7 ms·

If you buy a house and pay off the mortgage, once you're older and don't want (or aren't able) to work any longer, you can live in your house for the cost of yo

If you buy a house and pay off the mortgage, once you're older and don't want (or aren't able) to work any longer, you can live in your house for the cost of your utility bills. If you don't own a house, you still have to pay rent.

warkdarrior 11y ago
And property taxes.
- Someone1234 11y ago
  And routine maintenance and repair (e.g. complete roof replacements every 20 or so years). Owning a home is super expensive even without a mortgage. So even going into retirement with a paid off house, you'll still want to set aside a decent pot of gold to keep that house "going" even aside from utilities (some of which are optional anyway, like cable/landline).
scarmig 11y ago
Alternatively, you could save the $200k down payment, invest it, and invest any difference in lower monthly expenses to end up with a pretty nice nest egg after 30 years, and live off the capital gains.
- stank345 11y ago
  You mean a $20k down payment, right? Most of us aren't buying million dollar homes...
  - tootie 11y ago
    Not just the downpayment. If your monthlies are lower you're earning interest on those savings as well.
  - guelo 11y ago
    Most of us aren't buying $100k homes either. National median home price is $219k. In the Sillicon Valley area it's $900k.
    - stank345 11y ago
      Yeah, I just figured it was a typo. It begs the question though: what percentage of us are putting 20% down?
  - calbear81 11y ago
    $20k would mean a $100k house which is hard to buy in most mid-size and larger cities unless you're willing to live a bit more remotely.
  - scarmig 11y ago
    200k is downright ordinary in the Bay Area, unfortunately. But, yeah, some places have lower typical down payments, but rents tend to also decline commensurately with home prices. Roughly speaking.
- vidarh 11y ago
  Consider the purchase a hedge against faster house price growth. For the last 7 years, I've paid 1.09% interest on my mortgage (I'm in the UK; Bank of England rates are at 0.5%), while house prices have kept increasing . Which means that with repayment, I'm paying half as much as I would if I was renting. The rest is free for me to invest... It very much depends on where you live, and how the markets develop what pays off. But I'm very happy I bought. If you buy your house as an investment, it's a big risk. If you buy it as a hedge, and intend to stay long term, it's generally pretty cheap insurance against getting priced out of the area you want to live in.
  - scarmig 11y ago
    The answer is always very much it depends, of course! And I'm in the process of purchasing a house myself, so I clearly don't think it's an insane decision. It is, however, more complicated than the train of thought that says, "After 30 years, you'll own your own place, instead of having thrown away hundreds of thousands of dollars to a landlord."
deleted 11y ago
[deleted]
api 11y ago
"and pay off the mortgage" In most large metro areas this is impossible for ordinary mortals without a liquidity event or a very high income. We are still very much in a housing bubble being driven by insanely cheap money -- near-zero or even <0 effective central bank interest rates. The only places housing is affordable are places where there are no jobs.
- hga 11y ago
  "No jobs" strikes me as too strong a statement. Too few jobs from too few employers, especially specialized one like ours, is probably more accurate. And therefore a potential need to move to another area where there is a job needs to be factored in.
- claar 11y ago
  I don't understand what you mean. Paying off the mortgage is a big reason to buy vs rent. If you can afford the mortgage payment, then in 30 years, you own the house. If this is impossible for ordinary mortals, how are ordinary mortals buying houses? I ask as a small city homeowner, so forgive my ignorance of the metro area real estate world.
  - ryandrake 11y ago
    I don't think "ordinary mortals" in, for example, the Bay Area, consider their mortgage something they'll ever pay down completely. 30 years may as well be forever, and a lot of people I know refi over and over to stay on the treadmill. This is why in a market downturn, people end up underwater, losing the house.
- a_c_s 11y ago
  "ordinary mortals" who can make their payments on a 30 year mortgage will have it paid off in 30 years.
  - bshimmin 11y ago
    Exactly this - if banks didn't think people could pay off mortgages, at least some chunk of the people, they wouldn't be offering them. I agree that buying a house in central London (for example) is probably outside the reach of mere mortals, but I think that problem occurs several steps before the "paying off the mortgage" bit applies! Many very interesting replies to my initial comment; it certainly is useful to see things from a different perspective.
delbel 11y ago
You're going to be in a big surprise when your property tax bill comes to mostly fund trillion dollar public retirement pension accounts. Property taxes of typical city can run up to $200 or $400 a month.
- OneOneOneOne 11y ago
  Rent will increase to reflect that change.
  - log_n 11y ago
    But when you rent you have the option to move to another city if you don't like how your tax dollars are being managed. Especially when you are retired/unemployed and thus don't have to worry about living close to your job. You don't even have to move far necessarily depending on the type of tax you are trying to avoid.
    - vonmoltke 11y ago
      Moving is a very disruptive life change, becoming more disruptive the longer you have been at your current location. It isn't something to be undertaken lightly, so it would probably take a significant move in property taxes to induce one to move.
      - subsection1h 11y ago
        Moving isn't very disruptive for me. Since 1995 I've moved once every couple of years and have lived in 6 states and 12 cities. Working remotely has made this super easy.
        OneOneOneOne 11y ago
        Sounds like fun. Not trying to be nosy but did you make the move with children? (How did you help them adjust?)
        11y ago
hga 11y ago
One thing you can do while still somewhat physically able, or perhaps with getting help from neighbors, is a large garden. Right now I'm living with my father, and we have some neighbors who moved here after Hostess died. They have a big garden, which my father and I help with in various ways; they get a lower cost of living, we get wonderfully fresh veggies.
rbobby 11y ago
Just to jump on... houses require maintenance. About 1% of the house value per year (roof needs replacing, hvac needs fixing, etc etc). If you skimp on maintenance the value of the house declines, possibly a lot (a leaking roof or basement can cause serious damage over time).
- OneOneOneOne 11y ago
  I think this is true for basic maintenance. Repairing something broken or about to cause problems like a roof is necessary. Beyond that I've noticed that house price seems to depend more on location than overall condition. There doesn't seem much financial incentive for homeowners to update their house.
bemmu 11y ago
So basically if you make an investment, you'll be better off than not making one if everything goes well. I can agree with that. But why a house? I could just as easily say that if you take a loan to get a McDonald's franchise, then once that's paid off you'll at least have that store. Or the same logic for any other investment. And the counterargument would be that you don't want to be fully leveraged because there's some risk involved in that. In the case of a loan maybe something will go wrong and you won't be able to afford the payments. Or maybe a new opportunity arises and you don't want to live in that town anymore and need to sell, possibly at a loss. Maybe I actually should go out and buy a house. I just get this feeling that I don't really fully understand all the risks involved in this decision.
- OneOneOneOne 11y ago
  Advice I give is to buy a house once the cost of owning the house is lower than rent. What I learned the hard way is to not buy more than you need.
- bshimmin 11y ago
  You can't live in a McDonald's franchise. You can obviously sell it and buy, er, a house though!
peter303 11y ago
In some areas the 3% property tax approaches the 3% mortgage rate. Your housing costs are only halved by paying off.
- vonmoltke 11y ago
  Those aren't equivalent. Mortgage payments include principal as well as interest. Interest is only paid on the outstanding balance, not the full, current value of the house. Even at 3% APR, the mortgage payment is typically 2 - 3 times the amortized tax payment. The actual separation depends significantly on mortgage term, value financed, value movement since purchase, and homestead laws.

warkdarrior 11y ago

And property taxes.

Someone1234 11y ago
And routine maintenance and repair (e.g. complete roof replacements every 20 or so years). Owning a home is super expensive even without a mortgage. So even going into retirement with a paid off house, you'll still want to set aside a decent pot of gold to keep that house "going" even aside from utilities (some of which are optional anyway, like cable/landline).

scarmig 11y ago

Alternatively, you could save the $200k down payment, invest it, and invest any difference in lower monthly expenses to end up with a pretty nice nest egg after 30 years, and live off the capital gains.

stank345 11y ago
You mean a $20k down payment, right? Most of us aren't buying million dollar homes...
- tootie 11y ago
  Not just the downpayment. If your monthlies are lower you're earning interest on those savings as well.
- guelo 11y ago
  Most of us aren't buying $100k homes either. National median home price is $219k. In the Sillicon Valley area it's $900k.
  - stank345 11y ago
    Yeah, I just figured it was a typo. It begs the question though: what percentage of us are putting 20% down?
- calbear81 11y ago
  $20k would mean a $100k house which is hard to buy in most mid-size and larger cities unless you're willing to live a bit more remotely.
- scarmig 11y ago
  200k is downright ordinary in the Bay Area, unfortunately. But, yeah, some places have lower typical down payments, but rents tend to also decline commensurately with home prices. Roughly speaking.
vidarh 11y ago
Consider the purchase a hedge against faster house price growth. For the last 7 years, I've paid 1.09% interest on my mortgage (I'm in the UK; Bank of England rates are at 0.5%), while house prices have kept increasing . Which means that with repayment, I'm paying half as much as I would if I was renting. The rest is free for me to invest... It very much depends on where you live, and how the markets develop what pays off. But I'm very happy I bought. If you buy your house as an investment, it's a big risk. If you buy it as a hedge, and intend to stay long term, it's generally pretty cheap insurance against getting priced out of the area you want to live in.
- scarmig 11y ago
  The answer is always very much it depends, of course! And I'm in the process of purchasing a house myself, so I clearly don't think it's an insane decision. It is, however, more complicated than the train of thought that says, "After 30 years, you'll own your own place, instead of having thrown away hundreds of thousands of dollars to a landlord."

deleted 11y ago

[deleted]

api 11y ago

"and pay off the mortgage" In most large metro areas this is impossible for ordinary mortals without a liquidity event or a very high income. We are still very much in a housing bubble being driven by insanely cheap money -- near-zero or even <0 effective central bank interest rates. The only places housing is affordable are places where there are no jobs.

hga 11y ago
"No jobs" strikes me as too strong a statement. Too few jobs from too few employers, especially specialized one like ours, is probably more accurate. And therefore a potential need to move to another area where there is a job needs to be factored in.
claar 11y ago
I don't understand what you mean. Paying off the mortgage is a big reason to buy vs rent. If you can afford the mortgage payment, then in 30 years, you own the house. If this is impossible for ordinary mortals, how are ordinary mortals buying houses? I ask as a small city homeowner, so forgive my ignorance of the metro area real estate world.
- ryandrake 11y ago
  I don't think "ordinary mortals" in, for example, the Bay Area, consider their mortgage something they'll ever pay down completely. 30 years may as well be forever, and a lot of people I know refi over and over to stay on the treadmill. This is why in a market downturn, people end up underwater, losing the house.
a_c_s 11y ago
"ordinary mortals" who can make their payments on a 30 year mortgage will have it paid off in 30 years.
- bshimmin 11y ago
  Exactly this - if banks didn't think people could pay off mortgages, at least some chunk of the people, they wouldn't be offering them. I agree that buying a house in central London (for example) is probably outside the reach of mere mortals, but I think that problem occurs several steps before the "paying off the mortgage" bit applies! Many very interesting replies to my initial comment; it certainly is useful to see things from a different perspective.

delbel 11y ago

You're going to be in a big surprise when your property tax bill comes to mostly fund trillion dollar public retirement pension accounts. Property taxes of typical city can run up to $200 or $400 a month.

OneOneOneOne 11y ago
Rent will increase to reflect that change.
- log_n 11y ago
  But when you rent you have the option to move to another city if you don't like how your tax dollars are being managed. Especially when you are retired/unemployed and thus don't have to worry about living close to your job. You don't even have to move far necessarily depending on the type of tax you are trying to avoid.
  - vonmoltke 11y ago
    Moving is a very disruptive life change, becoming more disruptive the longer you have been at your current location. It isn't something to be undertaken lightly, so it would probably take a significant move in property taxes to induce one to move.
    - subsection1h 11y ago
      Moving isn't very disruptive for me. Since 1995 I've moved once every couple of years and have lived in 6 states and 12 cities. Working remotely has made this super easy.
      - OneOneOneOne 11y ago
        Sounds like fun. Not trying to be nosy but did you make the move with children? (How did you help them adjust?)
      - 11y ago

hga 11y ago

One thing you can do while still somewhat physically able, or perhaps with getting help from neighbors, is a large garden. Right now I'm living with my father, and we have some neighbors who moved here after Hostess died. They have a big garden, which my father and I help with in various ways; they get a lower cost of living, we get wonderfully fresh veggies.

rbobby 11y ago

Just to jump on... houses require maintenance. About 1% of the house value per year (roof needs replacing, hvac needs fixing, etc etc). If you skimp on maintenance the value of the house declines, possibly a lot (a leaking roof or basement can cause serious damage over time).

OneOneOneOne 11y ago
I think this is true for basic maintenance. Repairing something broken or about to cause problems like a roof is necessary. Beyond that I've noticed that house price seems to depend more on location than overall condition. There doesn't seem much financial incentive for homeowners to update their house.

bemmu 11y ago

So basically if you make an investment, you'll be better off than not making one if everything goes well. I can agree with that. But why a house? I could just as easily say that if you take a loan to get a McDonald's franchise, then once that's paid off you'll at least have that store. Or the same logic for any other investment. And the counterargument would be that you don't want to be fully leveraged because there's some risk involved in that. In the case of a loan maybe something will go wrong and you won't be able to afford the payments. Or maybe a new opportunity arises and you don't want to live in that town anymore and need to sell, possibly at a loss. Maybe I actually should go out and buy a house. I just get this feeling that I don't really fully understand all the risks involved in this decision.

OneOneOneOne 11y ago
Advice I give is to buy a house once the cost of owning the house is lower than rent. What I learned the hard way is to not buy more than you need.
bshimmin 11y ago
You can't live in a McDonald's franchise. You can obviously sell it and buy, er, a house though!

peter303 11y ago

In some areas the 3% property tax approaches the 3% mortgage rate. Your housing costs are only halved by paying off.

vonmoltke 11y ago
Those aren't equivalent. Mortgage payments include principal as well as interest. Interest is only paid on the outstanding balance, not the full, current value of the house. Even at 3% APR, the mortgage payment is typically 2 - 3 times the amortized tax payment. The actual separation depends significantly on mortgage term, value financed, value movement since purchase, and homestead laws.