How much is too much house?

[bushwacked]

We bought a new house a couple months ago for for ~25% under our max loan approval. We think we scored on a house as we paid about ~40K than what it is worth. I think we were being conservative as I was ready to pay about 70-80K more for a house....(instead of having 2500 sq feet we only have about 2000). We have a good rate and were prepared to put more of our income into a mortgage and have things be pretty tight for another year or so.....I still think we should have maybe done that.

 

While house prices have dipped everywhere else, they haven't here....I'm pretty sure I was being ultra-conservative in my new house purchase, but compared to some of the things I've read here I'm apparently taking a big risk....I don't see it that way though...and I didn't see it that way when we bought our first house and made an easy 12% return per year over a period of 5 years.

 

I will say if we lived in a lower cost of living that we would be more apt to have one more child instead of being on the verge of saying one is enough...but meh.....I love my child to death and get to gaze at Mount Baker everyday from my home office window.

[I Like Soup]

We bought a new house a couple months ago for for ~25% under our max loan approval. We think we scored on a house as we paid about ~40K than what it is worth. I think we were being conservative as I was ready to pay about 70-80K more for a house....(instead of having 2500 sq feet we only have about 2000). We have a good rate and were prepared to put more of our income into a mortgage and have things be pretty tight for another year or so.....I still think we should have maybe done that.

 

While house prices have dipped everywhere else, they haven't here....I'm pretty sure I was being ultra-conservative in my new house purchase, but compared to some of the things I've read here I'm apparently taking a big risk....I don't see it that way though...and I didn't see it that way when we bought our first house and made an easy 12% return per year over a period of 5 years.

 

I will say if we lived in a lower cost of living that we would be more apt to have one more child instead of being on the verge of saying one is enough...but meh.....I love my child to death and get to gaze at Mount Baker everyday from my home office window.

I mean, really...all this speculation about what your house is worth...as long as you can afford it and you got it for a reasonable price and plan to stay in it for a while...SCREW EVERYONE ELSE. Someone could tell me my house is worth what I paid for it 5 years ago and I would be like "so". I'm not going anywhere.

 

Sorry Grunge.

[CaP'N GRuNGe]

I mean, really...all this speculation about what your house is worth...as long as you can afford it and you got it for a reasonable price and plan to stay in it for a while...SCREW EVERYONE ELSE. Someone could tell me my house is worth what I paid for it 5 years ago and I would be like "so". I'm not going anywhere.

 

Sorry Grunge.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

:irishwink:

[I Like Soup]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

:irishwink:

 

Did I mention I have NFL Sunday Ticket this year and you and Alexa are invited...

[bushwacked]

I mean, really...all this speculation about what your house is worth...as long as you can afford it and you got it for a reasonable price and plan to stay in it for a while...SCREW EVERYONE ELSE. Someone could tell me my house is worth what I paid for it 5 years ago and I would be like "so". I'm not going anywhere.

 

Sorry Grunge.

 

 

Yea...I guess I'm just wondering how bad some of this advice would have been for my parents, who are on the last 10 years of their 30 year loan. The house won't be paid off until 2018, but they both retired 5 years ago. They are paying off the remnants of a mortgage; their house is worth more than 4 times they paid for it, and we are in a borderline recession. It's all where you live... People who can afford to live in better areas, tend to move there.

 

I could understand if you want to be cautious in areas where people tend to move away from at any given opportunity. The Mountain West and Pacific Northwest are heads and shoulders above the rest of the nation for quality of life, I don't even think it's close; and neither does the free market.

Edited June 24, 2008 by bushwacked

[AtomicCEO]

I could understand if you want to be cautious in areas where people tend to move away from at any given opportunity. The Mountain West and Pacific Northwest are heads and shoulders above the rest of the nation for quality of life, I don't even think it's close; and neither does the free market.

 

I've been around the world, and I-I-I... I love the Denver area. And real estate here is comparatively cheap. There's no way I'd pay 2-3X as much for a house my size just to live near the Pacific Ocean. Plus, I don't have earthquakes or Paris Hilton.

[SheikYerbuti]

The Shiekette and I bought too much house, but we're confident we'll grow into it.

[montster]

The Shiekette and I bought too much house, but we're confident we'll grow into it.

 

that would go for about $150k where we live.

[rocknrobn26]

that would go for about $150k where we live.

 

I does have a nice proximity to the train.

[Big Country]

I found this article to be fitting given this thread Of particular interest was the commentary on the tax breaks, as so many people talk about that as a major reason to carry a mortgage.

 

Financial planner Nancy Langdon Jones of Claremont, Calif., likes the idea of having her home paid off before she retires. Her husband, actor Claude Earl Jones, would rather have the money invested than tied up in the house. "For my husband, it was very important that he could look at his brokerage statement and see that the money was there," she says. "I wanted to know that if something came up we wouldn't have to worry about the house payments."

 

After sitting down with a financial planner to get a neutral, third-party view, the Joneses found their compromise: downsizing to a smaller house (with a more manageable mortgage payment) while keeping most of their savings in their brokerage account.

 

Their struggle illustrates a divide in the financial planning industry. Should you own your home free and clear before you retire? Or is it better to keep your mortgage and invest the money elsewhere at perhaps a higher return while reaping the mortgage-interest tax break? Here are factors to weigh when deciding which path is right for you.

 

Compare interest rates.

 

The typical 30-year, fixed-rate mortgage interest rate is currently 6.57 percent, according to the Mortgage Bankers Association. If you are getting a higher average rate of return on your investments elsewhere than your interest rate, it makes sense to keep your mortgage. Just over half of affluent baby boomers born in 1948 who have both mortgages and investable assets of at least $1 million do not plan to pay off their mortgages until their 70s, if ever, according to a recent survey of 500 people by investment management firm Bell Investment Advisors.

 

"Mortgages help free up funds that otherwise would be tied up in property ownership for investment in equities," says Jim Bell, the firm's founder and president. Investing in the stock market money that would otherwise be tied up in home equity also gives you the option of raising cash to deal with unexpected expenses like medical bills or even rising gas prices.

 

Pay it down.

 

If you're not sure whether you can achieve a higher return in the stock market or aren't willing to take the risk, then you should prepay your mortgage principal as you approach retirement. "We don't know what the earnings are going to be in the market," says Vern Hayden, a certified financial planner and president of Hayden Financial Group in Westport, Conn. "The guaranteed return on your money is the interest you were paying" on the mortgage.

 

Refinancing from a variable-rate loan to a fixed-rate mortgage can give you a better idea of what your payments will be in retirement. Brent Neiser, a certified financial planner and a director of the National Endowment for Financial Education, recommends paying down principal above your monthly payments when you can. "Adding money at your discretion gives you the ability to stop that when times are tighter," he says. On a $150,000, 30-year mortgage at 6 percent interest, paying just $100 extra per month would save you $45,000 and allow you to pay off the debt seven years sooner than following the normal payment schedule.

 

Don't rob your retirement plan.

 

According to the most recent Federal Reserve Survey of Consumer Finances, 32 percent of households headed by someone age 65 to 74 were carrying home-mortgage debt in 2004. It can be tempting to dip into your 401(k) or IRA to pay it off. But mortgages shouldn't be paid off in the absence of other savings. "You need to have a balanced approach of keeping that retirement savings robust and also have regular savings for emergencies so you don't turn to the credit cards if your refrigerator or furnace breaks down," Neiser says. Also, pay off higher-interest debt like credit cards and car loans before your mortgage. "If you have your money tied up in a paid-off mortgage, in order to access that equity which is in your house, you have to go pay the bank to get your money [by refinancing the loan]," says Elisabeth Plax, a Beachwood, Ohio, financial planner and wealth manager for Plax & Associates Financial Services. "If you invest it, all you have to do is liquidate it" by selling.

 

Consider tax breaks.

 

The interest you pay on your home mortgage is tax deductible on up to $1 million in debt. You can also typically write off interest on up to $100,000 of home-equity debt. But you benefit from this tax perk only if all your itemized tax deductions, including your mortgage interest, add up to more than the standard deduction that almost everyone gets automatically. For 2008, the standard deduction amounts are $5,450 for singles, $10,900 for couples, and $8,000 for heads of households.

 

Jonathan Pond, a financial planner and author of Grow Your Money! 101 Easy Tips to Plan, Save, and Invest, argues that you need to be in the 35 percent tax bracket, or make at least $350,000 annually, for the tax break to be worthwhile. Most Americans in the 25 percent tax bracket might pay, say, $10,000 in mortgage interest but save only $2,500 in taxes.

 

Look at the emotional aspect.

 

Some 16 percent of workers and 10 percent of retirees think making mortgage payments or paying for a house is the most pressing financial issue facing Americans today, according to an Employee Benefit Research Institute survey done this year. But knowing that you own your home can give you a sense of stability in retirement--security that the possibility of stock market gains will never be able to. "Paying off the mortgage is going to reduce their need for cash flow when they go into retirement," Hayden says. "I just think people ought to get out of debt because times are so uncertain, and the less they are shackled, the better they are going to be able to deal with whatever their problems are going to be."

[Ursa Majoris]

Yea...I guess I'm just wondering how bad some of this advice would have been for my parents, who are on the last 10 years of their 30 year loan. The house won't be paid off until 2018, but they both retired 5 years ago. They are paying off the remnants of a mortgage;

Exactly what I'm trying to avoid. I am intending retirement (at least partial) and the end of the mortgage to be fairly close.

 

Although I have no idea if I'll be able to realize that retirement aim given the current outlook. Probably be pushing carts around at Target when I'm 83.