Over 21% of homeowners in SD County have paid off houses

[earlyretirement]

[quote=bearishgurl]Does any Pigg know exactly when the “30-year mtg” became available?

Even though, when we’re young, we think we’re invincible, when unexpected things in life happen, it’s really nice to have your home paid off–just in case you lose that job, or have to pay all of your medical insurance, or, or….

.[/quote]

It was right after the Great Depression when all hell broke loose. I believe mortgages started in the 1930’s but it wasn’t until the Great Depression that 30 years became the norm.

And I also agree with the point you made about everyone thinking they are always going to be invincible or even that they will always going to make $X per year. You never know in life what might happen. It’s always a good feeling to have your primary home that you’ll live in paid off.

One thing I’ve learned is you can’t go broke being very conservative. And I’ve personally met several people that retired with millions without taking huge risks or over-leveraging. Never underestimate the power of compound interest.

[an]

[quote=flu]I don’t get the fascination in today’s environment with the desire to pay a primary home off early, especially for someone who is young that has still a lot of earning potential and can afford to take risks and still recover.

Economic situation changes, and so does one’s strategy. Maybe decades ago when mortgage rates were at the bendover 10+% rate, there was an incentive to pay off early…But look around. Mortgage rates are 2.5% for 15 years fixed, 3.375% for 30 years on a primary. Equity in primary home is pretty dead (at least until you move out or move up)…In this current environment, why do you want your money just to still there doing nothing?

Phillip Morris pays a 3.4% dividend, AN probably has a few recommendations on dividend stocks that do over 10%, and even the sucky Intel will be paying close to 5% dividend (though, it’s still a crappy company)…And these rates won’t ever change. Someone who is well qualified and who can take advantage of this. Hell, you probably can get more than 3% by buying and selling crap on craigslist.

Paying off early is sooooo old school. Hell, I was part of that old school of thinking. Not so much anymore.[/quote]
I totally agree and that’s my thought exactly. At 3.5% or less, why would you pay it off a day early. To me, it’s all about net cash flow (income – expense). I rather have cash in the bank earning enough interests/dividend to pay for the mortgage than paying off the mortgage and not have much in the bank. You need cash to eat and you can’t eat your house. So, unless you already have plenty of cash to cover all the costs during retirement, I don’t see the need to pay off the house. I bet 10 years from now, we’ll be looking back and telling our kids how lucky we were to be able to borrow at <3-4%.

[bearishgurl]

[quote=earlyretirement][quote=bearishgurl]Does any Pigg know exactly when the “30-year mtg” became available?

Even though, when we’re young, we think we’re invincible, when unexpected things in life happen, it’s really nice to have your home paid off–just in case you lose that job, or have to pay all of your medical insurance, or, or….

.[/quote]

It was right after the Great Depression when all hell broke loose. I believe mortgages started in the 1930’s but it wasn’t until the Great Depression that 30 years became the norm.

And I also agree with the point you made about everyone thinking they are always going to be invincible or even that they will always going to make $X per year. You never know in life what might happen. It’s always a good feeling to have your primary home that you’ll live in paid off.

One thing I’ve learned is you can’t go broke being very conservative. And I’ve personally met several people that retired with millions without taking huge risks or over-leveraging. Never underestimate the power of compound interest.[/quote]

Thanks for your answer and also “quoting me” so eloquently, ER :=P

I agree that there’s nothing wrong with living on a “cash basis.”

It’s what most of my relatives did/are doing …

[carlsbadworker]

I have seen many arguments against paying off houses but still I am not convinced. Equity is like a bond (in fact you are buying your own mortgage bond) and I don’t think it is a good asset allocation strategy to completely avoid bond.

I think it depends on the goal of your life. I would rather have 4 paid-off investment properties that generate cash flow every month than 10 investment properties that are cash-flow break-even. Besides, it is much easier to hold on investment properties with up and down in market value if it cash flows.

I do agree that equity in the primary home that you live in is pretty dead though…because by definition since you are living in it, the money won’t generate any cash flow. (Maybe except at the very end of it, you save the extra mortgage payment)

And tell me how you can get more than 3% with craps on craigslist without much effort with $100K+?

[flyer]

From my experience, I’m pretty sure the decision to pay off a house is not an either/or decision for most of the 21% mentioned in the OP.

I would venture to guess most of the 21% have plenty of cash/investments/pensions, etc. to cover living expenses/retirement, etc., AND pay their homes off.

Some of us bought our homes/investment properties for relatively nothing, compared to today’s pricing. Others, who purchased their homes fairly recently, as some on this board have done, have come in with cash to purchase million+ homes–even at today’s prices–so it is conceivable that both can be achieved.

[Coronita]

[quote=carlsbadworker]

And tell me how you can get more than 3% with craps on craigslist without much effort with $100K+?[/quote]

I bought a set of used 15″ rims for the POS miata for $100..Didn’t like them, and ended up selling them for $200… I bought have a backend miata from a junkyard person on CL for I around $300, pulled the parts I wanted ,and then parted out the rest for $400. Oh and the POS miata itself I bought on CR for $2000, and immediately someone else working on a similar project wanted to offer $2400 since it ended up not being as big a POS I thought orginally…. (Though me putting in a suspension this weekend that costs have the price of that POS car isn’t really gonna make it pencil out now…)….So you’re right, it’s not 3.5%. Plus, the remaining stuff I ended up bartering for free tattoo work that I would have had to pay 5% more if I actually paid cash… (Sorry, last part isn’t true…Inside joke)

[Coronita]

But seriously….Let’s say your choice is to take $XXXk and pay off your house or $XXXk and say spread the risk among a rental property, a dividend fund, and maybe some cash….

Paying 30year off is 3.5% that one bought in recent times. Ok good. Now what? No income generated from it. No monthly income from it, all you got to count on is appreciation (which may/may not happen…what if you did pay it off, only to see your primary property value fall as some doomdayer’s say it would…)…

On the other hand taking the same $XXXk+ and spreading the risk among say a rental which these days is like 5-8% (excluding any appreciation), a reasonably stable dividend fund (preferably tax exempt) which most likely is above 4% (excluding any gain recently), and CD is like 1%…

Again, if you’re young, trying to build wealth. the riskier choice to me is to concentrate everything of the $XXXk into 1 asset class, your primary home, versus spreading the risk among different asset classes. Your primary home very well may underperform everything else.(I guess if you’re already in retirement, with sufficient nest egg. Different strategy, because you want to try to be debt free as much as possible and preserve capital, versus try to accumulate wealth.)

And lastly, for people who can’t pay off their home completely immediately, but try to “pay off early” at the expense of using that money to generate income elsewhere….To me that’s the most risky strategy…Because while you’re trying to pay off your primary off early, you’re counting all your eggs on your primary home AND counting on everything else in your life to work out(like your career/health/job)
If suddenly you have no income because you lose your job/business/health (and yes, shit does happen)…..your remaining mortgage on primary home becomes a huge dead anvil liability…..You still need to continue to make monthly payments, regardless of how much extra payments you’ve made…how much equity you have is meaningless(since you can’t borrow/cash-out refi from it when you are unemployed)…and any potential future appreciation is meaningless if you have to sell at prevailing market condition when you are unemployed….And then you still will need a place to live… When you’ve concentrated everything into paying your primary home off early and did nothing else, you have no cash flow when your unemployed and no other stream of income….On the other hand, it’s very unlikely that you will be unemployed at the same time that (a) all your tenants will also stop making monthly payments, (b) your dividend fund come crashing down, (c) your CD refuses to pay you 1%, and (d) stock market tanking simultaneously at the same.. If that’s happening, the entire world is crumbling, and you’ve got bigger problems to worry about.

[earlyretirement]

flu,

You make some good points but you are also assuming that someone that comes into money and has the choice to either pay off their primary or do something else will be wise with those funds/cash.

I’ve seen plenty of people that come into money and aren’t wise with what they do with it. Plenty of people blow extra cash on either bad investments or just spend the money foolishly. So you have to look at it from that angle as well.

Absolutely leverage can and does work out for people but it does people in as well. From my experiences over the past many years investing, I’ve learned that people are quick to tell you about all the great genius stock picks or other investments they have made that made great returns. However, they neglect to tell you about all the bad investments or stocks they have made that have lost a lot of money. (Especially on these message boards).

[scaredyclassic]

earlyret, i think what you’re saying is, there are lots dumber things you could do with money…

and that’s true…

but I’d say there are smarter moves, too…

for the dumbest, it’s not all that risky to pay off the house.

luckily, with college tuitions on the horizon for the next 12 years or so, I will be fortunate to not have any extra money to worry about…

[earlyretirement]

[quote=squat300]earlyret, i think what you’re saying is, there are lots dumber things you could do with money…

and that’s true…

but I’d say there are smarter moves, too…

for the dumbest, it’s not all that risky to pay off the house.

luckily, with college tuitions on the horizon for the next 12 years or so, I will be fortunate to not have any extra money to worry about…[/quote]

Oh yeah. By no means am I saying this is the smartest thing you can do with your money. Not at all. As mentioned, it only makes sense after your already well diversified or want to limit what you already have in the stock market or other investments/real estate.

I know how you feel about saving up for college. With young kids I started saving the day they were born and plugging away each year. It’s insane the prices of some colleges these days and I can’t imagine what it will be in the next 12-14 years once my kids hit college.

[carlsbadworker]

[quote=earlyretirement] Absolutely leverage can and does work out for people but it does people in as well. From my experiences over the past many years investing, I’ve learned that people are quick to tell you about all the great genius stock picks or other investments they have made that made great returns. However, they neglect to tell you about all the bad investments or stocks they have made that have lost a lot of money. (Especially on these message boards).[/quote]

I am agreeing with ER on this one. What is so nice about other investments that are tempting people to leverage up at the moment? Jeremy Grantham’s GMO is forecasting 0.1% annual return from U.S. large and -0.8% annual return from U.S. small in the next seven years. If U.S. stock is at the 2009 low, I would agree to leverage up. But what do you leverage up for right now? For rental property, it is not like you have many selections out there. So it is pretty much sitting in cash earning 0.1% anyway waiting for the right opportunity to come.

[Coronita]

[quote=earlyretirement]flu,

You make some good points but you are also assuming that someone that comes into money and has the choice to either pay off their primary or do something else will be wise with those funds/cash.

I’ve seen plenty of people that come into money and aren’t wise with what they do with it. Plenty of people blow extra cash on either bad investments or just spend the money foolishly. So you have to look at it from that angle as well.

Absolutely leverage can and does work out for people but it does people in as well. From my experiences over the past many years investing, I’ve learned that people are quick to tell you about all the great genius stock picks or other investments they have made that made great returns. However, they neglect to tell you about all the bad investments or stocks they have made that have lost a lot of money. (Especially on these message boards).[/quote]

I agree but there is is difference between coming to money as you say and gradual wealth accumulation. Gradual wealth accumulation isn’t always feasible these days if one has a mortgage over property and putting everything towards paying it off early.

And while personally I wouldn’t gamble on one stock , I wouldn’t want to tie everything into a non income house either if I could do something else with it.

And the way it is…no risk no reward..taking calculated risk is different from being reckless. Though I would say most people whom you are referrinf to either had poor money management skills ( they couldn’t handle an unexpected windfall ) or took on way too much risk beyond what they can handle.

It is also funny how your primary is often considered an asset when it more or less behaves as a liability. You have to make monthly for a god awful long time and even if you make extra payments you still need to make regular monthly payments. And yet when it comes to things like for example financial aid, some places love to count how much equity you have even though you really can’t touch it (unless you want to cash out refi to pay for tuition).

[CA renter]

[quote=flu]But seriously….Let’s say your choice is to take $XXXk and pay off your house or $XXXk and say spread the risk among a rental property, a dividend fund, and maybe some cash….

Paying 30year off is 3.5% that one bought in recent times. Ok good. Now what? No income generated from it. No monthly income from it, all you got to count on is appreciation (which may/may not happen…what if you did pay it off, only to see your primary property value fall as some doomdayer’s say it would…)…

On the other hand taking the same $XXXk+ and spreading the risk among say a rental which these days is like 5-8% (excluding any appreciation), a reasonably stable dividend fund (preferably tax exempt) which most likely is above 4% (excluding any gain recently), and CD is like 1%…

Again, if you’re young, trying to build wealth. the riskier choice to me is to concentrate everything of the $XXXk into 1 asset class, your primary home, versus spreading the risk among different asset classes. Your primary home very well may underperform everything else.(I guess if you’re already in retirement, with sufficient nest egg. Different strategy, because you want to try to be debt free as much as possible and preserve capital, versus try to accumulate wealth.)

And lastly, for people who can’t pay off their home completely immediately, but try to “pay off early” at the expense of using that money to generate income elsewhere….To me that’s the most risky strategy…Because while you’re trying to pay off your primary off early, you’re counting all your eggs on your primary home AND counting on everything else in your life to work out(like your career/health/job)
If suddenly you have no income because you lose your job/business/health (and yes, shit does happen)…..your remaining mortgage on primary home becomes a huge dead anvil liability…..You still need to continue to make monthly payments, regardless of how much extra payments you’ve made…how much equity you have is meaningless(since you can’t borrow/cash-out refi from it when you are unemployed)…and any potential future appreciation is meaningless if you have to sell at prevailing market condition when you are unemployed….And then you still will need a place to live… When you’ve concentrated everything into paying your primary home off early and did nothing else, you have no cash flow when your unemployed and no other stream of income….On the other hand, it’s very unlikely that you will be unemployed at the same time that (a) all your tenants will also stop making monthly payments, (b) your dividend fund come crashing down, (c) your CD refuses to pay you 1%, and (d) stock market tanking simultaneously at the same.. If that’s happening, the entire world is crumbling, and you’ve got bigger problems to worry about.[/quote]

If you have no mortgage, the savings on mortgage interest is like tax-free income. This is “tax-free income” (savings) can be invested every month. This is one of the safest ways to make a return on your money, especially if you never intend to sell your house (don’t worry as much about home price fluctuations).

Yes, the value of one’s house can go up or down, but so can the value of all the other investments you’ve mentioned.

As far as you losing your job at the same time as a tenant not paying rent and the stock market crashing, etc…sounds exactly like what happens during severe recessions/depressions, which aren’t nearly as rare as some might want to believe. With a paid-off house, if one is wise enough to set aside the money that’s being saved by not making monthly mortgage payments, there should be sufficient enough savings to make it through a fairly prolonged period of unemployment, and you don’t have to worry about losing your house because you can’t afford to make the mortgage payment. For many people, this peace of mind is worth a million dollars.

[Coronita]

[quote=CA renter][quote=flu]But seriously….Let’s say your choice is to take $XXXk and pay off your house or $XXXk and say spread the risk among a rental property, a dividend fund, and maybe some cash….

Paying 30year off is 3.5% that one bought in recent times. Ok good. Now what? No income generated from it. No monthly income from it, all you got to count on is appreciation (which may/may not happen…what if you did pay it off, only to see your primary property value fall as some doomdayer’s say it would…)…

On the other hand taking the same $XXXk+ and spreading the risk among say a rental which these days is like 5-8% (excluding any appreciation), a reasonably stable dividend fund (preferably tax exempt) which most likely is above 4% (excluding any gain recently), and CD is like 1%…

Again, if you’re young, trying to build wealth. the riskier choice to me is to concentrate everything of the $XXXk into 1 asset class, your primary home, versus spreading the risk among different asset classes. Your primary home very well may underperform everything else.(I guess if you’re already in retirement, with sufficient nest egg. Different strategy, because you want to try to be debt free as much as possible and preserve capital, versus try to accumulate wealth.)

And lastly, for people who can’t pay off their home completely immediately, but try to “pay off early” at the expense of using that money to generate income elsewhere….To me that’s the most risky strategy…Because while you’re trying to pay off your primary off early, you’re counting all your eggs on your primary home AND counting on everything else in your life to work out(like your career/health/job)
If suddenly you have no income because you lose your job/business/health (and yes, shit does happen)…..your remaining mortgage on primary home becomes a huge dead anvil liability…..You still need to continue to make monthly payments, regardless of how much extra payments you’ve made…how much equity you have is meaningless(since you can’t borrow/cash-out refi from it when you are unemployed)…and any potential future appreciation is meaningless if you have to sell at prevailing market condition when you are unemployed….And then you still will need a place to live… When you’ve concentrated everything into paying your primary home off early and did nothing else, you have no cash flow when your unemployed and no other stream of income….On the other hand, it’s very unlikely that you will be unemployed at the same time that (a) all your tenants will also stop making monthly payments, (b) your dividend fund come crashing down, (c) your CD refuses to pay you 1%, and (d) stock market tanking simultaneously at the same.. If that’s happening, the entire world is crumbling, and you’ve got bigger problems to worry about.[/quote]

If you have no mortgage, the savings on mortgage interest is like tax-free income. This is “tax-free income” (savings) can be invested every month. This is one of the safest ways to make a return on your money, especially if you never intend to sell your house (don’t worry as much about home price fluctuations).

Yes, the value of one’s house can go up or down, but so can the value of all the other investments you’ve mentioned.

As far as you losing your job at the same time as a tenant not paying rent and the stock market crashing, etc…sounds exactly like what happens during severe recessions/depressions, which aren’t nearly as rare as some might want to believe. With a paid-off house, if one is wise enough to set aside the money that’s being saved by not making monthly mortgage payments, there should be sufficient enough savings to make it through a fairly prolonged period of unemployment, and you don’t have to worry about losing your house because you can’t afford to make the mortgage payment. For many people, this peace of mind is worth a million dollars.[/quote]

Why would I want to pay off my house now (which I can if I wanted to) at 2.5% when dumpy places here or Bay Area can produce 5-8% coc right now?
(And folks that have to ask where, obviously haven’t been looking for the past 2 years..)

It’s contrary to what you would believe if you think dollar is gonna weaken and home prices are not going to materially appreciate (although I think you believe home prices aren’t going to rise, but I think they will)..

Present value of US dollar is worth more now than it will be 10-20 years from now. That’s gonna be pretty evident, because we keep printing the toilet paper USD like there’s no tomorrow.

“Hope” is hoping property values appreciate in a meaningful way such that what extra you put in now in cash is worthwhile. “Safety” is an illusion… There is nothing “safe”, everything has risk to varying degree, whether one wants to believe it or not.

All those people doing refi’s with negative points and getting cash back I couldn’t figure out why for the longest time. But then when I ran through the numbers, it made sense. In some cases, doing a refi- with negative rebates added gave you a rebate of $XXXX dollars now… It added an extra total $XXXX+ZZ dollars to the entire balance on the new loan… The new ZZ dollars was so insignificant, that the cost of getting money $XXXX “now” was worth a hell of lot more than than $XXXX+ZZ, because ZZ extra dollar clearly was so small that it would be insignificant 30 years later….

[earlyretirement]

[quote=CA renter]

If you have no mortgage, the savings on mortgage interest is like tax-free income. This is “tax-free income” (savings) can be invested every month. This is one of the safest ways to make a return on your money, especially if you never intend to sell your house (don’t worry as much about home price fluctuations).

Yes, the value of one’s house can go up or down, but so can the value of all the other investments you’ve mentioned.

As far as you losing your job at the same time as a tenant not paying rent and the stock market crashing, etc…sounds exactly like what happens during severe recessions/depressions, which aren’t nearly as rare as some might want to believe. With a paid-off house, if one is wise enough to set aside the money that’s being saved by not making monthly mortgage payments, there should be sufficient enough savings to make it through a fairly prolonged period of unemployment, and you don’t have to worry about losing your house because you can’t afford to make the mortgage payment. For many people, this peace of mind is worth a million dollars.[/quote]

Exactly. To be honest, I don’t even care what housing prices are doing or how they might fluctuate. For the principle HOME that I live in, where I’ll raise my kids for the next 15 years, I don’t look at the house as an “investment”. It’s just a home.

Flu, you mentioned that these people are “hoping” that property prices keep going up but for the most part, for those that plan to stay in their homes for the long haul or raising kids in them….they could care less and don’t even think about it.

I do own other investment properties so I understand your chain of thought flu. But on a principle home I don’t look at it the same way.

Also, I probably won’t sell this house in the future even after the kids finish high school. Maybe we’ll rent it out as rentals are very solid and I think they probably will be in the future as well in good school district areas.

I totally agree with you CA Renter that there are many many scenarios where having a paid off place gives you great peace of mind.

I do agree that every person needs to look at their individual situation and see what makes sense to them but to dismiss people paying off houses as crazy isn’t correct.

[quote=flu]

And while personally I wouldn’t gamble on one stock , I wouldn’t want to tie everything into a non income house either if I could do something else with it.

And the way it is…no risk no reward..taking calculated risk is different from being reckless. Though I would say most people whom you are referrinf to either had poor money management skills ( they couldn’t handle an unexpected windfall ) or took on way too much risk beyond what they can handle.
.[/quote]

Well, I don’t think it’s just a matter of “gambling on one stock”. It’s easy now to sound so optimistic with the stock market up tremendously the past few years. But some people forget what it was like at the depths of the Great Recession. People don’t realize just how close we came to a systemic crash in the financial markets.

I don’t care how diversified you were, there was a period where everyone in the market (except short sellers) were taking big hits to the portfolios. Very few people didn’t have any worries at all. So I guess I’d mention to remember that period of time.

And again, it wasn’t just a matter of gambling on one stock. There are entire companies that aren’t around anymore. So it’s not a matter of waiting for their stock price to come back. Some of them are gone. Or others like Citibank which have rebounded, are still next to nothing compared to where they were.

The stock market is very frothy right now. I guess I wouldn’t have much of a problem if I read the same advice several years ago but the market isn’t a place I’d continue to expect these huge returns. The Fed has basically forced people to push their money into the stock market but it by no means is a safe place.

You mention investment properties. I know that area well as I own several investment properties. But I can honestly tell you it’s NOT for most people out there. Being a landlord isn’t for everyone. Most people just don’t have what it takes to be a good landlord. (i’m not saying it’s not a good investment because I do believe the returns from investment rental properties depending on where you buy are great). But no way I’d pretend that just anyone can be a landlord. Plus it sucks a lot of time as well.

[Author]

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