buy or loan on personal residence

[Unregistered]

What are the suggestions out there on buying your home or
taking a loan> pros & cons.

Would it be worth it to mortgage so you could get the interest and tax
deductions. or be better of paying it off and saving all that interest!!!!!!!!!!!!

[Bird Legs]

Buy or Mortgage

This question is too opened ended. No information. What kind on cash position you are
in? Other liabilities? Income?
Remember this, though, that in order to save $0.15 in income tax, you have to spend
$1.00 in cash.

[Unregistered]

no other liabilites

It can be done either way. I have been given gifts over the year and think I could manage
to pay it either way..

[Braskin]

Mortgage vs Cash Purchase

As a general rule it is always better not to be in debt. If the funds are available to purchase a residence outright, there is nothing wrong with paying cash.You would save the interest and be able to invest what you would have paid into other things.
Recent news articles suggest that the home mortgage interest deduction may be changed to a tax credit or phased out all together. I have no idea whether or when this may happen.
Having said that, as long as you do not get in over your head, having a mortgage on your home is not so bad either. The interest is deductible. The tax savings will depend upon your tax rate each year, generally from 15-28%. Real estate taxes are deductible in any case.
The bottom line is that if you do not have a monthly mortgage payment that exceeds your means, you will not be hurt. You will wind up paying as much as 2 times the amount of the mortgage initial balance if you take the mortgage to its' term.

[jainen]

leverage

Also remember that leverage works both ways. You can buy more with a small down payment, but then if the housing market slips a little your home equity might be totally wiped out leaving you still owing the mortgage.

[Chief]

Mortgage or Cash Purchase

We are facing the same decision, but have decided to pay cash for a condo we are considering. Will be the first time we have owned a home outright. I must admit it is more for the feeling of security than looking at tax breaks.

[Unregistered]

home

Just remember that you really don't ever own your home, your just renting the property from the government, once you stop paying your yearly property tax, they'll take your home away from you.

[Bees Knees]

That can be said about alot of things. What good is your car if you don't pay the license tabs every year?

[Bees Knees]

My advise to clients when I get asked that question is to think about paying off your mortgage like investing. If you are paying 5% in mortgage interest, then any principal you pay is like investing it in a bank CD that pays 5% interest, fully insured and guaranteed. You are guaranteed never to have to pay the 5% interest on the portion of the loan you have paid off. What other investment can 100% guarantee that rate of return?

[dmj4]

closing costs

I would also factor in the additional closing costs associated with obtaining a mortgage. It could take a few years of income tax savings just to recoup those.

I have the "spend a dollar to save 15 cents, 30.3 cents, etc" with clients all the time about buying assets for business.

[Donanita]

Tax Law Changes

Also look at the new proposed tax law about mortgage interest deductions. Presidents's tax advisory panel wants to phase out mortgage interest deduction and replace with a 15% credit.Of course this may never come about as is a proposal.

[Unregistered]

Thanks for all your help with this.

[Joe Btfsplk]

Mortgage or no mortgage

Usually, if you have no mortgage, you take the standard deduction. If the mortgage interest results in only a slightly higher deduction than the itemized deductions, then you just get the incremental advantage.

In return, you pay a lot of interest for which only part increases your deductions.

The only way it would pay to take a mortgage rather than pay cash would be if you could get more interest by investing the money than paying it on the mortgage.

If you could invest it at 10% and could get a 5% mortgage, it would be feasable. If you had to pay 10% on the mortgage and only could invest it at 5% it would not be a viable option.

The only other consideration is that you probably should have several thousand dollars as a reserve for emergencies which could justify keeping some of the cash.

Another angle: if you had to withdraw the money from an IRA, especially if you had to pay the early withdrawal penalty, then it would be best to take the mortgage.