Considering all things, is it better to pay for a home in full (no loan) or to take out a loan for a mortgage?

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I have a condo that I bought for $ 223,500 about 1-1/2 years ago. I initially had a 30-year loan of about $ 123,500. Considering the tax benefits for interest deductions versus added costs for interest payments, is it better (from a financial perspective) to continue my monthly mortgage payments OR to buy the condo in full with money from my mutual funds?

no credit history? I have no debt at all and never have. I’ve always saved up and paid cash for everything including cars. I have owned two homes in the past but my name was not on the mortgage, only the title (Ex-wife had good credit and we got a better rate that way). Any ideas, especially in this economy? I make an above average salary, have a 20% downpayment ready, and have an above average amount in savings (IRA, Mutual Funds, etc…).

  1. Reply
    Muga Wa Kabbz
    February 11, 2011 at 9:20 am

    It’s better to take out a loan for a mortgage and enjoy the tax benefits and the refinancing benefits in order to make the most of your equity.

    If you pay for your home in full, you will be asset happy, but cashflow poor and probably will never have time to enjoy the house you’ve paid for in full because you’ll be working hard to replace your mutual funds etc.

  2. Reply
    February 11, 2011 at 10:01 am

    Talke out a loan for a mortgage.

  3. Reply
    February 11, 2011 at 10:56 am

    It sounds like you’re financially OK.
    I would keep the mortgage (and mortgage interest deductions) and keep the mutual funds.
    If your mutual funds have a higher return than the interest rate on your mortgage, then you’re arbitraging. You’re effectively borrowing money (the mortgage) at one rate and putting it out to work at a higher rate of return (the mutual funds).
    This arbritage plus the tax deductions plus keeping money liquid is more compelling to me than having the condo paid off.

  4. Reply
    February 11, 2011 at 11:08 am

    Most people that say “morgage payments are tax deductable” really do not know what they are talking about. Of course you get a tax break, but you are correct, you are paying MORE interest than you are saving on your taxes. If you had a 6% mortgage, after the tax break, you are probably paying the eqiv of 4%.

    If you can get more than 4% AFTER TAX RETURN from your mutual funds (which you can probably get), then keep the money in the mutual fund. Also, if all you have is $ 123,500 in mutual funds, that DEFINIATELY keep the money. You might need it for something important

  5. Reply
    Steve D
    February 11, 2011 at 11:14 am

    Go see a mortgage broker. Mortgage brokers work with a number of different lenders and should know the requirements of each and may be able to hook you up with a bank that doesn’t require and extensive credit background.

  6. Reply
    Penny Saved
    February 11, 2011 at 11:35 am

    I echo the mortgage broker suggestion but have you checked your credit score online? I like credit karma ( I’ve never heard of somebody having absolutely no history at all. Have you never even paid a utility bill? A phone bill?

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