Better late than never… some good reads from around the Web.
I enjoyed reading a guest post this week from American’s superstar coupon blogger Money Saving Mom, all about slapping down a suitcase of dollar bills to buy a house.
In How we paid cash for our first home on the ever-gigantic Get Rich Slowly blog, Crystal explains how she and her husband dug their way out of debt, then decided to avoid getting a mortgage altogether:
It felt like a mammoth goal and we weren’t sure if we could do it, but we decided to go for it anyway. We figured that, even if we didn’t make our goal in five years, we’d at least be a lot closer to it than if we didn’t try at all!
Plus, from our calculations, we’d be in a lot better position to wait to buy — even if it took seven years to save up enough for a house — than if we were to go ahead and get 15-year mortgage and pay it off early.
The blog comments are worth reading, too; there’s clearly a Stones Vs Beatles / ZX Spectrum Vs BBC Micro / Jamie Vs Gordon / Cats Vs Dogs type split.
Were I to decide to buy a house here in the UK, I often wonder whether I’d use a mortgage or pay cash:
- On the one hand, I hate debt.
- On the other hand, I fear inflation and consider a mortgage a decent hedge.
My situation would be complicated by the fact that I’d have to sell a slew of investments and deal with capital gains tax to raise the money to buy a house.
On balance, I think I’d probably consider the mortgage a way to gear-up my investments relatively safely, but I don’t guarantee it.
It’s very possible that running my finances like a mini-hedge fund that’s up to its eyeballs in debt would pale when my righteous debt-slaying hand hovered over the death sentence mortgage documents!
From the investing and money blogs
- The foreclosure project: Final numbers (and pics!) – Mr Money Mustache
- Why we love the one we’re with – Canadian Couch Potato
- What can we learn from past performance? – Oblivious Investor
- Back to retail shares – ValuehunterUK
- Why do students study fruitless subjects? – Simple Living in Suffolk
- 10 more old wives’ tales about money – Len Penzo
- Obama plans aggressive clean energy push – EarthTechling
Deal of the week: If you need some brainy reading to impress that hottie (gender neutral!) from the investment bank, try Models.Behaving.Badly. (Hat tip to the Psy-Fi blog).
Mainstream media money
- The myth of Japan’s failure – NY Times
- On John Bogle (the inventor of index funds) – Alan Roth / CBS
- How my nano portfolio beat the S&P 500 – Reuters
- RBS and the banking bonus culture – Peston / BBC
- When average hides a multitude of sins – FT
- Could FSA ban structured products? [I hope so] – FT
- Lender unveils all-time low 3.99% ten-year fix – FT
- UK savers offered Renminbi-denominated accounts – FT
- Two extra days for self-assessment returns [Deadline now 2 Feb] – FT
- How to make money out of dying – Telegraph
- Record £68 billion dividends paid by UK listed companies – Independent
- Is PayPal secure for sellers? – The Guardian
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That 3.99% mortgage looks tempting but 10 years is a ‘long time’.
Across in Europe interest rates have been lower for years.
Maybe it’s our time?
I paid off my very low LTV and very low interest mortgage early, which made absolutely no financial sense whatsoever, but it made me feel good.
If you’re looking at property and thinking about gearing and hedging, then you might be over-thinking things. Work out what will make happiest, taking into account your physical needs, emotional needs, and attitude to risk, and do it.
People want different things from property, which is why there is no one right answer, and also why it takes so long for some to decide what’s best for them. This is fine as sometimes this waiting is a key part of the process.
On the other hand, Sun Tzu said that “cleverness has never been seen associated with long delays,” and I’m sure that I’m not the only one growing weary of your interminable dithering. 🙂
Ha! Love it, Gadgetmind.
I’m coming at the problem from the other end. Accumulating the assets to pay off a mortgage with an unlimited overpay facility. I’m trying to work out how I’ll feel when I hit the magic number. Will I be able to hand over the loot to the bank and reset to zero or will I want to sit on the hoard like some aged dragon?
A dragon? Doesn’t this article feature your good self making effective use of your hoard?
http://monevator.com/2011/06/02/protecting-your-money/
@TA how about paying down to the minimum (was £1000 for me) and thinking it over for a year? You almost stop paying for the privilege and can then drawdown the overpayment and take the hedge fund route if you want.
It’s hard to place a value on owning outright and having nobody to push you around. Was well worth it to me.
Are you happy with the security of your tenure?
What do renters do when their landlord defaults on the mortgage payment or simply decides to sell-up? It may not be such a big deal when single or just a couple, but when you’ve got kids it’s a nightmare.
People in old age who rent tend to struggle more than those who own their own home, for obvious reasons.
You can always way up the pros and cons.
If you’ve got the cash, why not look at an offset mortgage.
I pretty much paid cash for my first house. I ended up waiting for the prices to go down for so long when it finally came time for me to die, I had about 85% of the price in cash, so just took a tiny mortgage for the balance rather than sell shares. I didn’t like the rates on any of the offset products and can save the extra cash I have from a tiny mortgage into random investment trusts.
Interesting string of comments! For my part:
1) You need a place to live
2) Property as an asset class should be in your portfolio but one house/flat is probably more than enough
3) No capital gains on any increase in the value of your domestic home
4) Owning your house reduces your current outgoings, meaning your need for other sources of income is less
5) A mortgage is a debt – personally I don’t like debt
6) Over the longer term, property values are likely to keep up with inflation
7) A house/flat is the ultimate ‘buy and hold’
Brilliant comments, with much to think about — thanks.
I hope I’m not stretching anyone’s patience with my property prevarication – it’s been going on 7-8 years now, so I’ve got form!
At the very least I want to finish my big property price series first. Keep putting off the next update after Lemondy’s challenge to deflate house prices by average earnings — not too hard, but not yet done.
Buying a house is a very emotive undertaking. Far too many people make decisions based on headlines and headline figures. To buy? To rent? Mortgage? Cash? There is no one right answer, rather take a considered view of your personal circumstances and you probably won’t go far wrong.
@Gadget
Liking the Sun Tzu stuff, in a similar vein Hagakure advises us to treat matters of great concern lightly and matters of small concern seriously – and one should make all decisions within the space of seven breaths…
…there’s always Seppuku if it all goes tits up
@ Gadgetmind – hee hee, if it quacks like a duck…
@ Ermine – good advice. Tales of the wonderful weightlessness of debt freeness keep me going.
@ Ben – Great quote, this explains why I spend so much of my time obsessing about TERs.
I have always been in the camp of buying for a house in cash – so congrats to her for getting it sorted out.
That’s what financial dreams are made of.