No Mortgage or Very Small Mortgage? Advantages?

Here's an idea:

Can you pay all cash and arrange for a home equity line of credit at the same time? When we closed on our house 8 or so years ago we were able to do that. We didn't know how smart we were at the time.

The interest rate on our HELCO is under 3% through Citibank.

We are mortgage-free and I can't imagine much that would make me voluntarily change that. It's a great way to live.

{Manhattan real estate agent.}

I think we could do that but am not sure the rates are better now. How exactly would it work? We just use the heloc for whatever spending money we might need?

A HELOC is effectively a second mortgage, so I'm not sure how that helps you unless you think you can achieve an investment return at a rate that approaches or exceeds the interest rate on the HELOC. Either way, last I heard, most major banks had a freeze on HELOCs. Makes sense.

The same analysis applies to the mortgage. Can you put that money to better use? If not, then pay all cash, and if a good investment comes along, do the HELOC when the credit market thaws.

The "benefits" of a mortgage are the tax deduction, leveraging your equity (goes both ways), and credit building.

I'd go with a mortgage, especially with these historically low rates. Save your money and invest it somewhere else. Even if you earn just a 4% return, that will still out do the 5.25% you are paying on the mortgage. First there's the tax benefit, and then there's the fact your principal is declining each month therefore your interest payments are declining. Meanwhile the savings could be growing at conservatively 4% but its compounding so very quickly you'd be ahead.

If you wipe out all your savings, you would not have the tax benefits, and the lower savings will compound slower.

Personally, if I had the cash to buy a property outright and had the option of getting 100% financing, I would choose the mortgage. I'm a finance guy, and it just makes sense to leverage yourself especially at interest rates this low. I don't see any cons of a mortgage with a low fixed rate that will outweigh its benefits.

Those are good points too dirtyrotten. My problem is that with my 10 years of investing, I've lost over the long run and have lost confidence in the stock market. Is there something guaranteed that returns 5 or 6% that's nice and safe. I guess it could just be in cd's.

I'll pay cash. It is beautiful to not have to pay a big check for a big part of your life, and the future has gotten more unpredictable. Then, when a better economic panorama is in sight, you can take the 3% equity line and make an investment if you want.

I would suggest you get a very low fixed rate, like maybe a conforming loan, because inflation and rates may rise dramatically in the next 10 years. On the other hand, living without the need to make a mortgage payment is liberating in a way that no financial analysis can explain.