would you pay cash or use a mortgage?

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would you pay cash or use a mortgage?

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2011 Jul 11, 8:11am 5,535 views 16 comments

by Hysteresis ➕follow (0) 💰tip ignore

let's say, hypothetically, liquid net worth of $1.5M. single family house is priced at $500k in the city of santa clara. it's a primary residence. the house would be lived in for 15 years at minimum.

would you pay all cash or use a 30 year fixed mortgage with 20% down?*
why?

* only these 2 options are available, there's no option to rent and no other mortgage options.

#housing

Comments 1 - 16 of 16 Search these comments

Â¥ 2011 Jul 11, 10:28am

yup, ARM is good.

Check out the offering from Union Bank. They've got a pretty flexible ARM product if you've got 20% down.

I don't think we're going to be seeing any interest rises for the foreseeable future. The debt is just growing too big too fast for the Fed to be able to do anything unless, somehow, wage-price spiral starts.

And if a wage-price spiral starts, then buying now will be as golden as buying in 1971, 1981, or 1991, or 2001.

Hmmm.

Patrick 2011 Jul 11, 10:48am

APOCALYPSEFUCK is Tony Manero says

3 Hysteresis 2011 Jul 11, 10:49am

APOCALYPSEFUCK is Tony Manero says

it's really hard to argue against this position.

4 Hysteresis 2011 Jul 11, 12:07pm

APOCALYPSEFUCK is Tony Manero says

i have to invite you to my parties.

Robber Baron Elite Scum 2011 Jul 11, 1:55pm

APOCALYPSEFUCK is Tony Manero says

I agree. It's either you should pay CASH or you might as well just go fuck yourself.

Mortgages rates should rise to 25% with a minimum down-payment of 50% along with a 900+ credit score. This effectively will murder the entire market.

Better yet outlaw mortgages.

C Boy 2011 Jul 11, 3:13pm

I think you should buy gold and take out a 30 year mortgage if you think hyper-inflation is on the way.

FortWayne 2011 Jul 12, 12:25am

APOCALYPSEFUCK is Tony Manero says

+1 likewise. I'm never in business of giving my money away to the bank in exchange for renting their money

8 UAVMX 2011 Jul 12, 1:57am

ptiemann says

wow, take off your purse nancy...go figure you live in SC

PasadenaNative 2011 Jul 12, 2:12am

APOCALYPSEFUCK is Tony Manero says

This is way better than "Shit My Dad Says!"

PockyClipsNow 2011 Jul 12, 3:14am

CD's in the bank pay 1.5%

You get a mortgage and you pay lets say 5%.

If you pay cash you will 'earn' the difference between these two rates - 3.5% return.

Thats a REALLY good return on 500k ($17,500 gross per year).

Or you could PAY the bank 5% for the mortgage and that would be $25,000 per year. The delta between earning 17.5k and paying 25k per year is $42,500 - a VERY BIG DEAL.

Its a no brainer to pay cash unless you are a master day trading junkie and can earn more than 3.5% per year on your 500k RELIABLY every year on average. (these people are out there).

Dont be conned into 'stock market goes up 10% per year' lol. If you have 1.5m net worth you probably already know thats BS.

However there is a good reason to get a mortgage- insurance against future price declines/earthquake - you can walk away free with non recourse mortgage, for a person with 1.5m net worth this is a big concern as they cannot declare BK

Â¥ 2011 Jul 12, 3:25am

PockyClipsNow says

the flaw in your analysis is assuming interest rates remain dead.

I think there's a very good chance this will be the case for the next 10-20 years, but the problem is I don't know anything and am entirely wrong always.

The Fed WILL raise rates if we get wage inflation.

Hell, the a-holes might even raise rates if we don't get wage inflation.

The former is great for the mortgage, the latter will kill housing no matter what, so a mortgage is good so you can walk away.

Fitzclarence 2011 Jul 13, 12:17am

E-man, why do you say that "paying cash now is financially retarded"? Why pay interest if you don't have to?

FortWayne 2011 Jul 13, 12:47am

PockyClipsNow says

we have averaged about 4% a year gains. I always found it silly that if you walk into the bank they show you nice graphs making 20% returns on selected portfolios picked after the outcomes, when reality is completely different.

14 sf.irony 2011 Jul 13, 2:10am

Since I want an income producing unit, I'll borrow. These rates are so low!

15 corntrollio 2011 Jul 13, 5:16am

EMan says

I'm not sure what bank posts 20% returns, but they should probably be reported to the SEC if they do. However, it's still quite easy to get more than 4%/year gains if you are truly invested long term. As I've mentioned before, I currently have high quality mutual fund investments that have done far better since 1999, despite the 2 bubbles.

However, you have to make sure the investment is appropriate. You may not want to incorporate that much risk for your down payment money, but if you are reasonably young, it's not inappropriate to do this with your 401(k) funds.

Most people buy high and sell low. That doesn't produce high returns, as you might guess.

16 cranker 2011 Jul 13, 7:22am

APOCALYPSEFUCK is Tony Manero says

That seems very tempting, but why do that?

Rates are 4.5% today If you are in the top tax bracket, (35% Fed + 10% CA) thats a 45% deduction. You are getting money at 2.5% effectively.

Put that into a Intermediate CA Muni fund, and you get about 3.2%.

That's 0.7% of tax-free returns. (3.2 - 2.5)

There is of course risk, and there are riskier investments, but at 2.5% fixed rate for 30 years, you might want to consider other options.

patrick.net

would you pay cash or use a mortgage?

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