to have No mortgage Or Mortgage? which is better?

Question

Is it better to have a mortgage on a house and if so why ( financially , investment, appreciation etc)) , or is itbetter to have no liens on your property and not pay any mortgage

Answer 1

I have owned houses both with and without a mortgage. I much prefer to not have a mortgage.

Answer 2

It is a personal choice. I can provide some things to consider. Only you can decide for you.

1. If you own your house free and clear you have little in the way of monthly expenses to have a roof over your head. Some people really value having no mortgage.

2. The house is a fixed asset and is rather visible in a law suit. Having a lot of cash tied up in a home means a lawyer working on commission knows you are worth suing if there is a reason to sue. having a mortgage is not better, you just look a little less wealthy.

3. If you can invest the money at a decent return for a reasonable risk then maybe you should. A loan secured by your primary residence is going to have almost the lowest rate possible when borrowing as a consumer. It is not that hard to find investments that pay a higher rate of return.

4. Assuming you are in the US the interest you would pay on the mortgage can be tax deductable up to a limit. Hence you may find the after tax cost of a mortgage to be even lower than the interest rate implies.

5. There is no difference in the appreciation rate for the property.

6. The use of leverage (having a mortgage) can magnify the rate of return you earn on your equity. Hence it can appear that you are earning a much better return than the appreciation rate if you measure the cash-on-cash return (return on equity). There is an implied assumption that if you pull out the equity you will invest it somewhere else.

Simple example. If you own 1 property that is worth $100K and there is no mortgage you are earning the appreciation rate assuming that the property is maintained and it appreciates. If you took out $50K and purchased a second property with a $50K loan on it then you would have a better return on your equity as you would be earning the appreciation on both. I am assuming that there is a tenant in the 2nd and they are paying enough in rent to cover the total debt. Maybe a big assumption but I wanted to use a 'simple' example.

To summarize some of the key features of the example:
Two properties, each worth $100K so $200K total with a total of $100K in equity and $100K in debt between the two. You live in 1, a tenant in the other and they are paying enough to cover the $100K in debt.

There are lots of details and some other advantages plus disadvantages. Bottom line is there is only one right answer. The answer that you feel best about after you have rationally looked at the details and the alternatives.

I happen to have more than one property and see debt as a tool. Neither good or bad. Just a tool that helps me accomplish what I want to accomplish.

Answer 3

This depends on many factors including your tax bracket, your income and your personal preferences. If you can get a loan and pay interest in the range of 5.5-6% and then deduct that interest, you may actually be able to invest the money and earn a higher rate of return than you are paying. One way to wisely invest it is to pay off higher interest debt. If you have high interest credit card, auto loan, or other personal debt it would make much more sense to pay off those debts with a tax deductible, low interest, mortgage. Even if you do not have high interest debt, you may be able to invest in a quality mutual fund and earn 6-8% or more on your borrowed money. You are receiving an net of 2-3 points per year and it operates as a forced savings plan because you HAVE to pay the mortgage. All of this depends on your personal comfort level with carrying debt and investing. Some people simply like the piece of mind of having a free and clear deed.

Answer 4

I'm liking no morgage.

Why pay interest to the man, if you can get out of it.

Of course if you think that paying interest and then deducting it is a good deal by all means make that circle a few more years just for the fun of it.

It has no affect at all on your appreciation.

If you will be flat broke, then home maintenance could be a problem, so consider if you will need to liquidate any of the money in your house. then you are back at square one.

Answer 5

Well the idea of no mortgage sounds great, the tax benefits outweigh when you have a mortgage. Most mortgage consultants will tell you its best to always owe something on your property.

Answer 6

it depends on what you are trying to do. If you need the flow to invest in other properties, then you will want the mortgage to free up those funds and acquire more real estate.

Answer 7

In short; your equity does not pay you any interest. Use arbitrage to increase your assets by borrowing on your home and investing elsewhere. To make money on your investment, you need not have a higher rate on investment as you pay on home loan. You can not take your equity with you; use it while you can.