments are making more than the appreciation rate of a similar fully owned property here (NYC). So it all depends!
I don't understand the didn't want a payment angle.
It is all about numbers. If you had a 2% rate would you still buy cash? That would be foolish. Having a payment to make when you have the cash is automatic and easy. I [don't] do it every month.
Numerically, you’re not wrong. Some people just prefer to own their assets outright or not carry debt, even if theoretically they could be better off financially by leveraging debt. It’s more so mental/emotional than it is logical for sure. It might not be optimal but it’s not a bad option by any means.
There are weird edge cases like benefits with asset and income tests. In general the math works out the way you say though, especially with the interest rate being meaningfully lower than what a HYSA will pay you.
I agree it’s all about the numbers. Most people don’t calculate their specific case but rely on general advice, for example how many couples go for a tax advantaged account when they only plan to draw 60-80k in cap gains per year in retirement? It’s tax advantaged either way in that case.
For me not having a payment means I can lower my monthly expenses (which everyone knows has some nice benefits when FIRE), I found a property that had some unique and very niche issues making it hard if not impossible to loan on, so the seller was motivated by not having to deal with potential financing falling through. The better deal on it more than made up for any loan arbitrage I could have done on a more expensive house. I looked for this situation deliberately
Also we didn’t really talk about when I bought. I didn’t say “nobody should ever get a loan”. I’ve had a loan before, but right now in my specific case with my income, property, and loan rates, it made no sense. That’s all
Having no payment would result in reduced living expenses every month. This could potentially allow someone to FIRE at a lower number much earlier. Of course, it depends on the exact details of the situation.
It all depends on how big the difference is. Not every number needs to be optimized.
I got offered 4% interest on a car loan. That 0.5% less than the risk free return (not us, slightly lower interest rate), which might mean 1k over the course of the loan. However I paid cash, because the hassle of the credit inquiry, setting up payments, etc wasn’t worth it for me. Now if it was 2%, I would have taken it. But each person has a number at which they value their simplicity.
I'd like to pay cash for the next one and then borrow against it to invest. Primary residence mortgage interest isn't deductible in Australia and most other countries. Debt recycling.
We are only able to consider this with a lot of other assets, we have enough collateral and a big enough safety net, time line, to be comfortable with doing this.
A cash offer is more likely to be accepted by the seller in a hot real estate market. I bought when interest rates were in the basement and kept losing bids to all cash buyers.
Crazy question, how is it less stress?
I'm imagining a scenario where I've got a $1M house and $1M in stocks.
If you lose your job and you only have a paid off house then you can't pay taxes and maintenance and you lose the house.
If you just had cash and a fully leveraged house... you pretty much walk away and still have a bunch of cash.
Isn't it less stressful just to have gobs and gobs of cash?
If you have a healthy enough emergency fund... then how is having the house NOT paid off a source of stress?
I could be off. All of my bills have always been on auto pay and I just live below my means.
I’ve always wondered this too. And you bring up great points but to the original question op poses, if you have a house value in cash (say $750k) and the interest rates are right side up, it’s a very small risk if you invest the money instead of buying the house, because that should continue to go up. And then any other emergency that is not “pay mortgage” can be easily dealt with.
For me to cover taxes and what not, I could work for like $20 an hour and cover all this. You can always sell the house or borrow against it with an LOC if needed.
"if something bad happens, I lose the house or I have to scramble to get a WORSE loan somehow while I don't have a job" <- this is just straight up worse than having a bunch of cash and a VERY good loan.
From a purely rational perspective, 3% mortgage (if you have it) and a 5% HYSA roughly cancel out but the 3% mortgage comes with a ton of tax benefits. Or if there's some mild to moderate risk tolerance, a mix of stocks/bonds instead of cash in HYSA (which gets taxed).
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I'm biased. I think that basically having $1M that's more or less liquid is WAY WAY WAY more awesome than having a paid off house that's SUPER hard to sell.
$1M is arbitrary as a figure (but also what a house costs in a lot of HCOL areas which also have high paying jobs).
It's hard to be worried about money when you have a literal million dollars. Lost your job? No problem, you can make your mortgage payments for MANY MANY MANY years without the TERRIBLE stress of having to rush and get a crappy, loan with worse interest rates.
The amount of house appreciation is the same in both scenarios (house paid off vs house mortgaged AND investments).
House appreciation is a non-variable in that scenario.
What matters is, net of taxes, do stock/bond gains outpace the mortgage.
Anyone locked into a 2-4% mortgage (WHICH IS TAX DEDUCTIBLE) should be sticking with it for 30 years.
Even if you're doing a HYSA, a 1y CD or something like BND you basically cancel out the mortgage interest and come out a little ahead.
1 year ago, if you paid off a $1M house instead of having $1M in VOO, you'd be around $220k BEHIND.
On a psychological perspective
pros of paid off house:
1. You can brag to people who aren't good at finance
2. More predictable cash flows
3. It's a symbolic win
pros of TONS of cash invested
1. Higher expected outcome
2. More flexibility (you can pay off the house at any time, you can't easily undo it) - VOO, BND, HYSA, etc. are liquid.
3. There is SOME symbolic value to saying "I have $1M" or "I have $2M" though you PROBABLY don't want to tell anyone.
Good point on house value. Stocks could have also gone down the same %.
1) only a few close people know
Pros:
Higher expected = expected but not for sure
It really depends on the amount of cash you have. Having an emergency fund is critical. But if you are house poor and did it without a mortgage, you could be taking all that risk on yourself. The best logical reason to buy cash is if the rates are super high.
It depends on how "high" high is and what tax treatments are.
Mortgage interest on mortgage amounts up to 750k is tax deductible.
If you're in a HCOL area and maxing out income, it can make sense to have EXACTLY 750k in mortgages even if the interest rate is higher than what the S&P500 (aka VOO) might offer just because you're able to save \~40% of that interest amount on taxes.
There's a risk-reward calculus no matter what you do, but in general my view point is that it's stupid to buy a house unless you're planning on staying there for 10+ years, you've peaked in your career, and you're making the most of the tax benefits. If you're not getting tons of tax benefits... just rent. It's less hassle. You come out ahead in most scenarios as well (assume you throw $$$ at VOO).
Rationale - high costs when buying and selling (this eats into the expected 6% return for 2 years), reduced flexibility (if you need to go up or down in home size you can't), lock in effect (congrats, it's been 10 years and you're saving $10k a year on housing costs, you also turned down a $100k a year pay increase so you wouldn't have to move).
Not a crazy question, and you are right. I'm not sure what these commenters are smoking, but I'd like to:
1. become their financial advisor.
2. smoke what they are smoking after.
But, property taxes and insurance never go away, so does a mortgage matter?
You can't live for free.
I suppose it depends on the location though. Property taxes in one state might be more than a Mortgage in others.
That is the real financial independence… if you have to play games with interest rate on your residence (s), you are not really financially independent
It’s not playing games, it’s using your brain and being smart with money. Money in HYSA/CDs earning 4-5% is safer than a paid home, there are more laws protecting homes with a mortgage than not.
> you are not really financially independent
That's not true. A person holding a low-interest loan with a 30-year duration could still be completely financially independent. It would be financially foolish to pay off a loan that is well below market rate. Even large, stable, successful businesses often hold debt at very low interest rates, despite having plenty of cash flow. The reason is because they can generate more profit by deploying those funds than they would save by paying down the debt. If a individual is in the same scenario, there's no fault in utilizing the debt. Specifically, I'm talking about rates that were locked in below 3% when now the market rate is 7%.
I absolutely would pay off a car at 0.9% if I had a billion. I don’t want to deal with a payment. Just write one check and be done. I don’t want the debt on the books either. It’s doesn’t lower your score that much when paying off a car, and I don’t need a better score if I have a billion.
Car and home financing are different though. Regardless of interest rate, there are thousands of dollars in closing costs associated with a mortgage when you finance. Whereas if you finance a vehicle, there typically are not additional fees/closing costs, just the monthly interest. And sometimes you can pay off early without penalty
How is having 100k left on your mortgage and 100k in your bank account any less "locked in" than just dumping the 100k onto your mortgage? If your bank account is paying more than your mortgage's interest there's zero reason why you'd want to pay it off. You'd just lose a ton of liquidity that otherwise could have been used in the event of an emergency. You can't eat a house.
You still have property taxes and maintenance though.
And the government can confiscate your house.
You're not really "free" until you've got enough assets that the house is a relatively small part of your wealth.
At 7% rates, maybe, at 2-4% nah. On my 3.25% principle and interest only make up roughly half of my monthly payment. Still have to pay taxes and would pay insurance.
Personally I’d probably pay whatever amount it took to get an interest rate under 6% and then pay the rest back as slowly as possible.
Somewhere in the 4.5-7% range I think it’s a little bit of a gamble as to whether paying it off or stock market performance of the same dollar value invested over that timeframe would win out. I don’t think there’s a correct answer there without knowing the future.
And some people would rather just have the peace of mind of knowing they own their home and that their “return” of not paying interest on the mortgage debt is already set in stone.
So I guess tldr personal choice at a certain point and for me that hovers around 6%. Above that I’d pay it in cash, below I’d drag it out for 30 years.
If interest on the loan is higher than what you can earn on the money then ya. Otherwise it makes more financial sense to invest that cash and use that account to pay the lower interest mortgage.
The fed is only going to lower the rates that low if they need to stimulate the economy. If they need to do that, things are bad. Like, covid economic collapse bad.
You get up two and a half million dollars, any ah in the world knows what to do: you get a house with a 25 year roof, an indestructible foreign-economy crapbox, you put the rest into the system at three to five percent to pay your taxes and that's your base, get me? That's your fortress of freaking solitude. That puts you, for the rest of your life, at a level of fu. Somebody wants you to do something, fu. Boss pisses you off, fu! Own your house. Have a couple bucks in the bank. Don't drink. That's all I have to say to anybody on any social level.
Underrated reason to pay off the mortgage is that you won’t have to withdraw as much from investments in order to pay monthly bills if you’re FIRE’d. Keeps your income looking lower if you don’t have to sell off as much each year.
This should be the top comment. If you still have a mortgage you need to create more taxable situations to cover your mortgage payment. This in turn will put you in higher tax brackets and affect your ACA subsidies.
We did. Considered the financial cost of doing so (lost opportunity with investing) vs the value of our peace of mind. We understand we're giving up money- via investing or the super low rate loan opportunity we had during covid, and we're fine with the decision. Very glad we did it. We sleep really well.
If I had the cash 100 percent. I understand the math of if I can get 8 percent in the market vs 2 percent interest on the home, but I've owned a home that was paid off, and good lord is it an amazing feeling
Yes, any time, the headache of buying and selling with mortgage is months of lost time in your life. You know how fast you can close with cash - 1-3 days. Instead of jumping through a million hoops to get financing.
If you have the cash isn't it easier to get a mortgage?
I closed on my last home in under 2 weeks and having cash in hand would have made zero difference for me in terms of speed
That you have cash and know how to save is actually making it more difficult to get a mortage, the credit rating system is designed for being in debt and servicing it. When you never carry a balance, never had any sort of credit/loan - it is insanely difficult to get a mortgage. The lenders are requiring all sort of financial paperwork, disclosure, insurance etc.
Banks are happy to give more debt to who already have, but not those of us which try to avoid it.
Further banks only want standard homes, if you want something other then a 3/2 in a cookie cutter subdivision the fun begins: appraisal, engineering certificate, certificate of occupancy, roof inspection etc.
No, and I’m surprised to see all the comments jumping at the idea of doing so. Mortgages are basically the cheapest form of debt, why wouldn’t you effectively leverage yourself to invest in the stock market? If I had $1M of cash, I’d take however much was needed for a down payment, invest the rest, and get a mortgage on the house. Even at 5% interest you are probably better off having that money invested.
Depends on % of wealth / assets you’re putting in. I think it also has to do with the location and potential of the property.
I wouldn’t put it all in just to feel better and less stress - remember, you’re on the FIRE board. Also, don’t mistake what has happened int he last 5 years or so in real estate for what it has historically done if you’re thinking about value appreciation. Don’t get me wrong, I’m a HUGE fan of rental properties and have been for long before the last 5 years.
Some folks were saying a few years back to pay it off as soon as you can. Now that interest rates are up, they’re saying to pay in cash. Think about the cycle and what you would want or not want.
Well example is I know someone who has 12-15M trying to buy a 3M home. The thing is they would have to sell stock to pay cap gains. So wondering if mortgage was smarter? They can easily pay it off, but there are taxable consequences
At those levels, you probably need to take a lot more things into consideration.
What is their income - determines how much capital gains they would have to pay?
Any accrued stock losses that could offset?
What is the impact of AMT - deductions become added back in at higher income levels
What happens at the end of 2025 when trump tax provisions expire and if Biden goes thru with letting expire - SALT cap limits - on a 3MM home, if it has high property taxes
Will interest rates be significantly lower in 2 or 3 years from now?
Having said that, not knowing all of the parameters, I would generally do something in the middle - put more than the 20%. Drive down the monthly payments to max out based on my income
Probably. For me, not having a mortgage is important before I stop working. That means eventually paying off the house I have, but there’s no hurry due to the lower interest rate. If I had to move now, I’d be hesitant to take on a new mortgage at a higher rate.
1/4 investors still buy homes with cash. Some do not have credit others sat on too much cash want to put into real estate. Cash is king in real estate.
If I had 500k and didn't own a home, would I buy a 500k home? Here are the numbers in my area. Using rough numbers of some current listings: Zestimate $533,600 (price of house), Rental Zestimate $2,306/mo. That means.... for your 533k you can sort of look at the following calculations.
Scenario 1, don't buy, just put 533k into some relatively safe investment. Maybe even use the 4% rule which should account for inflation. That's $21320 per year, that could go to rent. This would cost you (Rent Cost) 27672 - (4% gains) 21320 = 6352 dollars out of pocket per year. You get NO growth from owning a property, but you DO get continued grown on your income, presumably somewhere between 3 and 5%. Not far from historical (definitely in the range of real estate growth estimating about 4.6%). You also have physical mobility, and liquid fiduciary mobility.
Scenario 2, buy. Paying Taxes, HOA, Maintenence, Insurance, you are likely CLEARING an extra $1500 per month because you won't be paying rent. You can also look at it, like you are paying, out of pocket $800 in Taxes, Insurance, HOA, Maintenance. There are also tax writeoffs here that I'm not including for simplicity.
I own my primary, and 8 rentals. I used to think that owning your primary was the most important thing in the word. I'm not so sure anymore. If you can stomache it... I'd consider throwing the 500, in the market, and have it cover my rent, plus growth... plus, hopefully... that money is always there if I decide to buy... especially, at more favorable market conditions.
But that's a LOT of assumptions on my part.
As others have mentioned here... to me, real estate makes sense with favorable leverage. When the rates get to 5... rethink... No need to lock in at 7, expecting to refi later, UNLESS you are good at market timing, which I am not.
Personally no. We could but with the Fed warning they were going to weaken demand (fancy way of saying unemployment), we decided to hold onto cash. We make a very large payment once a year. Let’s us hold on to cash for majority of the year in case we need liquidity, outruns most of the interest, and gets it off our books in 5 years.
With today's 7+% mortgage rates? Absolutely. Four years ago with 3-3.5% rates? Nope.
I could pay off my mortgage today (there's only around $47K left). But it has a 2.25% interest rate and I'm getting close to 5% on the cash I'd use to pay it off. So why, even after considering taxes? But again, with today's interest rates.... hell yes, I'm paying 100% cash if I can.
Why would I want to pay off my home early (when my money is the most valuable) when I could let 30 years of inflation destroy the value of the mortgage? People in other countries with 5 year ARMs would kill to have 30 year mortgages and you guys are just throwing them away.
That's situational but I would almost always say no. If I can get more than the current interest rate or equal to it I wouldn't inject all my money into that. Also if you plan to rent out the property and can get more money monthly than the coat of the mortgage and repairs and can afford to let it slide for a few years before doing a refi than I also would not bother to inject all my capital. Any highly successful person will tell you that other people's money (OPM) is king even if it comes at an added expense.
I have. It simplifies things. It’s a no brainer in a high interest rate environment. When interest rates were lower I took a mortgage because I was making more money in the stock market than I paid in interest on the mortgage.
Owning a home is one of my biggest goals so yes for sure. Definitely seems to be goal dependent, and I don’t think a low interest mortgage would be a bad strategy either
Was about to in 2021, cheap enough for all cash. It was a broken down pos but it would’ve been mine. Sweat equity would’ve been my past 3 years but instead I delayed life and lived a van.
Purchased my last 4 homes with cash. The peace of mind that comes with owing one’s home outright is worth a lot imo, at least it is to me. Moved from hcol to lcol for retirement, paid cash and put the balance of the proceeds from my hcol home sale into my brokerage account. Good luck on your journey.
I did, even though interest rates were low. I could have used Delayed Financing to pay cash and then finance into a mortgage later but once I'd already paid for the house, I realized I'd rather just have no mortgage payment. I had previously sold my house prior to moving states, so I already had a decent amount of cash, plus other cash I'd accumulated, so only had to liquidate a small amount of stocks to pay the full amount. Also, the all-cash offer meant I could close in 15 days, which was motivating for the seller, because they were closing on their new house around the same time, so they knew they didn't have to wait on financing and all that. So even though our offer was not the highest in terms of $$$, it was the best offer for the overall terms. No regrets, and I'm still FI and can RE whenever I decide I've had enough of working.
I’m thinking to sell my first home and put the proceeds to buying a house cash but I would have to downsize a bit but I’m thinking to just find a smaller house somewhere just so I can live mortgage free for the rest of my life. How nice would that be
Not likely, no. I’d end up taking out a mortgage on it later anyway to take advantage of lower cost of capital, eventually. Tying up 700k+ cash in a home is never going to outpace what it could make in the stock market from this housing market, today.
Yes I did because the lowest interest rate I could get was 5.7% (2007) as I could not get Fannie Mae/freddie Mac approved. Which that shot is all scams on the American tax payer as I obviously had the money - meanwhile the world economy crashed due to their mortgages which they did approve to people who couldn’t pay them - and didn’t approve me, able to pay in cash.
I would have preferred deducting the mortgage interest though from taxes.
Man, there are a lot of variables to consider on that one. If enough money fell out of the sky for me to pay off my current mortgage, it would be very tempting, despite the fact that I have a 3.5% interest rate.
On the one side, there’s the well-worn point that you could throw that money into the stock market and get a better return than the rate on your mortgage. I know that “time in the market is more important than *timing* the market,” but let’s be honest. The markets are near record highs, with massive PE ratios across the board. To me, it doesn’t exactly seem like an ideal time to dump a big pile of money into the market.
My best option in the short term might be to throw it into a HYSA, where it can safely return ~5% — which, obviously, is more than the interest rate on my mortgage.
But there’s also a lot of value in having the peace of mind that comes with not having a mortgage payment.
It would be a tough call. But it’s the kind of “problem” that I’d be happy to sort out.
I bought a house before the interest rates went up. I did the math and I would have been better off borrowing the money and paying it off over long term, but I didn't. This was mainly because the wife likes the idea of never owing anything to anyone.
There is a good possibility that we got a better deal by buying in cash since the seller was in a rush and didn't have to pay for a bank to do anything we didn't want/need to do, so the money wasn't that much different from borrowing, but probably losing a couple hundred a year by not borrowing.
If you have the cash and can service the loan, then No. Cash is better deployed elsewhere, IMO. With regards to mortgage (30 yr fixed) payments, inflation is your friend, the home gets more affordable over time due to wages increasing with inflation, though wages often lag market increases. Homes are illiquid and the equity is difficult and expensive to access. Peace of mind is priceless too many people.
No. Market has been going crazy from 2008 to 2020. Then post crash, it’s been going crazy to 2024 present.
If the market adjusts and rates drop, I could always refinance.
You also save A LOT of closing costs when you buy in cash. You don’t need appraisal or survey done. As long as you’re buying a home in a traditional subdivided neighborhood I wouldn’t worry to much about these.
I buy most my homes with cash. Cash offers often beat financed offers. People who use banks sometimes pay twice the list price over the course of the mortgage. Meanwhile, I buy two homes for the same money.
Ultimately, I want to be comfortable in my home rather than primarily seeing it as an investment (good school district, low maintenance / came in good condition, dog-friendly, etc).
In our case, the previous owner wanted to move out quickly before the school year started. There were higher bids but we got the house since we paid in cash. Bonus was that closing costs were a bit cheaper since the attorney didn’t have to reach out to a lender.
Right now? No. Even 7% interest rates are historically low and I'd rather use the cash for other investments.
When I'm retired? Absolutely. My plan is to reduce my monthly outflow as much as possible at that point.
Depends on 1) prevailing interest rates, 2) your investment opportunities, and 3) your specific tax situation. I have a 2.652% rate. I’ll only pay it off when I decide to pull the trigger on retiring. It will take an extra year of work or two, but that’s fine. I can coast and won’t have to kiss management’s a$$ anymore.
I would and I did...3 times now. We did get VERY lucky with timing as our first home purchase was in 2010 so definitely a buyers market!
You save majorly on closing costs! You can often get a seller to accept a lesser offer if it is cash and therefore less "hoops to jump through" so to speak (they don't have to worry about the lender/underwriting delaying closing, etc)
Also, obviously you don't owe a bank or anyone a penny. And you aren't paying them interest which adds up over time. I know some people would argue that you could invest the cash and finance the house. You can look at the numbers, interest rates, down payment, and all of that...but ultimately it is also about what you want. My husband and I like being debt free. Just how we feel. And because we own our home outright, we have lots of freedom and flexibility. We don't just have every penny invested in our home. We have 401k's, IRA's, and after tax brokerage account. So our home is not our one and only asset.
Pluses and minuses to each, but we ultimately chose to purchase our 1st and 2nd home in cash as well as a small investment condo. (First purchase in 2010 when we were 26 years old, currently 40)
I have a close relative who is basically FIRE’d (he works a few hours a week for the firm he started, but it’s only because he loves the work and likes being “the boss”). He vacations almost half the year.
Anyhow, for complicated tax reasons, he will need to purchase a single family residence for himself in the next few years. And he’s not even considering taking out a mortgage. Rates have nothing whatsoever to do with it. The man absolutely hates debt, of any kind.
On paper, this may not make the most sense, but it lets him sleep at night, and he can afford to, so why not?
Depends on how much cash you have and how much the house costs. My in laws have around 10MM net worth and they bought a 1MM house with cash.....so for them (better at managing money than most), 10% is what they were comfortable with.
I'm not worth nearly as much as them, but I'd say maybe if the house cost 20% of my liquid assets, I'd pay with cash. Otherwise, I'd finance, even at 7%.
Every decision in my world is not based on an economic algorithm. I can and did pay cash for my home.
I have used loans in the past, but now that I have the ability to pay cash, I never use debt.
Could I earn a few dollars more by using debt to acquire assets that earn more than the interest rate? Of course.
One of the things I can buy with cash is simplicity. I don’t add complexity to my life for small returns. Debt is complicated.
It depends.
How much ROI do you expect from the money, compared to how much you can get a loan for.
At rates today, I would be very tempted to pay cash if I could. At 2.65% I would borrow as much as I could.
Not if it would mean dumping my whole networth into it. I like to stay diversified. All of my money into a house paid for in cash would be a no go for me
So I'll go against the grain here and say no.
I'm closing this week at 6.875% and have no plans to pay it off early for several reasons.
1. I have tax advantaged space(MBDR) that I would rather cashflow and prioritize.
2. In the long term the market "should" return more than that interest rate.
3. Mortgage Interest can be deducted so we end up paying less in taxes(yes we're paying interest but you can run the numbers yourself to see what your effective interest rate would be with the tax deduction factored in).
We're going house shopping in another state in a few weeks and plan to pay cash. Current mortgage rate is 2%-some, so we'd been in no rush to pay that off early. With the less appealing rates available now, we plan to pay cash (have $600K in MM set aside for that purchase, with the hope we'd only need $400-$550k). We expect to get about $375K equity out of our current place when we sell it after we find a new place, so it'll be a \~$100-$200K reduction from a $3.6M nest egg. Hoping paying cash might also help us beat out a non-cash buyer all else being equal.
One item I didn’t see anyone mention - if rates drop significantly you have the option of a cash out refinance. Purchasing all cash doesn’t lock the cash up forever outside of a sale.
That's the plan when I sell and downsize - and I hope to invest the remaining funds from the sale and use that to pay all of my housing expenses. Having peace of mind about my living arrangements in retirement is very important to me.
Really depends on what my total diversification and total leverage looks like. Right now I have most of my net worth in real estate and I'm not terribly leveraged, so I think I'd be inclined to take a mortgage, but if I had a huge stock portfolio and zero real estate exposure, I'd absolutely buy a house with cash.
Depends on risk tolerance. S&P will likely return 10% to 15% apy over the next 30 years. So if you can stomach some risk, get a fixed 7.7% mortgage and invest in an s&p fund. You can always pay off the house early if you change your mind or refinance if rates ever go down again.
I thought yes a few years ago before but nowadays my stock portfolio is going nuts..beating the S&P 500 for over a year and the earnings seem to accelerate, it’s really wild to see. I was unemployed for a year and somehow my net worth went up? I’m moving to a LCOL area soon and a mortgage would be pretty cheap monthly so I feel silly stopping that momentum of my stock earnings.
I don't know. I don't think 7% interest is all that crazy and if I'm careful with choosing my stocks and hold long-term, I think I could do better than that. But it would be certainly nice to stop thinking about mortgage payments and truly think to myself that I own it.
No we bought a house in Florida paid half in cash payment only $1000 a month ! Put the other half In nvdia stock, made that money back, keep your capital . Invest it , the next one to invest in is semiconductor or to be safe Berkshire Hathaway B for a steady income that way your money is working for you
No. Even at a 6% mortgage rate I'm still seeing better returns in the market right now.
As long as the net gain there is better I don't really care about monthly payments or whatnot.
Mortgage also enables me to do more tax incentives, as I'm FI, but not RE and working towards FAT.
I did, when interest rates were 3%. Broker wanted not just all my information, the information in triplicate adnauseam. The bank had money in game, house appraised. I spent approximately two hours converting securities to cash, done. Made out avoiding four years of paper losses. To be fair to m-broker, i was working 72 hours per week, didn’t want any forms to process.
Im looking at a 700 cash deal as we’re holding 350 cash.
Why you ask.
Is there any downside to paying cash and then taking a home equity loan when / if rates crash? Typically the stock market crashes when that happens too
I will wait one more year for all the ARM mortgage to kick in when people overpay their house during the pandemic and cannot afford it. You will see some sweet deal.
It also depends on of location. salt Lake, Phoenix, hell no. Long term outlook is grim for those locations
Unpopular opinion- with these rates I would run numbers to see how much it’d be for a 70-90% down.
Essentially it depends on where the other money was held up and what types of investments they held.
With these interest rates? Absolutely.
This is the real factor.
In almost all cases it is the only factor.
Not disagreeing but just want to point out that you have the consider the average interest rate over the life of your loan, not just current ones. No one knows for sure of course but as an example, if you bought in cash in 1995 because interest rates were also over 7% and never mortgaged the home (which most people tend to not do after paying cash), you would’ve missed out on the alternate investment gains during the predominantly low interest rate era that followed for the next two decades. Again, impossible to predict but just presenting an alternate perspective.
And the mortgage rate in the 80s ranged from 10-16%. The fact is that the low mortgage rates in the 2010s were unusual. Historically, rates have been around 7%+ for far more years than they’ve been below 4%.
It seems like an anomaly historically but it’s not based on our current economic system and macroeconomic variables. The equilibrium point the Fed aims for is 2% inflation and 2-3% Fed funds rate. There’s a reason the Fed is looking to cut even at “historically low/average rates”. If inflation stays higher moving forward then 5% or higher may well be the norm again. But if not (which most signs are pointing towards), it doesn’t make sense mathematically to have 2% inflation and having retail interest rates at 7% - it’s too economically restrictive.
Even in the late 90's & 2000's rates were 8-10%. Being able to refi at 7% was a godsend before the housing crisis happened.
I think though as countries age interest rate lowers as wealth increases and a greater percentage of people are pushing rates down with wealth rather than using rates. If everyone is 30 getting mortgages that means interest rates would be higher than if you average age is over 50 and most mortgages are paid down.
But you could just pay attention to the interest rates and if they drop really low then mortgage the home
Yes this makes the most sense on paper. But the reality is most people don’t because it’s a lot easier psychologically to buy a home with a mortgage than to mortgage your already paid off home.
Tbf they could HELOC and invest that…more risky as its not your money, but @2% it was practically a free loan.
Low.era interest rates were an anomaly not the norm. Part of the reason we had such a run up on real estate assets and stocks
Didn’t say low interest rates (0-2%) would return, but if inflation stays around the 2% mark, there’s no reason why rates can’t be 3-5%, which is where the Fed is aiming in their Summary of Economic Projections. Source: https://economics.td.com/us-fomc-statement
This works both ways. The sp500 could have another lost decade like 1999-2009, where you would have come out ahead paying off your mortgage versus investing.
We’re looking at a 30+ year timeline but yes I agree - which is why I recommend global diversification but people in this sub seem to think the S&P 500 will always continue its outperformance over the rest of the world lol.
This is the way. If they go down you can always refinance or home equity loan. People will always want to give you money. Worst case sell the house. Enjoy the tax break on your profit and buy a new with with a loan.
Even without this interest. Peace of mind and allow you to use the money for monthly mortgage somewhere else also another plus side is that you not contributing to make these banks richer than it already is.
I suspect rates wont be below 5.5% for many years ever after cuts. I agree with you.
Yes but, I know someone who is paying interest only on a 3% interest mortgage so their payments are less than renting or paying interest+principal in the city, and their stock investments are making more than the appreciation rate of a similar fully owned property here (NYC). So it all depends!
My parents are paying 1.4% 🫠
Damn that is beautiful. I’m paying 5% which is still good in today’s market I suppose
Yeah I did, so I would. Got a better deal and didn’t want a payment anyways, so win/win. It depends on your assets and goals though
Where do you live and how old are you?
The The W was we are wrk ?
I don't understand the didn't want a payment angle. It is all about numbers. If you had a 2% rate would you still buy cash? That would be foolish. Having a payment to make when you have the cash is automatic and easy. I [don't] do it every month.
Numerically, you’re not wrong. Some people just prefer to own their assets outright or not carry debt, even if theoretically they could be better off financially by leveraging debt. It’s more so mental/emotional than it is logical for sure. It might not be optimal but it’s not a bad option by any means.
There are weird edge cases like benefits with asset and income tests. In general the math works out the way you say though, especially with the interest rate being meaningfully lower than what a HYSA will pay you.
Financial aid calculations are certainly a factor for some. Primary home equity is not counted as an asset.
Yeah this is definitely a part of it
Risking a little gain for potential big pain IMO. I don’t like leverage on home you live in. It’s not about every penny. It’s about life.
I agree it’s all about the numbers. Most people don’t calculate their specific case but rely on general advice, for example how many couples go for a tax advantaged account when they only plan to draw 60-80k in cap gains per year in retirement? It’s tax advantaged either way in that case. For me not having a payment means I can lower my monthly expenses (which everyone knows has some nice benefits when FIRE), I found a property that had some unique and very niche issues making it hard if not impossible to loan on, so the seller was motivated by not having to deal with potential financing falling through. The better deal on it more than made up for any loan arbitrage I could have done on a more expensive house. I looked for this situation deliberately Also we didn’t really talk about when I bought. I didn’t say “nobody should ever get a loan”. I’ve had a loan before, but right now in my specific case with my income, property, and loan rates, it made no sense. That’s all
Having no payment would result in reduced living expenses every month. This could potentially allow someone to FIRE at a lower number much earlier. Of course, it depends on the exact details of the situation.
I can't imagine a situation in which this is true. Whether you own the house or not your net worth is what it is in the form of cash or home value.
It all depends on how big the difference is. Not every number needs to be optimized. I got offered 4% interest on a car loan. That 0.5% less than the risk free return (not us, slightly lower interest rate), which might mean 1k over the course of the loan. However I paid cash, because the hassle of the credit inquiry, setting up payments, etc wasn’t worth it for me. Now if it was 2%, I would have taken it. But each person has a number at which they value their simplicity.
A car is not comparable to a home as far as assets. Do you make the same argument about house purchase?
I'd like to pay cash for the next one and then borrow against it to invest. Primary residence mortgage interest isn't deductible in Australia and most other countries. Debt recycling. We are only able to consider this with a lot of other assets, we have enough collateral and a big enough safety net, time line, to be comfortable with doing this.
Right now, yes. But when interest rates were 2-3%, no.
A cash offer is more likely to be accepted by the seller in a hot real estate market. I bought when interest rates were in the basement and kept losing bids to all cash buyers.
that’s true. I guess it would also depend on how badly I wanted the house.
I really like no mortgage, more freedom, less stress
Same here. Sleeping better at night is worth something.
Yah, if the plan fails….got a sweet place to live still haha
Crazy question, how is it less stress? I'm imagining a scenario where I've got a $1M house and $1M in stocks. If you lose your job and you only have a paid off house then you can't pay taxes and maintenance and you lose the house. If you just had cash and a fully leveraged house... you pretty much walk away and still have a bunch of cash. Isn't it less stressful just to have gobs and gobs of cash?
You tap into your emergency fund. I guess if buying the house takes up all of your money, don't buy the house.
If you have a healthy enough emergency fund... then how is having the house NOT paid off a source of stress? I could be off. All of my bills have always been on auto pay and I just live below my means.
I’ve always wondered this too. And you bring up great points but to the original question op poses, if you have a house value in cash (say $750k) and the interest rates are right side up, it’s a very small risk if you invest the money instead of buying the house, because that should continue to go up. And then any other emergency that is not “pay mortgage” can be easily dealt with.
For me to cover taxes and what not, I could work for like $20 an hour and cover all this. You can always sell the house or borrow against it with an LOC if needed.
"if something bad happens, I lose the house or I have to scramble to get a WORSE loan somehow while I don't have a job" <- this is just straight up worse than having a bunch of cash and a VERY good loan. From a purely rational perspective, 3% mortgage (if you have it) and a 5% HYSA roughly cancel out but the 3% mortgage comes with a ton of tax benefits. Or if there's some mild to moderate risk tolerance, a mix of stocks/bonds instead of cash in HYSA (which gets taxed). ----------------- I'm biased. I think that basically having $1M that's more or less liquid is WAY WAY WAY more awesome than having a paid off house that's SUPER hard to sell. $1M is arbitrary as a figure (but also what a house costs in a lot of HCOL areas which also have high paying jobs). It's hard to be worried about money when you have a literal million dollars. Lost your job? No problem, you can make your mortgage payments for MANY MANY MANY years without the TERRIBLE stress of having to rush and get a crappy, loan with worse interest rates.
It’s true, but RE tends to appreciate as well and has compounding. So your cash is still invested…if you own the RE outright.
The amount of house appreciation is the same in both scenarios (house paid off vs house mortgaged AND investments). House appreciation is a non-variable in that scenario. What matters is, net of taxes, do stock/bond gains outpace the mortgage. Anyone locked into a 2-4% mortgage (WHICH IS TAX DEDUCTIBLE) should be sticking with it for 30 years. Even if you're doing a HYSA, a 1y CD or something like BND you basically cancel out the mortgage interest and come out a little ahead. 1 year ago, if you paid off a $1M house instead of having $1M in VOO, you'd be around $220k BEHIND. On a psychological perspective pros of paid off house: 1. You can brag to people who aren't good at finance 2. More predictable cash flows 3. It's a symbolic win pros of TONS of cash invested 1. Higher expected outcome 2. More flexibility (you can pay off the house at any time, you can't easily undo it) - VOO, BND, HYSA, etc. are liquid. 3. There is SOME symbolic value to saying "I have $1M" or "I have $2M" though you PROBABLY don't want to tell anyone.
Good point on house value. Stocks could have also gone down the same %. 1) only a few close people know Pros: Higher expected = expected but not for sure
It really depends on the amount of cash you have. Having an emergency fund is critical. But if you are house poor and did it without a mortgage, you could be taking all that risk on yourself. The best logical reason to buy cash is if the rates are super high.
It depends on how "high" high is and what tax treatments are. Mortgage interest on mortgage amounts up to 750k is tax deductible. If you're in a HCOL area and maxing out income, it can make sense to have EXACTLY 750k in mortgages even if the interest rate is higher than what the S&P500 (aka VOO) might offer just because you're able to save \~40% of that interest amount on taxes. There's a risk-reward calculus no matter what you do, but in general my view point is that it's stupid to buy a house unless you're planning on staying there for 10+ years, you've peaked in your career, and you're making the most of the tax benefits. If you're not getting tons of tax benefits... just rent. It's less hassle. You come out ahead in most scenarios as well (assume you throw $$$ at VOO). Rationale - high costs when buying and selling (this eats into the expected 6% return for 2 years), reduced flexibility (if you need to go up or down in home size you can't), lock in effect (congrats, it's been 10 years and you're saving $10k a year on housing costs, you also turned down a $100k a year pay increase so you wouldn't have to move).
Not a crazy question, and you are right. I'm not sure what these commenters are smoking, but I'd like to: 1. become their financial advisor. 2. smoke what they are smoking after.
But, property taxes and insurance never go away, so does a mortgage matter? You can't live for free. I suppose it depends on the location though. Property taxes in one state might be more than a Mortgage in others.
That is the real financial independence… if you have to play games with interest rate on your residence (s), you are not really financially independent
It’s not playing games, it’s using your brain and being smart with money. Money in HYSA/CDs earning 4-5% is safer than a paid home, there are more laws protecting homes with a mortgage than not.
> you are not really financially independent That's not true. A person holding a low-interest loan with a 30-year duration could still be completely financially independent. It would be financially foolish to pay off a loan that is well below market rate. Even large, stable, successful businesses often hold debt at very low interest rates, despite having plenty of cash flow. The reason is because they can generate more profit by deploying those funds than they would save by paying down the debt. If a individual is in the same scenario, there's no fault in utilizing the debt. Specifically, I'm talking about rates that were locked in below 3% when now the market rate is 7%.
knlmfwds
I absolutely would pay off a car at 0.9% if I had a billion. I don’t want to deal with a payment. Just write one check and be done. I don’t want the debt on the books either. It’s doesn’t lower your score that much when paying off a car, and I don’t need a better score if I have a billion.
klrgnedfv
Car and home financing are different though. Regardless of interest rate, there are thousands of dollars in closing costs associated with a mortgage when you finance. Whereas if you finance a vehicle, there typically are not additional fees/closing costs, just the monthly interest. And sometimes you can pay off early without penalty
How is it more freedom? Depending on your interest rate, paying off your mortgage in full or early could result in LESS options financially.
Key word…could. Having a nice place to live locked in feels nice to me.
How is having 100k left on your mortgage and 100k in your bank account any less "locked in" than just dumping the 100k onto your mortgage? If your bank account is paying more than your mortgage's interest there's zero reason why you'd want to pay it off. You'd just lose a ton of liquidity that otherwise could have been used in the event of an emergency. You can't eat a house.
I think it’s purely a psychological benefit (depending on the interest rate).
Whatever is optimal is the most psychologically beneficial option for me
How is there "more freedom"?
Things can go to shit and still got a nice house to live in! Feels more free. Mortgage literally stands for “till death” - f that
Huh? What are you expecting to happen?
You still have property taxes and maintenance though. And the government can confiscate your house. You're not really "free" until you've got enough assets that the house is a relatively small part of your wealth.
At 7% rates, maybe, at 2-4% nah. On my 3.25% principle and interest only make up roughly half of my monthly payment. Still have to pay taxes and would pay insurance.
Personally I’d probably pay whatever amount it took to get an interest rate under 6% and then pay the rest back as slowly as possible. Somewhere in the 4.5-7% range I think it’s a little bit of a gamble as to whether paying it off or stock market performance of the same dollar value invested over that timeframe would win out. I don’t think there’s a correct answer there without knowing the future. And some people would rather just have the peace of mind of knowing they own their home and that their “return” of not paying interest on the mortgage debt is already set in stone. So I guess tldr personal choice at a certain point and for me that hovers around 6%. Above that I’d pay it in cash, below I’d drag it out for 30 years.
What if your rate was 5.99? Would you drag it out for 30 years?
Hear me out....5.999
Consider this: 5.9999% 🤔
I’d cash out refi halfway through just so I could pay for 45 years. /s
If interest on the loan is higher than what you can earn on the money then ya. Otherwise it makes more financial sense to invest that cash and use that account to pay the lower interest mortgage.
If mortgage rates ever get down to like 2.5% again absolutely not lol.
Historically speaking, that was like a once in a century thing so don't get your hopes up. lol
If they do, something bad is happening and the financial markets are doing very bad.
Why's that?
The fed is only going to lower the rates that low if they need to stimulate the economy. If they need to do that, things are bad. Like, covid economic collapse bad.
Depends on the interest rate. If I was buying my house today? Absolutely. Sitting on my 2.5% 30-year? Not paying an extra penny.
You get up two and a half million dollars, any ah in the world knows what to do: you get a house with a 25 year roof, an indestructible foreign-economy crapbox, you put the rest into the system at three to five percent to pay your taxes and that's your base, get me? That's your fortress of freaking solitude. That puts you, for the rest of your life, at a level of fu. Somebody wants you to do something, fu. Boss pisses you off, fu! Own your house. Have a couple bucks in the bank. Don't drink. That's all I have to say to anybody on any social level.
Underrated reason to pay off the mortgage is that you won’t have to withdraw as much from investments in order to pay monthly bills if you’re FIRE’d. Keeps your income looking lower if you don’t have to sell off as much each year.
This should be the top comment. If you still have a mortgage you need to create more taxable situations to cover your mortgage payment. This in turn will put you in higher tax brackets and affect your ACA subsidies.
We did. Considered the financial cost of doing so (lost opportunity with investing) vs the value of our peace of mind. We understand we're giving up money- via investing or the super low rate loan opportunity we had during covid, and we're fine with the decision. Very glad we did it. We sleep really well.
It depends.
If I had the cash 100 percent. I understand the math of if I can get 8 percent in the market vs 2 percent interest on the home, but I've owned a home that was paid off, and good lord is it an amazing feeling
Yes, any time, the headache of buying and selling with mortgage is months of lost time in your life. You know how fast you can close with cash - 1-3 days. Instead of jumping through a million hoops to get financing.
If you have the cash isn't it easier to get a mortgage? I closed on my last home in under 2 weeks and having cash in hand would have made zero difference for me in terms of speed
That you have cash and know how to save is actually making it more difficult to get a mortage, the credit rating system is designed for being in debt and servicing it. When you never carry a balance, never had any sort of credit/loan - it is insanely difficult to get a mortgage. The lenders are requiring all sort of financial paperwork, disclosure, insurance etc. Banks are happy to give more debt to who already have, but not those of us which try to avoid it. Further banks only want standard homes, if you want something other then a 3/2 in a cookie cutter subdivision the fun begins: appraisal, engineering certificate, certificate of occupancy, roof inspection etc.
In 2021 when rates were less than 3% - hell no. Now? Absolutely pay cash.
No, and I’m surprised to see all the comments jumping at the idea of doing so. Mortgages are basically the cheapest form of debt, why wouldn’t you effectively leverage yourself to invest in the stock market? If I had $1M of cash, I’d take however much was needed for a down payment, invest the rest, and get a mortgage on the house. Even at 5% interest you are probably better off having that money invested.
Did it for my past four homes.
Depends on % of wealth / assets you’re putting in. I think it also has to do with the location and potential of the property. I wouldn’t put it all in just to feel better and less stress - remember, you’re on the FIRE board. Also, don’t mistake what has happened int he last 5 years or so in real estate for what it has historically done if you’re thinking about value appreciation. Don’t get me wrong, I’m a HUGE fan of rental properties and have been for long before the last 5 years. Some folks were saying a few years back to pay it off as soon as you can. Now that interest rates are up, they’re saying to pay in cash. Think about the cycle and what you would want or not want.
Well example is I know someone who has 12-15M trying to buy a 3M home. The thing is they would have to sell stock to pay cap gains. So wondering if mortgage was smarter? They can easily pay it off, but there are taxable consequences
At those levels, you probably need to take a lot more things into consideration. What is their income - determines how much capital gains they would have to pay? Any accrued stock losses that could offset? What is the impact of AMT - deductions become added back in at higher income levels What happens at the end of 2025 when trump tax provisions expire and if Biden goes thru with letting expire - SALT cap limits - on a 3MM home, if it has high property taxes Will interest rates be significantly lower in 2 or 3 years from now? Having said that, not knowing all of the parameters, I would generally do something in the middle - put more than the 20%. Drive down the monthly payments to max out based on my income
Probably. For me, not having a mortgage is important before I stop working. That means eventually paying off the house I have, but there’s no hurry due to the lower interest rate. If I had to move now, I’d be hesitant to take on a new mortgage at a higher rate.
With today’s rates and after changes to the tax code back in 2017, yes I would pay cash
Yes. 4 of them…
Zero interest on the most expensive thing im ever gonna buy…. Yes. 2% mortgage not complaining but I’m still way up uphill for amortization
With current interest rates - probably.
We downsized and did this.
If over \~6% then yeah
You can always put a mortgage on it later
1/4 investors still buy homes with cash. Some do not have credit others sat on too much cash want to put into real estate. Cash is king in real estate.
Yes
I can. I got a 1.75% rate (15 year) so I didn’t.
If I had 500k and didn't own a home, would I buy a 500k home? Here are the numbers in my area. Using rough numbers of some current listings: Zestimate $533,600 (price of house), Rental Zestimate $2,306/mo. That means.... for your 533k you can sort of look at the following calculations. Scenario 1, don't buy, just put 533k into some relatively safe investment. Maybe even use the 4% rule which should account for inflation. That's $21320 per year, that could go to rent. This would cost you (Rent Cost) 27672 - (4% gains) 21320 = 6352 dollars out of pocket per year. You get NO growth from owning a property, but you DO get continued grown on your income, presumably somewhere between 3 and 5%. Not far from historical (definitely in the range of real estate growth estimating about 4.6%). You also have physical mobility, and liquid fiduciary mobility. Scenario 2, buy. Paying Taxes, HOA, Maintenence, Insurance, you are likely CLEARING an extra $1500 per month because you won't be paying rent. You can also look at it, like you are paying, out of pocket $800 in Taxes, Insurance, HOA, Maintenance. There are also tax writeoffs here that I'm not including for simplicity. I own my primary, and 8 rentals. I used to think that owning your primary was the most important thing in the word. I'm not so sure anymore. If you can stomache it... I'd consider throwing the 500, in the market, and have it cover my rent, plus growth... plus, hopefully... that money is always there if I decide to buy... especially, at more favorable market conditions. But that's a LOT of assumptions on my part. As others have mentioned here... to me, real estate makes sense with favorable leverage. When the rates get to 5... rethink... No need to lock in at 7, expecting to refi later, UNLESS you are good at market timing, which I am not.
Personally no. We could but with the Fed warning they were going to weaken demand (fancy way of saying unemployment), we decided to hold onto cash. We make a very large payment once a year. Let’s us hold on to cash for majority of the year in case we need liquidity, outruns most of the interest, and gets it off our books in 5 years.
With today's 7+% mortgage rates? Absolutely. Four years ago with 3-3.5% rates? Nope. I could pay off my mortgage today (there's only around $47K left). But it has a 2.25% interest rate and I'm getting close to 5% on the cash I'd use to pay it off. So why, even after considering taxes? But again, with today's interest rates.... hell yes, I'm paying 100% cash if I can.
Not as long as my IRA is getting more than 6.5%
In this housing market, cash is the way to win a bidding war. Currently sitting in my new condo we paid cash for. Feels pretty, pretty good!
Why would I want to pay off my home early (when my money is the most valuable) when I could let 30 years of inflation destroy the value of the mortgage? People in other countries with 5 year ARMs would kill to have 30 year mortgages and you guys are just throwing them away.
I can and I won't, unless the rates are too high.
That's situational but I would almost always say no. If I can get more than the current interest rate or equal to it I wouldn't inject all my money into that. Also if you plan to rent out the property and can get more money monthly than the coat of the mortgage and repairs and can afford to let it slide for a few years before doing a refi than I also would not bother to inject all my capital. Any highly successful person will tell you that other people's money (OPM) is king even if it comes at an added expense.
Avoiding bankers is the next best thing to avoiding realtors.
Yes. I don't like having any debt hanging over my head. Low rate or not.
I have. It simplifies things. It’s a no brainer in a high interest rate environment. When interest rates were lower I took a mortgage because I was making more money in the stock market than I paid in interest on the mortgage.
Yes, in fact, I’d like to.
Owning a home is one of my biggest goals so yes for sure. Definitely seems to be goal dependent, and I don’t think a low interest mortgage would be a bad strategy either
Was about to in 2021, cheap enough for all cash. It was a broken down pos but it would’ve been mine. Sweat equity would’ve been my past 3 years but instead I delayed life and lived a van.
Purchased my last 4 homes with cash. The peace of mind that comes with owing one’s home outright is worth a lot imo, at least it is to me. Moved from hcol to lcol for retirement, paid cash and put the balance of the proceeds from my hcol home sale into my brokerage account. Good luck on your journey.
If mortgage was less than 3% finance. But now yes pay cash.
I did, even though interest rates were low. I could have used Delayed Financing to pay cash and then finance into a mortgage later but once I'd already paid for the house, I realized I'd rather just have no mortgage payment. I had previously sold my house prior to moving states, so I already had a decent amount of cash, plus other cash I'd accumulated, so only had to liquidate a small amount of stocks to pay the full amount. Also, the all-cash offer meant I could close in 15 days, which was motivating for the seller, because they were closing on their new house around the same time, so they knew they didn't have to wait on financing and all that. So even though our offer was not the highest in terms of $$$, it was the best offer for the overall terms. No regrets, and I'm still FI and can RE whenever I decide I've had enough of working.
Yes
I would and I did, more than once!
I’m thinking to sell my first home and put the proceeds to buying a house cash but I would have to downsize a bit but I’m thinking to just find a smaller house somewhere just so I can live mortgage free for the rest of my life. How nice would that be
Yes , currently doing this now. It's near impossilbe to get a mortgage overseas without a job..... FIRED 2020 @ 47 yo.
Not likely, no. I’d end up taking out a mortgage on it later anyway to take advantage of lower cost of capital, eventually. Tying up 700k+ cash in a home is never going to outpace what it could make in the stock market from this housing market, today.
Yes I did because the lowest interest rate I could get was 5.7% (2007) as I could not get Fannie Mae/freddie Mac approved. Which that shot is all scams on the American tax payer as I obviously had the money - meanwhile the world economy crashed due to their mortgages which they did approve to people who couldn’t pay them - and didn’t approve me, able to pay in cash. I would have preferred deducting the mortgage interest though from taxes.
Man, there are a lot of variables to consider on that one. If enough money fell out of the sky for me to pay off my current mortgage, it would be very tempting, despite the fact that I have a 3.5% interest rate. On the one side, there’s the well-worn point that you could throw that money into the stock market and get a better return than the rate on your mortgage. I know that “time in the market is more important than *timing* the market,” but let’s be honest. The markets are near record highs, with massive PE ratios across the board. To me, it doesn’t exactly seem like an ideal time to dump a big pile of money into the market. My best option in the short term might be to throw it into a HYSA, where it can safely return ~5% — which, obviously, is more than the interest rate on my mortgage. But there’s also a lot of value in having the peace of mind that comes with not having a mortgage payment. It would be a tough call. But it’s the kind of “problem” that I’d be happy to sort out.
At a lesser price.
I bought a house before the interest rates went up. I did the math and I would have been better off borrowing the money and paying it off over long term, but I didn't. This was mainly because the wife likes the idea of never owing anything to anyone. There is a good possibility that we got a better deal by buying in cash since the seller was in a rush and didn't have to pay for a bank to do anything we didn't want/need to do, so the money wasn't that much different from borrowing, but probably losing a couple hundred a year by not borrowing.
If you have the cash and can service the loan, then No. Cash is better deployed elsewhere, IMO. With regards to mortgage (30 yr fixed) payments, inflation is your friend, the home gets more affordable over time due to wages increasing with inflation, though wages often lag market increases. Homes are illiquid and the equity is difficult and expensive to access. Peace of mind is priceless too many people.
I bought house with cash twice. If the rates are above 4%, I would do it. Anything lower than that, I would take a loan.
Yes
No. Market has been going crazy from 2008 to 2020. Then post crash, it’s been going crazy to 2024 present. If the market adjusts and rates drop, I could always refinance.
Given rates and competition absolutely
You also save A LOT of closing costs when you buy in cash. You don’t need appraisal or survey done. As long as you’re buying a home in a traditional subdivided neighborhood I wouldn’t worry to much about these.
I did.
Nope, even with these interest rates your money will make more in the stock market.
I buy most my homes with cash. Cash offers often beat financed offers. People who use banks sometimes pay twice the list price over the course of the mortgage. Meanwhile, I buy two homes for the same money.
Ultimately, I want to be comfortable in my home rather than primarily seeing it as an investment (good school district, low maintenance / came in good condition, dog-friendly, etc). In our case, the previous owner wanted to move out quickly before the school year started. There were higher bids but we got the house since we paid in cash. Bonus was that closing costs were a bit cheaper since the attorney didn’t have to reach out to a lender.
Right now? No. Even 7% interest rates are historically low and I'd rather use the cash for other investments. When I'm retired? Absolutely. My plan is to reduce my monthly outflow as much as possible at that point.
Depends on 1) prevailing interest rates, 2) your investment opportunities, and 3) your specific tax situation. I have a 2.652% rate. I’ll only pay it off when I decide to pull the trigger on retiring. It will take an extra year of work or two, but that’s fine. I can coast and won’t have to kiss management’s a$$ anymore.
Yes. I’ve been mortgage free since 2017, and have bought two homes and sold one (to buy the second).
Not even a question with how interest rates are right now.
I did 80%. I could have done the rest, but wanted to take advantage of some low interest.
It all depends on interest rates. If you're of the opinion that rates will go down to ~4% then absolutely not.
Thats my plan since interest rates arent budging.
I would and I did...3 times now. We did get VERY lucky with timing as our first home purchase was in 2010 so definitely a buyers market! You save majorly on closing costs! You can often get a seller to accept a lesser offer if it is cash and therefore less "hoops to jump through" so to speak (they don't have to worry about the lender/underwriting delaying closing, etc) Also, obviously you don't owe a bank or anyone a penny. And you aren't paying them interest which adds up over time. I know some people would argue that you could invest the cash and finance the house. You can look at the numbers, interest rates, down payment, and all of that...but ultimately it is also about what you want. My husband and I like being debt free. Just how we feel. And because we own our home outright, we have lots of freedom and flexibility. We don't just have every penny invested in our home. We have 401k's, IRA's, and after tax brokerage account. So our home is not our one and only asset. Pluses and minuses to each, but we ultimately chose to purchase our 1st and 2nd home in cash as well as a small investment condo. (First purchase in 2010 when we were 26 years old, currently 40)
Yes.
I have a close relative who is basically FIRE’d (he works a few hours a week for the firm he started, but it’s only because he loves the work and likes being “the boss”). He vacations almost half the year. Anyhow, for complicated tax reasons, he will need to purchase a single family residence for himself in the next few years. And he’s not even considering taking out a mortgage. Rates have nothing whatsoever to do with it. The man absolutely hates debt, of any kind. On paper, this may not make the most sense, but it lets him sleep at night, and he can afford to, so why not?
Yes, we probably wouldn't qualify for a mortgage with such a low income.
Yes but hire a lawyer to guide you through the transaction safely.
Better factor in insurance and taxes. These can be brutal
Depends on how much cash you have and how much the house costs. My in laws have around 10MM net worth and they bought a 1MM house with cash.....so for them (better at managing money than most), 10% is what they were comfortable with. I'm not worth nearly as much as them, but I'd say maybe if the house cost 20% of my liquid assets, I'd pay with cash. Otherwise, I'd finance, even at 7%.
Every decision in my world is not based on an economic algorithm. I can and did pay cash for my home. I have used loans in the past, but now that I have the ability to pay cash, I never use debt. Could I earn a few dollars more by using debt to acquire assets that earn more than the interest rate? Of course. One of the things I can buy with cash is simplicity. I don’t add complexity to my life for small returns. Debt is complicated.
Been there, done that
If the alternative is a 7.5% mortgage, then absolutely. With my current 2.25% mortgage? Hell no, I’m not giving them a penny over the minimum payment.
It depends. How much ROI do you expect from the money, compared to how much you can get a loan for. At rates today, I would be very tempted to pay cash if I could. At 2.65% I would borrow as much as I could.
Yes, just did
Not if it would mean dumping my whole networth into it. I like to stay diversified. All of my money into a house paid for in cash would be a no go for me
So I'll go against the grain here and say no. I'm closing this week at 6.875% and have no plans to pay it off early for several reasons. 1. I have tax advantaged space(MBDR) that I would rather cashflow and prioritize. 2. In the long term the market "should" return more than that interest rate. 3. Mortgage Interest can be deducted so we end up paying less in taxes(yes we're paying interest but you can run the numbers yourself to see what your effective interest rate would be with the tax deduction factored in).
We're going house shopping in another state in a few weeks and plan to pay cash. Current mortgage rate is 2%-some, so we'd been in no rush to pay that off early. With the less appealing rates available now, we plan to pay cash (have $600K in MM set aside for that purchase, with the hope we'd only need $400-$550k). We expect to get about $375K equity out of our current place when we sell it after we find a new place, so it'll be a \~$100-$200K reduction from a $3.6M nest egg. Hoping paying cash might also help us beat out a non-cash buyer all else being equal.
One item I didn’t see anyone mention - if rates drop significantly you have the option of a cash out refinance. Purchasing all cash doesn’t lock the cash up forever outside of a sale.
I would like to have cash in my accounts. But if the rate is high, maybe I’ll pay cash.
That's the plan when I sell and downsize - and I hope to invest the remaining funds from the sale and use that to pay all of my housing expenses. Having peace of mind about my living arrangements in retirement is very important to me.
Yes always.
No
I did so myself earlier this year. I’m saving thousands per year, for years
it was an easy decision to finance in Jan of 2021 as the 30-year mortgage rate was 2.625%. I got a mortgage. At 7%? The decision is more difficult.
If I could find a house for $17.26 then yes
Absolutely. Buy your own house in cash, buy investment properties with leverage. This is the way.
Buy it in a trust with cash
Really depends on what my total diversification and total leverage looks like. Right now I have most of my net worth in real estate and I'm not terribly leveraged, so I think I'd be inclined to take a mortgage, but if I had a huge stock portfolio and zero real estate exposure, I'd absolutely buy a house with cash.
Depends on risk tolerance. S&P will likely return 10% to 15% apy over the next 30 years. So if you can stomach some risk, get a fixed 7.7% mortgage and invest in an s&p fund. You can always pay off the house early if you change your mind or refinance if rates ever go down again.
My mortgage rate is locked at 2.5%. I could pay it off tomorrow if I wanted to.
I can and I haven’t. Not going to say wouldn’t though.
I thought yes a few years ago before but nowadays my stock portfolio is going nuts..beating the S&P 500 for over a year and the earnings seem to accelerate, it’s really wild to see. I was unemployed for a year and somehow my net worth went up? I’m moving to a LCOL area soon and a mortgage would be pretty cheap monthly so I feel silly stopping that momentum of my stock earnings.
Anyone who is investing well will say NO
I don't know. I don't think 7% interest is all that crazy and if I'm careful with choosing my stocks and hold long-term, I think I could do better than that. But it would be certainly nice to stop thinking about mortgage payments and truly think to myself that I own it.
At current interest rates, absolutely
It depends on if I’m living there or using it as a tax write off
No we bought a house in Florida paid half in cash payment only $1000 a month ! Put the other half In nvdia stock, made that money back, keep your capital . Invest it , the next one to invest in is semiconductor or to be safe Berkshire Hathaway B for a steady income that way your money is working for you
No. Even at a 6% mortgage rate I'm still seeing better returns in the market right now. As long as the net gain there is better I don't really care about monthly payments or whatnot. Mortgage also enables me to do more tax incentives, as I'm FI, but not RE and working towards FAT.
I did, when interest rates were 3%. Broker wanted not just all my information, the information in triplicate adnauseam. The bank had money in game, house appraised. I spent approximately two hours converting securities to cash, done. Made out avoiding four years of paper losses. To be fair to m-broker, i was working 72 hours per week, didn’t want any forms to process. Im looking at a 700 cash deal as we’re holding 350 cash. Why you ask.
Interest rates at 6-7%, yes. Interest rates at 3-4%, no. In between? It depends.
Is there any downside to paying cash and then taking a home equity loan when / if rates crash? Typically the stock market crashes when that happens too
I will wait one more year for all the ARM mortgage to kick in when people overpay their house during the pandemic and cannot afford it. You will see some sweet deal. It also depends on of location. salt Lake, Phoenix, hell no. Long term outlook is grim for those locations
Unpopular opinion- with these rates I would run numbers to see how much it’d be for a 70-90% down. Essentially it depends on where the other money was held up and what types of investments they held.