And then...there are market factors beyond our control. We sold our prior home in an improving RE market and also took cash out of our portfolio to build our present home -- just in time to avoid losing half of the portfolio in a crash.

Looking good for a few years...until the RE bubble crashed. IF we'd needed to sell our home then (as many heavily mortgaged owners did), we'd lose money on that end! So far we have been 'just lucky' -- owning RE that has improved in value -- while not being 'house poor' and while conservative investments have been paying very little.

As long as you can both eat cake and have money for the dentist, why not own outright in a time of low conservative gains? After we sold our prior home of 30 years I estimated we had made about 4% per year on it -- while having a place to live.

Is there an age limit for obtaining a mortgage? Higher interest rates if you're *old*?

As I stated previously I paid off the mortgage. I am also aware that there are many things that could prevent me from continuing to live here that are out of my hands. If the gov wishes to do a project in this area I will not recover enough to buy another house. The same with destruction by natural forces, earthquake, flood by heavy rain(considered the same as stream flooding for insurance purposes). If I ever have to purchase a new place to live I will purchase the best place I can afford and plan on still owing when I die.

When I see these things I don't know how to react. So let me just ask what I should do. I am an educator. I gave up my job to educate people, I have been involved with research and I still do it, but my real passion is teaching. Specifically, I teach finance and accounting (my PhD is in accounting, but I have significant finance experience).

I see someone who is making a statement that is not correct, the statement is a very common misconception, and many people who don't have a deep understanding of finance and economics share the same misconception. While this is something I would let go in a conversation, online forums reach so many people. So with every fiber of my being I want to correct it, I need to enlighten people, because I really do believe in the power of knowledge and want to help. But I also realize that there is a strong chance that I will offend someone, no one likes to be corrected. Even when I try to be respectful I am not sure it comes off that way. So what do I do? Too often, I just quit trying to be respectful and start being an ass. I know that is the wrong answer but I get frustrated too fast in on-line environments. So is the advice I posted actually helpful or should I just let it go, because sometimes I feel like I just galvanize opposition.

The statement in this thread was from emma - "I think for both of us it was for security." - I admit I was maybe more condescending than I should have been, but I still spent a lot of time and put a lot of effort into explaining. To which I get back, "The reason I do it my way is for peace of mind and security and no amount of discussion is going to change that."

I support anyone's right to do anything they want with their money. It is not mine and I will happily agree that you can do what you want with it. But there is more security in cash (I am talking about cash in an insured account). While I guess everything is up for debate, it is so fundamental it is hard for me to debate. Cash is the safest thing you can have because you can do anything with it. Furthermore, cash plus debt is safer than no cash and no debt.

This doesn't mean you shouldn't pay off your house, or that you should get debt because cash doesn't appreciate unless you turn it into something that is not cash, and debt costs money. But when you pay off your house because you don't want the mortgage hanging over your head you are trading away some financial security for peace of mind. When you pay off your house because your interest is too high, then you are trading away some financial security for financial returns. Neither are bad things by the way, in fact, I have often recommended those two things exactly.

Home Sweet Home. I wonder if that's at play in what I consider the big downside of reverse mortgages? The 'sell' is to enable older people to stay in their homes. However, many people really need the money because they are living beyond their means in that home, or they are one incident away from requiring a more appropriate home -- even assisted living/nursing care.

There are scoundrels and abuses in the reverse mortgage business, but I can cite an instance I think is relevent to think about concerning whether to have a mortgage or not.

I have a relative living well below the poverty line income-wise (no life savings and rather low social security) in a house worth more than $1 million. Don't get excited, a buyer would view the structure as a knock-down, but it's an old bungalow on a nice lot in a desirable urban neighborhood of California. How do i know they're living below the poverty line? Because I send them hundreds of dollars a month and pay all major bills. They refuse to take out a mortgage or a sensible reverse mortgage? Why? "Because I want the security of knowing the house is paid for". The reality is, it doesn't matter, because family members have and would continue to provide whatever support is needed.

It's not a always a question of living beyond means. Sometimes, there are no means to live on. But sitting on equity in a house for no reason is beyond ill-advised, it's stupid. But people do it for other reasons.

House prices go up and down whether or not there's a mortgage. You gain no more or less either way. From a dollars and sense perspective, it's a mistake. There's nothing more to say.

bry,

I think the problem is that when you think of security, you are just looking at the dollars and cents and the mathematical logic. It's purely numbers to you. (BTW - I'm the same for the most part)

But a lot of people blend the "peace of mind" concept into the security equation. It doesn't make logical sense. It makes emotional sense. Their peace of mind is derived from emotional well being as opposed to purely the numbers.

It's just like that popular financial adviser guy (I think his name is Dave something) who suggests that if you are attempting to pay off a bunch of different credit card debts, then concentrate on the smallest debt first and pay it off. Obviously, just looking at the numbers, that's bad advice. You should pay off the debt that has the largest interest rate.

But his reasoning is that the satisfaction of seeing one debt disappear will give you the incentive to keep going and pay off more.

So is it better to try paying off the bigger interest debt, but get discouraged and fall back into debt or pay off the smaller debt and stay motivated to continue? If those are the only two options (which is the case for a lot of people), then Dave's advice is good.

So continue to state the logical and 'right' way to do things, but try not to get discouraged when some people can't see it as the right way for them. The people who can see it from your point of view will, the people who can't won't and never will.

If you try to correct every single wrong statement that's made on the internet, you'll get crushed by that responsibility. :)

Snidely -- You present an interesting case for a reverse mortgage. (Of course your relatives don't need one when you are all enabling them. Ack! Families!)

I'm wondering if reverse mortgages appeal to seniors primarily for emotional reasons. People resist change, even when change meets needs better. Does keeping the family home forestall admission that one's needs *have* changed? Does leaving the family home mean that your good days are all behind you? What awaits is only illness and death? You could never 'be happy' elsewhere?

If people are able to logically look at living *well* in the family home for another ten years or more, the mortgage makes sense. However, I see people hanging on to houses that they cannot afford and that do not suit their aging needs, then moving anyway in a year or two.

I could never suggest a reverse mortgage. Eventually if the amount released is more than the house is worth the money can stop. Another problem is that taxes and insurance must continue to be paid. Our previous mayor took one of these mortgages and had his house sold for taxes. He was using it to pay for his wife's care.

maifleur, with all due respect, you're stuck with some misconceptions. Equity in a house is like a balance in a bank account. A customer can't continue to withdraw from an account when the balance has been withdrawn down to zero. And yes, taxes and insurance continue to be required when you own a house. How could it be otherwise? Like any loan, the borrower should take only what they can "afford". If the borrower's equity is exhausted, the bank will foreclose on the house to satisfy the loan investment. No surprise and it's not unreasonable.

chisue - yeah, really. The situation is very annoying. People do resist change but I don't accept that that's par for the course for seniors. Aging involves changes many struggle with or fight to avoid but most are unavoidable. Life involves changes too, sometimes ones that aren't desired, but that's how it is. I think those who struggle in their later years also never learned or were pushed to deal with change earlier in their lives. I'm willing to help to a point but ultimately I remain unsympathetic to those who unreasonably put others out because they themselves can't deal with the requirements of "life". That's the case for this person in many respects. To boot, a move out of the house is on the horizon for health and safety reasons and I don't want to think about what that's going to involve.

I just retired from one of the most well recognized financial services firms in the US. I was in Law, Compliance, and Business Ethics. It was absolutely a no-no for our Financial Advisors (FA) to use equity in a home to finance other investments. Of course, there are myriad ways around this, but those FAs who repeatedly helped clients finance investments with home equity got fired.

They were the ones who also tended to get sued a lot by their clients!

Why? I could write a book (and actually, I probably have written about a book about suitability of different investments for my firm). Long story short: you never know what an investment is going to do, nor when you will need to sell that investment to raise cash.

There are too many people out there who simply make terrible financial decisions or have horrible timing. We did not want to be responsible for those clients losing their homes as well as their money.

Of course every situation is different. I am speaking quite generally.

The big trade the past 5 years has been in energy stocks. Good yield for those seeking income, oil was on a tear at $100 bbl. We have many clients invested in the shale plays, or oil services stocks, MLPs, stuff like that. Where are those portfolios now? Down about 30, 40, or even 50%. Clients who can wait it out still are collecting their earnings every quarter. But if you have to sell for some reason, all those losses are instantly realized.

My firm was not about the warm fuzzies of home ownership. We were about the reality of the way the majority of people in the US go about their financial affairs. For the majority of cases - lets say 80% of the cases that crossed our desks in the compliance department, the right move was to pay off the mortgage.

First some definitions...

Financial security - Basically this is financial safety, it is simply the idea of how insulated you are against financial hardship. A great way to think about financial security is, how much can you spend on a life saving medical procedure that is not covered by insurance. While there is a number portion to that, how comfortable you are with that number is the personal non numerical aspect of financial security. Financial security plays into financial freedom.

Financial freedom - Essentially this is the power to use your money the way you want to increase your quality of life. While security shields against worrying about unexpected expenses, freedom lets you use your money the way you want to enjoy life. Again while we can produce hard numbers, there is a personal bent to how happy you are.

Financial planning - This is really the things we do today to ensure our future financial security and financial freedom. Again, numbers are fine, but this is a personal choice.

Now on to the argument...I apologize if this gets rude.

The big trade the past 5 years has been in energy stocks. Good yield for those seeking income, oil was on a tear at $100 bbl. We have many clients invested in the shale plays, or oil services stocks, MLPs, stuff like that. Where are those portfolios now? Down about 30, 40, or even 50%. Clients who can wait it out still are collecting their earnings every quarter. But if you have to sell for some reason, all those losses are instantly realized. - THIS IS NOT RESPONSIBLE INVESTING, IT'S SPECULATING. These are inadequately educated fee seeking salesman taking advantage of people who don't know any better. The bane of my existence...These are the people who ignore the weight of efficient market hypothesis, Modigliani-Miller, the negatives of marked to market accounting and debt securitization, just to generate fees by guiding people to risky investments. If this is the way your brokers advised clients then they didn't fire enough of them.

Investing for 99.975% of the population should involve properly diversified, age appropriate, goal oriented, broad market investing, which will mostly be mutual funds for anyone under $10 million in the market. The above "warning" about using your home equity for investing simply doesn't hold up to the math. Forget even the safety of age appropriate, simply investing in the DJIA for any 10 year period since the depression will have increased wealth far greater than buying a home. Furthermore, there has never been a substantial broad market dip that didn't coincide with a housing dip. Even if you were to lose money in a broad market investment, that dip would coincide with a housing dip.

To everyone out there, if your investment guy starts talking about returns well above market, telling you about this "sector" you need to be in, or something that he sees in the market that he is amazed that other people don't see, get your money and run away as fast as you can. To slightly modify and quote Snidely "[For most people wealth] will result only from making the effort to consistently put away savings for that purpose over the course of your working lifetime." Snidely and I annoy each other occasionally, but that is absolutely one of the most true and brilliant things ever said on this board. If your investment guy has a shortcut to wealth, what you really need is a shortcut to another investment guy.

Aside from all this, we really barely got into investing, on this thread. It was more about liquidity and security.

jn3344, were you in the Compliance department of a brokerage firm or other business earning transaction fees? The kind of practices you're talking about (borrowing on a house to make highly speculative investments) are those that result in lawsuits and fines from regulators. It's more about the preceding than issues of good investing practices and approaches and personal money management.

There's room in most portfolios for some higher risk investments. Investing IS speculating. I agree with bry, I'm not sure how to describe putting money into oil stocks back when crude was at high levels as being much other than not very smart.

bry, you don't annoy me, I just like to redirect your steering when you start to doze and begin to cross over the double yellow lines. Personal financial management more often requires pick and shovel basic work than rocket science.

Snidely, we both stated the same thing until I added the warning about some not knowing about the taxes etc. Seen several people that did not understand what they were doing with these reverse mortgages and/or equity withdrawals.

I worked in the real world for decades. I have seen a lot of things. I am not going to argue with our resident experts about this.

I hereby declare this thread 'over'. Now...shall I start a thread asking advice on investments for old people like my DH and me -- mid-70's? The current market plunge would seem to offer an opportunity to buy a whole market fund -- but I don't know how to do it!

Investing IS speculating - Sometimes the English language and our need to develop synonyms makes words insufficient to the task of communication. In the common usage you may be correct, but to speculate means to predict without evidence. I am not sure that all investing is speculating. At some point investing certainly becomes speculative but I think it is safe to say that a significant amount of investing is based on evidence. But I think we all understand my meaning even if the words are insufficient descriptors.

I worked in the real world for decades - Where do you think I worked? Having accumulated enough real world success to retire, and no longer wanting to live abroad, I decided to come back to the U.S. and change careers. The implication otherwise is just that, an implication.

I know I was rude, I am sorry. But just to reiterate, how questionable your warning really was. I can't even find any evidence to support your cautionary tale about Energy stocks and the oil and gas market. The Vanguard Energy ETF which is 99.7% oil and gas with .3% coal has a 5 year growth of 35.63% - so $1,000 invested would be worth $1353.60 (hardly the loss you warned of). The Fidelity Select Energy portfolio has a 4.79% annual return so the same $1,000 invested would be worth $1,263.50. In fact, the *MSCI IMI for energy has a 36% growth. Even though I would consider all of those to be speculative investments reserved for sophisticated investors, none are the cautionary tale you needed. To get the investments you need to prove your point you must go into Unconventional Energy ETFs and that goes beyond even speculation, that is simply gambling.

*Information on the MSCI IMI can be found here.

@ chisue - At mid 70 I am not sure I would do a broad market index. But someone who is more familiar with your financial situation should be able to shine some additional light. I can add more value by offering opinions on the advice you got rather than initially advising you, there are simply too many unknowns. Your bank may have an investment professional you can meet with.

However, if you are interested in a mutual fund, I prefer the Vanguard funds. You can see the entire fund list here. I like their GNMA fund (here), and I love their targeted retirement accounts for hassle free investing, and really also like their managed payout fund (here).

You can buy a mutual fund directly from the fund. Or you can buy Exchange Traded Funds (ETF) these are funds that are traded just like stocks. You can usually buy these from any brokerage, including the online brokerages.

One more word of caution. Like everything else, moderation is important. Many people advise that you invest only what you can afford to lose, but better advise would be the higher risk your investment is, the longer you need to be able to live without it. Nothing beats time in the market, when you don't have time, you must lower your expectations. Finally, diversify, there is a saying about a lot of eggs in one basket, it holds true for investing.

If you want some advice, I'd tell you... for credit purposes, a Mortgage is almost irrelevant. Really.

Almost all Credit Scoring, is based of a few simple factors. Average Age of Open Account (meaning the "revolving" & "installment" trade-lines on your credit report) , Utilization (which is debt to credit ratio.) & Payment History (If you've never missed a payment, your golden).

For Credit Purposes alone. I see NO REASON, to get a mortgage whatsoever. Your better off, having credit cards (preferably opened 5+ years ago) with low utilization ($10/$15k limit, $800/900 spent) and paying in full, every single month on time.

I'm barely twenty, have four credit cards... and I have a 776 Experian FICO. Not too bad, for a kid with no mortgage, or student loans. And.. if I wanted to get a mortgage or auto loan tomorrow, I'd qualify for the best of rates.

I'd personally, save myself the hassle of all that paperwork, and another bill. Not to mention the interest on something you didn't even want to begin with. :-)

If you want some advice, I'd tell you... for credit purposes, a Mortgage is almost irrelevant. Really. -

From everything I know and have read, this is not correct. Credit companies publish data on things that effect your score and all note that credit mix is an important element of scoring. You will get dinged for not having a mix of installment loans and revolving credit. From all indications you are dinged more by only having revolving credit, than only having installment loans so I would say that for credit purposes a mortgage is much more relevant than credit cards.

Credit scoring isn't simple, if it were it would be replicated and although I won't say it hasn't been replicated, I will say that thousands of attempts at replication fail every year. There are a few simple things you can do to improve your score, but among those are a balanced credit profile.

The Ding... Isn't significant enough to worry about however. We're talking about 10-14 points MAX. If your score is already high, it's not something to worry about.

Obviously things, depend solely on the OP's situation. But... I don't think OP... should personally worry about a mortgage, if they already have a solid, thick credit file.

It's also worth noting, all of there previous mortgage accounts and/or installment loans, will report on there Credit Reports for 10 Years after they are closed. And... Despite being closed, the good payment activity will be factored into the scoring.

They'll lose 3-7 (FICO 08) Points, for close to a year, for the Hard INQ... on all of the bureaus... and that's assuming they only apply to one Bank for a Mortgage. If one applied for five or six, or rate shopped, the effect could be enough to drop a 750's score, to the low 710's.

Additionally, the new installment/mortgage loan will drop there credit score, an additional 10-12 FICO Points, for the period of about 6 months, for opening a new account.

So... when you ask, me, if it's worth all the trouble. I don't personally think so. If the OP has a long established, credit file... mixed with a good amount of healthy credit cards & past real-estate/auto loans... I don't think it' something they should worry about.

But that's just me.

One *good* thing, OP could do, is be added on (As a Authorized User) all of the healthy, established credit cards, their spouse/partner has. And Vice Versa.

Most of the Major Credit Card Companies (American Express, Bank of America/FIA, Citi Bank. Chase, Wells Fargo, US Bank) will report the full account history on the authorized user's credit report.

And.... This will help boost scores tremendously in a lot of cases.

There's 3 Major Credit Bureaus (Equifax, TransUnion, and Experian) and everyone can access them, once a year for free at www.annualcreditreport.com

Like I said, if the OP has a very established, thick credit file. I'd imagine, as long as payments have been made on time, and all of there accounts we're well established, they'd already have enough history, to have a good score.

And these day's... very little human underwriting is involved. ALMOST all of it, is based of FICO Scores, generated by credit reports, which are reviewed by computers, to spit out instant decisions.

If OP's score's are in the 740 Range or Above.. I wouldn't worry about a mortgage, and wasting all that time and money. I'd save my time, and put the closing costs & all that other crap into a high-yield savings account.

First, as discussed above, mortgages are not wasting money. Currently mortgages are sitting at a point above the risk free rate. Without even noting that a mortgage today will most likely be below the risk free rate in five years, they are still an incredibly good deal. So the idea that mortgage interest wastes money is countered by a little thing called math.

Second, free credit reports don't include FICOs, and while helpful, without having access to your actual score, they are not very helpful. They are really only good at good for finding mistakes.

The ding for mixed credit can be a lot more than 10-14 points. That is the point of an algorithm. It is not simple addition, the "ding" of one particular item on your credit report is dependent on the other items on your credit report. But I can personally tell you that I had a client, with good history and utilization, who jumped 54 points by refinancing a home.

Additionally, you are assuming the OP has good, well established credit now. And while things continue to effect your score for 7 years (not 10) they have a diminishing effects as they age, a great 6 year old payment history will not get you a good score. In fact, you can easily drop from good to bad in a few years. Not to mention, that all payment history is not equal, good and bad installment payments have a larger magnitude than good and bad revolving credit reports.

Edit: Finally, the above discussion is about insurance, which uses an insurance score not the typical FICO. Revolving credit has significantly less effect on the insurance score algorithm than installment loans, the insurance scores attempt to weight for risk seeking behaviors (credit cards) and stability behaviors (installments).

Dear Experian,

How do I have old credit card accounts that are long ago closed or paid off removed from my credit report? I know that my score is negatively affected because of so many “open” accounts!

- EDC

Dear EDC,

Your credit report reflects the account history. Therefore, credit card accounts remain on your report for a set period of time — even after they are closed and paid off.

First, you may want to check and see if the accounts are being reported as closed. Even though you think you closed them, they may still be open in your creditors’ records. And, that may not be a bad thing. Rather than being a negative, having open credit limits can lower your utilization ratio and help improve your scores.

Even if closed, the accounts that have no late payment history remain on your credit report for 10 years from the date closed. As long as the positive information remains, it contributes to a stronger credit history. So, removing those accounts early actually could be harmful to your credit scores.

If the accounts have negative information in the payment history, they will remain on your credit report for seven years from the original delinquency date of the account. The original delinquency date is the first missed payment after which the account was not brought current.

Accounts with negative information are deleted sooner than accounts with no negative history, helping you rebuild your credit faster if you’ve had problems in the past.

Thanks for asking.

The “Ask Experian” team

But I can personally tell you that I had a client, with good history and utilization, who jumped 54 points by refinancing a home.

That must have been a "FAKO" Score, instead of FICO. You'd be penalized actually, for opening a new account, not rewarded instantly. Now, 2-3 Years down the line, I could see a 25-33 point score jump, maybe... But, nothing like that. There's got to be more than one factor in that 54 points.

Notice how the two biggest ones are amounts owned, and payment history. Followed by AAOA. Those are the three big ones to worry about. Heck, if there not credit seeking, or seeking out a new mortgage, they'll be able to save 10% of there FICO... just by doing that.

FICO Score's are literately the only thing that matters these days. I say this because, I know they've almost completely eliminated human underwriters and replaced them with Computers. These computers, just take a look at the FICO, and then make instant decisions.

Honestly, I thought the whole point of this thread, was OP asking how it'd effect there credit. I didn't think they we're actually looking for tips or tricks on investing. But... I wanted to give a sound answer.

I hope this helps them :-)

Your above link is not what you said, you said - "It's also worth noting, all of there previous mortgage accounts and/or installment loans, will report on there Credit Reports for 10 Years after they are closed." Is not the same thing as, "Even if closed, the accounts that have no late payment history remain on your credit report for 10 years from the date closed."

Here is the part that is published after your chart (The very important part that you didn't link)

Your FICO Scores are calculated based on these five categories. For some groups, the importance of these categories may vary; for example, people who have not been using credit long will be factored differently than those with a longer credit history.

The importance of any one factor in your credit score calculation depends on the overall information in your credit report. For some people, one factor may have a larger impact that it would for someone with a much different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO® Scores.

Therefore, it’s impossible to measure the exact impact of a single factor in how your credit score is calculated without looking at your entire report. Even the levels of importance shown in the FICO Scores chart are for the general population, and will be different for different credit profiles.

It is nearly impossible to find the importance of a single item for people who have non-standard accounts and credit. You can take a statistical approach and say for the average person X has Y effect, but you can't easily do the same for every individual. So as someone starts avoiding debt and moving away from standard modeling the magnitude of these effects become more serious. Not to mention that staying on your account for X number of years ignores magnitude. Just because 10 years ago you closed 5 accounts with no late payments doesn't mean that those things will be significant enough to positively effect a significant gap in credit history. Something that I can personally speak to.

I was in the Middle East for many years and after a while maintaining U.S. debt became a hassle. We retained light credit activity but nothing substantial. The sudden drop in credit activity blew over 100 points off my credit. Even though I had tens of thousand dollars in open U.S. revolving credit accounts and never had a late payment in my entire life. The gap in my credit activity that blew over 100 points...36 months. So please tell me again exactly how those 10 year old closed accounts are going to save your credit.

I mentioned countless times this all depends on the OP's situation, and how "thick" there file is. I wasn't giving a one-size-fits-all answer, I was just attempting to explain what the average effect would be, for someone there age.

I attempted to give a real insight on his this works, not some corrupted-one sided view from a Mortgage Brokers opinion. Obviously, it's not worth my time though to explain this any further.

I can also state very quickly, someone I have helped, has nothing but Credit Card history.. going back to 2002. And they have a 841 FICO-08 Score.

Obviously, Credit Cards work. But then again, what do I know?

First, as most know, I am not a mortgage broker, I am an accounting professor, who is also a CFP. I am the furthest thing from a mortgage broker.

While I am very anti-FICO and have published articles saying so. I am of the opinion that credit is a simple process - it is exactly like landscaping - it requires a lot of effort in the beginning, followed by regular maintenance over an extended period of time, any lapse in regular maintenance requires a lot of effort and time, essentially starting the process over. While there are tricks and shortcuts, they rarely add up to simply maintaining a good, smart and balanced credit profile.

There are situations where one only need to maintain credit cards, and others may respond favorably to more installments. In the end, we know balanced works, while either extreme may, or may not, work.

In a vacuum maintaining a home mortgage just for insurance would hardly be worth it. But we don't make decisions in a vacuum. The interest rate, average rate of return, possible tax benefits, cash inflows and outflows, as well as credit effects should be considered when deciding whether or not to obtain a mortgage.

I'm not sure when some people decided that managing a credit score was something everyone should do. I don't think it's necessary at all, although the 20 year old expert seems to have a strong opinion contrary to mine.

Here's how you manage your credit rating: Don't live beyond your means. Don't sign up for payments or create monthly obligations via credit or other means you can't afford. Done!

This is a good discussion. For the sake of argument, may I pose a simple question that goes back to the OP's original question. Let's say that a person wishes to buy a $350,000. home. He could pay cash for it or take a mortgage. He hates the idea of monthly mortgage payments and has no other debt. He is 55 and on track for saving enough for retirement whether he buys the house outright or takes a mortgage. Although he hates the idea of any kind of debt, he understands that many would advise he take a mortgage, for the tax write off if nothing else. For you experts here (not the 20 year old), what percent of cash/mortgage would you advise?

So the mathematical answer here is - 80% mortgage and 20% cash down, assuming he can make the payments OK. However, life can't always be broken down into math. For example, while I can usually prove mathematically that a 30 year is better than a 15 year mortgage...I have never felt comfortable with a 30 year mortgage, I prefer a 15 year. Really the only reason is that I like the way the progress "feels" - my principle seems to drop just enough every year that I feel I am making real progress towards a payoff. So...

You want to keep at least 20% down to avoid PMI, although there are other mortgage tricks to get you out of PMI, I prefer a simple 20% down.

Don't take a payment you are not comfortable with. If I was 55 and had to pick between a smart financial move to build wealth and a decent discretionary budget, I would pick the decent discretionary budget hands down.

I prefer 15 year to 30 year - but that really is a personal preference more than advice.

As for the mortgage interest deduction - one problem with low rates is low interest charges which means you don't have a lot of interest to deduct. So the answer to this depends on marital status and current deductions. Assuming married filing jointly the mortgage interest on a $280,000, 15 year loan isn't going to be enough by itself to put you above the standard deduction. On the other hand if you are already getting close to the cap of the standard deduction or already itemize then it can be a pretty compelling reason to finance.

Wow, so you'd mortgage that much? I had thought the advice would be the opposite: 80% cash; 20% mortgage. I (oops, he I mean) have more study to do on this matter. But I also hear you on discretionary spending.

For a person who hates the idea of a monthly mortgage payment, and any kind of debt, obtaining a mortgage for the tax write off is not a reason for any percent of mortgage. Its not a calculable question, your person wants NO mortgage.

No, I am not sure I would mortgage that much. I would pick a payment that I was comfortable making and that is the amount I would mortgage. As I said, life is not math.

The tax deduction is a reason to get a mortgage, or at least a part of the mortgage decision, as are many other things.

Just to be clear I hate monthly mortgage payments and car payments. But that doesn't make me incapable of understanding when a mortgage is advantageous.

I just wanted to add a rebuttal to the idea that this is not a calculable question - It may not be a calculable decision but the question certainly is calculable.

Let's do that:

If you wanted a $1,003 mortgage for 15 years ($144,000 loan - lets assume $2,000 origination fees and $142,000 cash left) - your payments would total $180,540. If you were to invest the $142,000 in a broad market mutual fund, using the S&P 500 historical rate you would have about $593,169.

But suppose you want to be conservative, so lets use only 65% of the historic rate - you would have $365,201.

Now suppose you don't want to wait until you are 70 to pay the house off, since you plan on retiring at 65, lets say after 10 years of conservative returns you decide to pay off the house. Well, after you pay off the house you will have $210,900 from $120,360 in payments.

Lets look at it a different way. How low would the average annualized return need to go before you lose money on the deal? The break even percentage is 1.61375% (1.8275% adjusted for the common capital gains tax, but not mortgage interest deduction). You might think that is not possible, but that is the power of compounding interest. Your loan is effectively going down over 15 years while your investment is compounding.

These things don't tell you to get a mortgage - they help you make an informed decision. I don't believe there is anything wrong with looking at these numbers and deciding it is not worth it. I strongly believe there is something wrong with refusing to look at them. I want people to make decisions they are comfortable with...But be informed.

Edit: I didn't use tax effects in most of these, but I also didn't use the mortgage interest deduction. For most Americans capital gains will eat 0 - 15% of the increase (feel free to look up your capital gains bracket).

bry911 - still rambling?

The "person" hates the idea of a monthly mortgage payment, and any kind of debt, that kind of person should not obtain a mortgage..

Your calculations are meaningless for that "person", see how simple it is... and no, I didn't read your calculations, not useful for the "person" in this discussion..

cmarlin20 - still righteously wrong?

I hate a mortgage and the idea of any monthly payment! Yet I have some.

I hate cutting the grass, cleaning out the gutters, raking leaves, waking up, going to the dentist, driving to work, going to the grocery store, paying the cable bill...the list can go on and on. Yet I do all of those things.

Hating something, even hating the idea of something, in no way means you will not do it. To pretend otherwise is the most ridiculous and childish thing ever. We do things every day we don't like because the benefit is simply strong enough to overcome the discomfort.

The real kicker here is, your position is already included in mine. "Don't take a payment you are not comfortable with." If you are not comfortable with any payment after informing yourself then you will opt for no mortgage. So, essentially, you added nothing to the conversation at all.

Not to mention that, as evidence of the poster wanting the information, there is the fact that they asked for it!

I don't want to argue with you, you gave an ill-thought-out opinion, that I submit that neither you nor anyone else on planet earth adheres to, presented as if it were the word from on high.

If you have something substantive to add, rather than just agreeing with what I said more righteously, then let's continue the discussion. If not I will consider this matter closed.

Edit: I apologize to everyone including cmarlin20 for the rudeness of the above post, but I am simply tired of getting trolled into silly arguments for presenting information, especially when that information is asked for.

No one is "trolling" you into arguments. If you ever figure that out, your posts will be more welcomed.

Saying something that no one would ever believe, in order to generate a response is trolling. Unless you are telling me that cmarlin really believes that no one should do things they hate. Not to mention the tone of the comments...

"bry911 - still rambling? " - and - "Your calculations are meaningless for that "person", see how simple it is... and no, I didn't read your calculations, not useful for the "person" in this discussion.."

When my calculations were in response to:

"Although he hates the idea of any kind of debt, he understands that many would advise he take a mortgage, for the tax write off if nothing else. For you experts here (not the 20 year old), what percent of cash/mortgage would you advise?"

This post is exactly what I have been talking about, with all of those facts and my points, you chose to point at me, saying that I am a problem. Great, don't listen. In fact, I know it makes me an ass but I love the idea that there are people so trapped in their own uninformed opinion that even facts can't begin to dig them out. Find the problem with the advice I gave, then come back and talk. But stop the ad hominem attacks. I am an ass, but my advice is still spot on.

I'm one of those who wants no mortgage in retirement. Investing money to yield more than the mortgage rate requires that money to be invested and left there for at least some period of time. But having a mortgage increases monthly expenses substantially. So unless one has a pension, then money has to come out of some investment (savings, mutual fund, 401k) every month to pay the mortgage and can't be just sitting there earning. Also, the mortgage interest is front-loaded, so in the first many years, one is paying lots of interest and little principal. Investments, in contrast, earn at a steadier rate, so even at a favorable rate higher than the mortgage, investments income can't balance the interest out-go in the first, say 10 years or a mortgage, correct?

I would agree with you, Mary.

If you are in the accumulation phase of your life it can make sense to use your income to pay a mortgage and keep your other money invested for the long term. For one thing, most younger people don't have the option of buying a house for cash anyway. So the choice is either a mortgage or keep renting.

People are going to find that what may make perfect sense to one person doesn't make sense at all to them. One thing is certain - things happen. And every day there are people who find themselves in a position where they have to liquidate assets to raise cash and they can't choose to wait out a stock market correction, or a drop in bond prices. Every day this happens to somebody.

Very wealthy people often have a lot more options and their money problems are different. For most people in retirement, with little in the way of new money coming in, you have more options for dealing with uncertainty if your house is paid off.

Good luck.

The idea of front loaded interest on mortgages is a bit of a misconception, while you pay more interest in the early years that is only because you owe more money (If you have a 3.9% mortgage then you pay 3.9%/12 on the outstanding balance you owe each month). While that may sound pertinent, the discussion is really about effective interest versus compounding interest. As you pay on your principle you pay less interest, so over time the interest charges are smaller because your principle is smaller. While on an investment you start with a principle and if left alone for some period of time the interest continues adding to the principle and therefore pays more interest.

This discussion is largely around the idea of people who have some income coming in and some ability to make payments. While, I could note that guaranteed payment annuities are about equal to house payments, they are no more liquid than houses so not really an investment that is better than a house. In the end, we are discussing people who want to be done with the headache of a mortgage and not people who simply don't have the income to continue paying a mortgage.

Edit: It is also important to remember that a 15 year mortgage doesn't mean you have to make 15 years of payments. Making even a few years of payments before liquidating the investments to pay off the balance will typically result in gains. I think a lot of people focus too much on the stress of coming up with the money for monthly payments and forget that any time you get tired of stressing over payments, you can simply liquidate your investment and pay off the loan.

While I have said the same thing jn3344 has many times, I have a completely different conclusion. When you have a paid off house and little money in the bank you have no options for dealing with uncertainty. Cash gives you options, the farther you get from cash the less options you have, and nothing is farther from cash than a house.

Think of it this way. My father was just this week presented with a treatment option for a medical condition that was not covered by Medicare, the time sensitive treatment was going to cost $35,000, but it would greatly improve his quality of life. What allowed my father to make that decision was having access to $35,000, if he paid for his house outright and didn't have any money then he couldn't make that decision. Now suppose spending this $35,000 means my father will not be able to continue paying his mortgage and will have to move out of his house into a smaller apartment. I feel confident he will tell you walking around his smaller apartment beats not being able to walk around his bigger house.

Edit: Many people have a false sense of security from a home. The only real security a paid off home provides is the equity (the access to cash). Homes are fairly inefficient domiciles, the taxes, maintenance and less efficient utilities minimize any real savings over renting. The path to homeless has nothing to do with a paid off house and a lot to do with not enough cash.

If this old fart were considering owning a home (which he isn't) and could pay cash for it and have minimal cash on hand, or take out a mortgage while keeping a substantial fund invested, thus available in case of need, he'd figure that he had a problem.

When I'm driving ... I prefer to have a substantial cushion around me, even though it often means that another vehicle moves into the interval between mine and the vehicle in front of me: much less risky that way, I figure. I like to have options.

I much prefer to have a financial cushion available in case of possible emergency, perhaps a major, maybe unforeseen need. Again - I like to have options, don't like being tied into few choices - or only one.

I live in Canada, so have fewer potential health-related costs than do many citizens of a nearby country: recently paid under $100.00 as my share of a $1,250. injection to treat cancer, needed 4 times annually. I prefer that extra maneuvering room available if I had some cash or near-cash available in case of emergency.

If that equity were all tied up in a house, maybe I could use it as collateral to take out a loan ... but if I had few cash reserves available, that might be a tough sell to my local bank, being that I'm a retired guy. Even though I live within my pensions' income, so income from investments is not currently required: is more or less "play money" (until I may need them for health care, or a residential or nursing home, etc.)

Actually, I've had an almost entirely unused, secured line of credit, for a number of years, and asked to remove some of the collateral, to give to a charity, largely to reduce my income tax load. The bank said that would, in effect, close out the account, thus return all of several pieces of collateral to me, but I have not decided to do that. Even trading another equity for the piece that I want to remove will close out the account, so I'd be, in effect, opening a new account, which would require an interest rate at a higher percentage above prime rate than I'd enjoy now, being grandfathered into my current account.

To open an unsecured account, which the rep suggested, largely in the light of my having let it lie unused for years, would require an even higher interest rate.

But, were I lacking measurable assets ... would a line of credit be available?

Or, especially were I in poor health, could I get a loan, to tide me over until I might be able to sell the house, to deal with an emergency ... or to live on, for that matter.

As I said - whether driving, or managing my assets - I prefer having several options rather than being stuck with only one course of action.

ole joyful

Thank you for your reasoned responses, bry911. I'm grappling with this exact question. I'd originally planned to pay cash for our retirement house, but was wondering if that was a smart financial move since rates are so low. Thanks to your posts, I'm more informed.

bry911, I just want to say that in my opinion you have not come across in a negative way here to emma or anyone else. emma knows how she wants to lead her life and may not want to have her mind changed, and that's fine. However, you are at the same time addressing an audience of who knows how many people who are not she and who will benefit from what you have to say, and learn something they might not have known before which may have a considerable impact on their lives. Everyone has a unique financial profile, and what is stated here by a knowledgeable person will be grist for the mill of someone, and perhaps quite a large number of someones. We are in essence getting free financial advice and food for thought from a number of people here, and it's up to us to evaluate it and use it or not as we see fit. I feel the ability to do so is a privilege and want to thank everyone who takes the time and trouble to post here, with no financial remuneration, and perhaps having to put up with some "attitude" every once in a while. You're much appreciated.

I too found Gardenweb today in a search for mortgage advice, and I found
bry911. I was amazed at how thorough his advice is. I
was also amazed at the reception it gets.

I think it has to do
with who he is talking to. He says he is an instructor but it is pretty obvious. He turns a simple question into a
broader lesson. While most people here talk to each other bry911 seems
to address the readers. This creates a different tone and seems to
make people uncomfortable. I think some of that goes away when you understand what he is doing.