Mortgage or not?
"I often say ""don't let the tax tail wag the investing dog."" I need to change that phrase a bit to ""don't let the tax tail wag the mortgage dog."" Getting a tax deduction on a 4% mortgage basically results (assuming you already itemize) in an effective 3% rate mortgage. The best way to avoid tax is save pretax in a 401(k), IRA, or both.  You are 57, and been through a tough time. You're helping your daughter through college, which is an expense, and admirable kindness to her. But all this means you won't start saving $10K/yr until age 59. The last thing I'd do is buy a bigger home and take on a mortgage. Unless you told me the house you want has an in-law apartment that will bring in a high rent, or can be used to rent rooms and be a money maker, I'd not do this.  No matter how small the mortgage, your property tax bill will go up, and there would be a mortgage to pay. Even a tiny mortgage payment, $400, is nearly half that $10K potential annual savings plan.  Your income is now excellent. Can your wife do anything to get hers to a higher level? In your situation, I'd save every cent I can." Better in terms of what? less taxes paid? or more money to save for retirement? In terms of retirement, it would be better for you to keep the condo you currently have for at least two reasons: You wouldn't incur the penalties and fees from buying and selling a home. Selling and buying a home comes with a multitude of fees and expenses that aren't included in your estimation. You aren't saddled with a mortgage payment again. You aren't paying a mortgage payment right now. If you set aside the amount you would be paying towards that, it more than covers your taxes, with plenty left over to put towards retirement. "Short answer:  No. Longer answer:  The only reason to move would be to get out of the condo and into a SFR of equal cost because condos can be quite difficult to sell and you don't really want that potential burden later on.  Moving is expensive though and you can't afford to spend more when you are already living on the financial edge. Speaking of living on the edge, that's a recipe for disaster.  I make, ratio-wise, a similar sort of income.  Even accounting for the generous college tuition, you should be able to save at least $20K per year...at a bare minimum.  And if you were careful, I figure you should be able to save $40K/year.  You need to figure out where you are dumping all of your money and cut WAY back on spending and focus entirely on saving money. 1)  Stop eating out.  Make your own meals.  I average about $2 per meal per person - no junk food.  Eating out is 6 to 30 times as expensive as making meals at home.  Do the math:  $10 * 2 people * number of times you eat out per week * 52 ($1,040 per year for each time/week!) vs $2 * 2 people * 21 (3 meals per day) * 52 ($4,368 per year for both of you...maximum).  Now I know some meals are more expensive to prepare, but the math is not unrealistic - I spend about $140 per month on groceries and make the bulk of my own food.  Eating out is sticker shock for me.  The food I prepare is nutritionally balanced and complete.  Now I'm not a complete health-nut.  I love the occasional deep-fried treat or hamburger, but those are ""once every couple of months"" sort of things, which makes them special. 2)  Stop going to Starbucks or wherever you habitually go.  It takes fuel to get there.  It's also expensive when you get there.  Bring your own drink if you are hanging out with friends. 3)  Drop golf.  Or whatever expensive sport you are sinking money into.  Invest in some cheap running clothes and focus on cardio-based workouts.  Heart health is more important than anything else.  If you can't live without your sport, then find an alternate sport that is ""equal""-ish in challenge but a ton cheaper to play.  For example, if you like playing golf, play discgolf instead (most cities have courses) - there's no cost beyond a couple of discs and the challenge is still there. 4)  Drop entertainment.  Movies at the theater are expensive.  Drop your cable subscription (you are getting financially raped for $1,500/year).  Get a Netflix subscription and find shows via free online streaming services.  Buy some dominoes, card games, and a couple of classic board games.  Keep entertainment simple and cheap. 5)  Drop your cell phone's data plan.  Republic Wireless is the only decent cellular provider and even their $12/month plan is living a luxury lifestyle.  If you spend more than $10/month/person for phone service, you are spending too much. 6)  Stop driving everywhere.  Gas is expensive.  Cars are expensive.  If you have more than two cars, sell the extras.  If your car is worth more than $20,000, sell it and get something cheaper. 7)  Stop drinking alcohol.  Alcohol impairs mental functions, is addictive, smells terrible, and is ridiculously expensive.  There's no actual need to consume it either. By the way, don't go and make major financial changes without the wife's sign-off.  Finances are the #1 reason for divorce.  So get her ""OK"" on this stuff.  Hopefully you already knew that.  The above are just some common financial pitfalls where people sink thousands and thousand of dollars and gain nothing.  You can still have a full and complete life with just a minimum of the above. There is no excuse for living on the edge financially.  Your story is one I'm going to share with those who give me the same excuse because they are ""poor"".  You are ""I want to punch you in the face"" wealthy and you spend every last penny because you think that's how money works.  You are wrong. One final piece of advice:  Find a financial adviser.  It is clear to me that you've been managing money wrong your whole life.  A financial adviser will look at your situation and help you far more than someone on the Internet ever can.  If you attend a church, many churches have the excellent Crown Financial Ministries program available which teaches sound financial management principles.  The education system doesn't show people how to manage money, but that's not an excuse either.  Once you dig yourself out of the financial hole you've dug for yourself, you can pass the knowledge on how to correctly manage money onto other people." In addition to the other answers, I think you would also need to account for the increased utility and maintenance costs on the more expensive house. Typically it is recommended to budget 1% to 4% the cost of the home per year for routine maintenance. While it likely won't cost that much every year, you will have those expensive items come up (e.g. roof, HVAC) that come up periodically. The larger house will also cost more to heat/cool. Depending on where you live could also have increased property taxes. Here is something that should help your decision: Currently you are 57, suppose that means that you will still work for 10 years, and then be retired for another 20 before you sell the house. Your retirement account is nearly flat, so you will have to support yourself with your own income.  If there are no surprises, you and your wife could expect to earn 1.16 million over the  next 10 years. There will be interest on your savings, but also inflation, so to simplify I will ignore both. That means you will have an average of 40k (gross?) per year available to live from during the next 30 years. If you get a mortgage where you only pay nett 3% interest (no payback of the loan), that would cost you 6k per year on interest (based on 350k-150k), if you also want to pay back the 200k difference within 30 years, it would totally be close to 13k in annual interest+payback. Now consider whether you would rather live on 40k per year in your current place, or on a lower amount in a bigger place. Personally I would not choose to make a 200k investment at this point, perhaps after trying to live on a budget for a while. (This has the additional benefit that you can even build some cash reserve before buying anything.) "A primary residence can be an admirable investment/retirement vehicle for a number of reasons. The tax savings on the mortgage are negligible compared to these.  A $200,000 mortgage might result in a $2000 annual savings on your taxes -- but a $350,000 house might easily appreciate $20,000 (tax free!) in a good year. Some reasons to not buy a larger house. Getting into or out of a house is tremendously expensive and inconvenient.  It can make some life-changes (including retirement) more difficult. There is no way to ""diversify"" a primary residence.  You have one investment and you are a hostage to its fortunes.  The shopping center down the street goes defunct and its ruins becomes a magnet for criminals and derelicts?  Your next-door neighbor is a lunatic or a pyromaniac?  A big hurricane hits your county?  Ha-ha, now you're screwed.  As they say in the Army, BOHICA: bend over, here it comes again. Even if nothing bad happens, you are paying to ""enjoy"" a bigger house whether you enjoy it or not.  Eating spaghetti from paper plates, sitting on the floor of your enormous, empty dining room, may be romantic when you're 27.  When you're 57, it may be considerably less fun. Speaking for myself, both my salary and my investment income have varied wildly, and often discouragingly, over my life, but my habit of buying and renovating dilapidated homes in chic neighborhoods has brought me six figures a year, year after year after year. tl;dr the mortgage-interest deduction is the smallest of many reasons to invest in residential real-estate, but there are good reasons not to." "If you do as you propose you are going to get burned. You need to sell, then start to rent. amongst other things. Since 2008, the economy never ""recovered,"" but was sort of stabilized temporarily like a fighter on the ropes. The economy is beginning to collapse again, and that collapse will accelerate around the Fall. The dollar too will also begin its delayed downward fall come Autumn. Just one example of what I speak: https://research.stlouisfed.org/fred2/series/CIVPART I would be happy to tell you more if you like, but I am already going to get pilloried for what I have already said. I do not sell anything, or push anything, but since you asked, and I follow this day in and day out, I thought that I would give you my very well informed answer. Take it for what it's worth. So let me know if you want more." Buy a rental property instead. You get tax benefits as well as passive income. And it pays for itself
"Often the counter-party has obligations with respect to timelines as well -- if your buying a house, the seller probably is too, and may have a time-sensitive obligation to close on the deal. I'm that scenario, carrying the second mortgage may be enough to make that deal fall through or result in some other negative impact. Note that ""pre-approval"" means very little, banks can and do pass on deals, even if the buyer has a good payment history. That's especially true when the economy is not so hot -- bankers in 2011 are worried about not losing money... In 2006, they were worried about not making enough!" Of course you don't need to take a mortgage - if you happen to have enough cash (or other assets) to pay your sister her share, or if she is willing to take it in installments over the next years. Mortgages are not needed to buy houses, but to pay for them - subtle difference. If you can pay - in whichever agreed way - without a mortgage, you won't need one. "You are mixing issues here. And it's tough for members to answer without more detail, the current mortgage rate in your country, for one.  It's also interesting to parse out your question. ""I wish to safely invest money. Should I invest in real estate."" But then the text offers that it's not an investment, it's a home to live in. This is where the trouble is. And it effectively creates 2 questions to address.  The real question - Buy vs Rent. I know you mentioned Euros. Fortunately, mortgages aren't going to be too different, lower/higher, and tax consequence, but all can be adjusted. The New York Times offered a beautiful infographing calculator Is It Better to Rent or Buy?  For those not interested in viewing it, they run the math, and the simple punchline is this - The home/rent ratio can have an incredibly wide range. I've read real estate blogs that say the rent should be 2% of the home value. That's a 4 to 1 home/rent (per year). A neighbor rented his higher end home, and the ratio was over 25 to 1. i.e. the rent for the year was about 4% the value of the home. It's this range that makes the choice less than obvious.  The second part of your question is how to stay safely invested if you fear your own currency will collapse. That quickly morphs into too speculative a question. Some will quickly say ""gold"" and others would point out that a stockpile of weapons, ammo, and food would be the best choice to survive that." If it were me, I'd pour my entire savings into paying down the mortgage. I'd also get a HELOC and a personal LOC to use as my emergency fund if I didn't have one already. I personally don't like paying interest on loans when I have cash in the bank to cover it. "A 30-yr mortgage IS a committment. So, you are willing to commit to a place, but not your long-term girlfriend??? Either you don't do this ""cheap"" scheme idea, or you set up as a business arrangement, or you get married. This is quite a laissez-faire statement you make... ""Maybe we will eventually get married, maybe we will eventually break up, who knows."" Anything or anyone that is a ""who knows"" is not what you make a 30-yr committment on. I mean, unless you just want to risk throwing your money away. Now, man up, hire the lawyer to do official paperwork or else get a legal certificate of civil union or marriage or whatever you want to call it. If you try to do your cockamamie scheme ""on the cheap"" now, it will most surely cost you dearly in the future! Mixing money (particulary huge sums of 200,000 $!) when there is no legal obligation like marriage or a business contract, is a fool's errand! Now, grow up and do it the right way if you want to help her - and yourself too." "As a legal contract, a mortgage is a form of secured debt. In the case of a mortgage, the debt is secured using the property asset as collateral. So ""no"", there is no such thing as a mortgage contract without a property to act as collateral. Is it a good idea?  In the current low interest rate environment, people with good income and credit can obtain a creditline from their bank at a rate comparable to current mortgage rates.  However, if you wish to setup a credit line for an amount comparable to a mortgage, then you will need to secure it with some form of collateral." Aggressively paying of Mortgage is better. If you have more cash available [assuming you have covered all other aspects i.e. emergency funds, retirement etc], the only question you need to ask is where will you invest and what returns would you get. So if your mortgage is say at 5%, if the spare money can get you more than this, its beneficial, if its in Bank CD with say near zero interest, its not worth it. However if you are sure you can make 10% returns on the investments, then go ahead and don't pay the mortgage aggressively. "I strongly doubt your numbers, but lets switch the question around anyway.   Would you borrow 10k on your house to buy stocks on leverage?  That's putting your house at risk to have the chance of a gain in the stock market (and nothing in the market is sure, especially in the short term), and I would really advise against it.  The decision you're considering making resolves down to this one. Note: It is always better to make any additional checks out as ""for principal only"", unless you will be missing a future payment." "Stripping away the minutia, your question boils down to this: Should I take a loan for something that I may not be able to repay? The correct answer, is ""No""." Considering that it's common for the monthly mortgage payment to be 25% of one's income, it's an obvious advantage for that monthly burden to be eliminated.  The issue, as I see it, is that this is the last thing one should do in the list of priorities: The idea of 'no mortgage' is great. But. You might pay early and have just a few years of payments left on the mortgage and if you are unemployed, those payments are still due. It's why I'd suggest loading up retirement accounts and other savings before paying the mortgage sooner. Your point, that rates are low, and your expected return is higher, is well presented. I feel no compulsion to prepay my 3.5% mortgage.  As the OP is in Canada, land of no mortgage interest deduction, I ignore that, till now. The deduction simply reduces the effective rate, based on the country tax code permitting it. It's not the 'reason' to have a loan. But it's ignorant to ignore the math. "If you are investing in a mortgage strictly to avoid taxes, the answer is ""pay cash now.""  A mortgage buys you flexibility, but at the cost of long term security, and in most cases, an overall decrease in wealth too.  At a very basic level, I have to ask anyone why they would pay a bank a dollar in order to avoid paying the government 28 - 36 cents depending on your tax rate. After all, one can only deduct interest- not principal. Interest is like rent, it accrues strictly to the lender, not equity. In theory the recipient should be irrelevant. If you have a need to stiff the government, go ahead. Just realize you making a banker three times as happy.  Additionally the peace of mind that comes from having a house that no banker can take away from you is, at least for me, compelling. If I have a $300,000 house with no mortgage, no payments, etc. I feel quite safe. Even if my money is tied up in equity, if a serious situation came along (say a huge doctors bill) I always have the option of a reverse mortgage later on. So, to directly counter other claims, yes, I'd rather have $300k in equity then $50k in equity and $225k in liquid assets. (Did you notice that the total net worth is $25k less? And that's even before one considers the cash flow implication of a continuing mortgage.  I have no mortgage, and I'm 41. I have a lot of net worth, but the thing that I really like is that I have a roof over my head that no on e can take away from me, and sufficient savings to weather most crises).  That said, a mortgage is not about total cost. It is about cash flow. To the extent that a mortgage makes your cash flow situation better, it provides a benefit- just not one that is quantifiable in dollars and cents. Rather, it is a risk/reward situation. By taking a mortgage even when you have the cash, you pay a premium (the interest rate) in order to have your funds available when you need it.  A very simple strategy to calculate and/or minimize this risk would be to invest the funds in another investment. If your rate of return exceeds the interest rate minus any tax preference (e.g. 4% minus say a 25% deduction = 3%), your money is better off there, obviously. And, indeed, when interest rates are only 4%, it may may be possible to find that. That said, in most instances, a CD or an inflation protected bond or so won't give you that rate of return. There, you'd need to look at stocks- slightly more risky. When interest rates are back to normal- say 5 or 6%, it gets even harder.  If you could, however, find a better return than the effective interest rate, it makes the most sense to do that investment, hold it as a hedge to pay off the mortgage (see, you get your security back if you decide not to work!), and pocket the difference. If you can't do that, your only real reason to hold the cash should be the cash flow situation." "If I were you, I would rent.  Wait to buy a home.  Here is why: When you say that renting is equal in cost to a 30-year mortgage, you are failing to consider several aspects.  See this recent answer for a list of things that need to be considered when comparing buying and renting. You have no down payment.  Between the two of you, you have $14,000, but this money is needed for both your emergency fund and your fiancée's schooling. In your words: ""we can’t reeaallllly afford a home.""  A home is a big financial commitment.  If you buy a home before you are financially ready, it will be continuous trouble.   If you need a cosigner, you aren't ready to buy a home.  I would absolutely advise whoever you are thinking about cosigning for you not to do so.  It puts them legally on the hook for a house that you can't yet afford. You aren't married yet.  You should never buy something as big as a home with someone you aren't married to; there are just too many things that can go wrong.  (See comments for more explanation.)  Wait until you are married before you buy. Your income is low right now.  And that is okay for now; you've been able to avoid the credit card debt that so many people fall into. However, you do have student loans to pay, and taking on a huge new debt right now would be potentially disastrous for you.  Your family income will eventually increase when your fiancée gets her degree and gets a job, and at that time, you will be in a much better situation to consider buying a house. You need to move ""ASAP."" Buying a house when you are in a hurry is a generally a bad idea. When you look for a home, you need to take some time looking so you aren't rushed into a bad deal that you will regret. Even if you decide you want to buy, you should first find a place to rent; then you can take your time finding the right house.  To answer your question about escrow: When you own a house, two of the required expenses that you will have besides the mortgage payment are property taxes and homeowner's insurance.  These are large payments that are only due once a year.  The bank holding the mortgage wants to make sure that they get paid.  So to help you budget for these expenses and to ensure that these expenses are paid, the bank will add these to your monthly mortgage payment, and set them aside in a savings account (called an escrow account).  Then when these bills come due once a year, they are paid for out of the escrow account." "I'm in the ""big mortgage"" camp. Or, to put this another way - what would you be happier to have in 15 years? A house that is worth $300,000, or $50,000 of equity in a house and $225,000 in the bank? I would much rather have the latter; it gives me so many more options.  (the numbers are rough; you can figure it out yourself based on the current interest rate you can get on investments vs the cost of mortgage interest (which may be less if you can deduct the mortgage interest))." "I think your analysis is very clear, it's a sensible approach, and the numbers sound about right to me. A few other things you might want to think about: Tax In some jurisdictions you can deduct mortgage interest against your income tax. I see from your profile that you're in Texas, but I don't know the exact situation there and I think it's better to keep this answer general anyway. If that's the case for you, then you should re-run your numbers taking that into account. You may also be able to make your investments tax-advantaged, for example if you save them in a retirement account. You'll need to apply the appropriate limits for your specific situation and take an educated guess as to how that might change over the next 30 years. Liquidity The money you're not spending on your mortgage is money that's available to you for other spending or emergencies - i.e. even though your default assumption is to invest it and that's a sensible way to compare with the mortgage, you might still place some extra value on having more free access to it. Overpayments Would you have the option to pay extra on the mortgage? That's another way of ""investing"" your money that gets you a guaranteed return of the mortgage rate. You might want to consider if you'd want to send some of your excess money that way." "I will echo the others; your home should be worth more to you than its market value. It is YOUR HOME. It's where you come home every day to your wife and kids, where you build a life. Yes it's an investment, but it's not like a stock or bond that you hold for a little while and then cash out for the profit. The one time you should be worried about being ""upside-down"" on your mortgage is if you're getting out. If you're moving to a new job at a new company in a new city, you have to make good on the remaining loan balance, and that won't all be from the sale of the house. Unless you're at that point however, if you can afford making the payments and have no reason to move or to cash in equity (of which you have none), then just keep making the payments. Hey, it's better than rent; you'll never see rent money again, while even if you're underwater, you're making headway with each payment."