Is it better to buy your house in cash or diversify your investments?
Foamy is God asked:
Should I sink all my cash into a house or carry a morgage and diversify my investments?
Should I sink all my cash into a house or carry a morgage and diversify my investments?
kbarmol:
Depending on your age, I would suggest financing, at least a portion of, your home for the tax benefit. That will leave you with cash for emergencies and you will have the added benefit of making money on wise investments. It is always a good idea not to put all of your eggs in one basket in case that basket breaks (as in all of your cash into your home or all of your cash into one type of investment). However, if you are “cash rich” then you can do both.
June 8, 2009, 8:00 amCarl P:
If possible it is always better to pay off a house as an investment.
First the taxes paid every year are still a deduction.
Second look in the back of a tax folder from last year.
example is if you pay 10K in interest to the bank it may lower
your taxable income 1000 dollars or so. Depends on what you make. The rest is money you give to the bank making them richer. If you do not lower your taxable income you may pay the Fed up to 2000 dollars but save 8000 you did not give the bank in interest. Do the math yourself for your income, but it saves you a lot of money in the long run. Over the term of a 30 year house note you can pay from 150k to 300k depending on the loan taken out for the house. Why pay that to the bank?? Of course you need to track our money each month becasue you will have to pay insurance on the house and taxes each month, normally in the mortagage payment.
Third if you do not have a house payment then you will have more money each month to “play” the market and invest as you wish.
Go online to and work the numbers in the back of the book between non having a house deduction for INTEREST only (still get the tax deduction) and what you would pay to the bank.
June 8, 2009, 6:25 pmroginad:
I would diversify my investment. Why?
June 10, 2009, 8:15 pm1. Everybody needs to have emergency fund in case if something unexpected happens. There are different opinions on the size of such funds. Most consider 3 month of expenses. I would take online saving account with 4 - 5% interest without fees and restrictions -
2. Make sure that you and your love ones are protected from the worst scenarious. Invest in Life insurance with decent coverage.
3. For the rest of my income I have a choice - pay off my mortgage with interest rate 6% or invest it at 7% for my retirement and other investment options with returns at least 5%. Why the last option is better than paying off loan with higher interest? Because the interest on the mortgage is tax deductible and I will be more flexible with managing my financing and income having liquid assets. It is good to have equity in the house. However, every time you need to use it you have to pay thousands in fees to make it accessable (refinancing, second mortgage, line of credit with variable rates). Plus, equity will be built anyway overtime based on your regular mortgage payment and market conditions.
Thus, if you enough smart to make money out of your income and manage you debts right, why would you lose the opportunity to make more than you spend?