A question for the financial gurusPrev TopicNext Topic

• Teddi

  

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  May 30, 2014, 8:15 am

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  To the financially savvy lottery post members, I have a quick question for you. Is there any circumstance where it's better to have a mortgage than buy a house outright?

  There have been so many lottery winners who lose their homes due to foreclosure because they missed mortgage payments, I had to ask. So many of us would love to win the lottery just so we can pay off our mortgages. I'm not getting why anyone would give away thousands of dollars in interest to the banks instead of just paying for the house in full. Why would a person who just got $50 million deposited into their accounts, take out a mortgage on a $2 million house? Isn't the key to get out of debt and stay out of debt??
• bigbear29

  

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  May 30, 2014, 8:57 am

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  I'm not a financial person but, I think you should not have a mortgage and no debt.  Also have money in another account to pay your property taxes every year. Be on a budget, know what you can spend per year.
• wildbillyloco

  

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  May 30, 2014, 9:20 am

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  ?NWRDOING  I  AM WHAT

  "it ain't rocket science.....it's harder"
• savagegoose

  

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  May 30, 2014, 10:10 am

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  here where i live

  on investments , interest payments are tax deductible and capital gains is a better way to earn than in interest income.  so its tax effective to have a mortgage, on investment property. especially if you are on  the high tax rates.

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• bluerain

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  May 30, 2014, 10:11 am

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  i  would  never  have  a  mortgage, you  gain  interest  on  your  money in  your  account,   plus  u  own it, u  always will  have equity,its   yours, people  are  just   greedy  they  dont  want  to  pay   cash,  they  are  stupid.
• whiteballz

  

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  May 30, 2014, 10:14 am

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  it depends on someone's risk tolerance. Everyone is different. It's not only lottery winners who can take advantage of this but people who have lots of money. Facebook founder and billionaire, Mark Zuckerberg refinanced his 6 million dollar home to a 30-year adjustable-rate loan starting at 1.05% in 2012.

  http://www.sfgate.com/business/article/Mark-Zuckerberg-s-mortgage-rate-1-05-3711118.php

  The idea is, if you're paying 1-4% interest on your mortgage, you may be able to get 5% or better in the stock market. Also, mortgage interest is tax deductible.

  I'm not saying I would do this myself but just letting you know why someone would do this.

  .
• bigbear29

  

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  May 30, 2014, 11:37 am

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  Yes, keywords " you own it". We hear about lottery winners losing their money in about 5 years.  Do not have a mortgage.
• whiteballz

  

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  May 30, 2014, 1:05 pm

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  In response to bigbear29

  Quote: Originally posted by bigbear29 on May 30, 2014

  Yes, keywords " you own it". We hear about lottery winners losing their money in about 5 years.  Do not have a mortgage.

  you can own your house but you will never own the land your house is built on top of. Even if someone has no mortgage and their house is paid off in full, they need to pay property tax every year.

  People are just renting land from the government so to speak. If you don't pay your "rent" in the form of property tax, your house will be auctioned off and sold to the highest bidder.

  .
• Teddi

  

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  May 30, 2014, 3:32 pm

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  In response to whiteballz

  Quote: Originally posted by whiteballz on May 30, 2014

  you can own your house but you will never own the land your house is built on top of. Even if someone has no mortgage and their house is paid off in full, they need to pay property tax every year.

  People are just renting land from the government so to speak. If you don't pay your "rent" in the form of property tax, your house will be auctioned off and sold to the highest bidder.

  I agree with that, but I've yet to hear of these lottery winners losing their homes because of unpaid property taxes. Unpaid mortgages seem to be the#1 reason.
• Artist77

  

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  May 30, 2014, 3:43 pm

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  I have always had good jobs but made it a priority to pay my mortgage off long prior to retirement. After buying my townhouse, I got a 15 year mortgage and it was not easy in the beginning but I did it. And the feeling is great every day of the week!

  
• Teddi

  

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  May 30, 2014, 3:49 pm

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  In response to whiteballz

  Quote: Originally posted by whiteballz on May 30, 2014

  it depends on someone's risk tolerance. Everyone is different. It's not only lottery winners who can take advantage of this but people who have lots of money. Facebook founder and billionaire, Mark Zuckerberg refinanced his 6 million dollar home to a 30-year adjustable-rate loan starting at 1.05% in 2012.

  http://www.sfgate.com/business/article/Mark-Zuckerberg-s-mortgage-rate-1-05-3711118.php

  The idea is, if you're paying 1-4% interest on your mortgage, you may be able to get 5% or better in the stock market. Also, mortgage interest is tax deductible.

  I'm not saying I would do this myself but just letting you know why someone would do this.

  Okay, that makes sense. So between the tax breaks and interest paid on what isn't tied up in the house but instead invested, you'd presumably come out ahead. I guess that makes sense from a financial point of view.

  Even so, I think I'd prefer the peace of mind of being debt free. Or as debt free as I can be. No car payments, no house payments. Insurance and taxes should be my only major monthly/yearly expenses.
• bigbear29

  

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  May 30, 2014, 4:06 pm

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  Whiteballz, look at the second post.  I do mention property taxes.
• bigbear29

  

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  May 30, 2014, 4:08 pm

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  Good for you Artist77, you did the right thing.
• LottoBoner

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  May 30, 2014, 4:22 pm

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  In response to Teddi

  Quote: Originally posted by Teddi on May 30, 2014

  To the financially savvy lottery post members, I have a quick question for you. Is there any circumstance where it's better to have a mortgage than buy a house outright?

  There have been so many lottery winners who lose their homes due to foreclosure because they missed mortgage payments, I had to ask. So many of us would love to win the lottery just so we can pay off our mortgages. I'm not getting why anyone would give away thousands of dollars in interest to the banks instead of just paying for the house in full. Why would a person who just got $50 million deposited into their accounts, take out a mortgage on a $2 million house? Isn't the key to get out of debt and stay out of debt??

  I suppose the only real reason to have mortgage, if you can pay off your house in full is to build credit.

  Buy paying off your mortgage every month on time for say two years, you will enable yourself the ability to borrow more money later.

  I don't know how much interest would be every month, but you could save yourself on interest and build credit at the same time, by paying perhaps quadruple the minimum every month.

  And besides if you won $50,000,000, you might as well splurge on a say, $4 million dollar house.

  If you invest wisely in stocks and some other stuff, then your investment interest should always exceed your mortgage interest.  So net effect is (+) if you are lucky.
• HoLeeKau

  

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  May 30, 2014, 4:28 pm

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  In response to LottoBoner

  Quote: Originally posted by LottoBoner on May 30, 2014

  I suppose the only real reason to have mortgage, if you can pay off your house in full is to build credit.

  Buy paying off your mortgage every month on time for say two years, you will enable yourself the ability to borrow more money later.

  I don't know how much interest would be every month, but you could save yourself on interest and build credit at the same time, by paying perhaps quadruple the minimum every month.

  And besides if you won $50,000,000, you might as well splurge on a say, $4 million dollar house.

  If you invest wisely in stocks and some other stuff, then your investment interest should always exceed your mortgage interest.  So net effect is (+) if you are lucky.

  Who needs good credit when they have enough money to pay cash for anything they could want? 

   

  But I agree with your premise for people who are not wealthy.  Even when I could afford to pay cash for a car, I'd get a loan and pay on it for 6 months then pay it off.  Gives your credit score a nice jump.    And that good score got me the best rate available on my mortgage, saving me thousands over the life of the mortgage loan.