Mortgage Free or Mortgage

[Schraderbrau]

I have a dilemma and I dont know what the best move to make is. I am in my mid 30's and I am about to have my mortgage paid off on my current house. It is nothing special probably an average house in Calgary worth about 500K. Me and the wife have now been contemplating moving into something bigger for the family but that would mean getting back into a mortgage after finally getting mortgage free. Right now we are in a 1890 sq ft home but we have been looking at some nice 2500 sq ft plus places.

I know most people work to being mortgage free for retirement and I feel fortunate that I have been able to get there well in advance of that. So my question is should a person be happy to be mortgage free or is it worth going bigger and mortgaging up again? I see advantages to both situations:

A new mortgage would not be an issue money wise by being Mortgage free gives us the freedom of not worrying about that mortgage payment and opens up a lot of money for other things.

Having a mortgage on a newer house gives us something that we have always wanted, a nice new big house, that we can grow our family in.

What would you do?

[Da_Chief]

Originally Posted by Schraderbrau

I have a dilemma and I dont know what the best move to make is. I am in my mid 30's and I am about to have my mortgage paid off on my current house. It is nothing special probably an average house in Calgary worth about 500K. Me and the wife have now been contemplating moving into something bigger for the family but that would mean getting back into a mortgage after finally getting mortgage free. Right now we are in a 1890 sq ft home but we have been looking at some nice 2500 sq ft plus places.

I know most people work to being mortgage free for retirement and I feel fortunate that I have been able to get there well in advance of that. So my question is should a person be happy to be mortgage free or is it worth going bigger and mortgaging up again? I see advantages to both situations:

A new mortgage would not be an issue money wise by being Mortgage free gives us the freedom of not worrying about that mortgage payment and opens up a lot of money for other things.

Having a mortgage on a newer house gives us something that we have always wanted, a nice new big house, that we can grow our family in.

What would you do?

Do that since money is not an issue. Do what you always wanted. Get a bog house!

[ken0042]

The big thing is how much more are you looking at? $100-150K wouldn't be that bad to owe; and most people your age would kill to have only that much owing.

That being said, no mortgage allows for other things like trips, earlier retirement, university funds, etc.

[Sylvanfan]

What do you plan to do with the current house?

Mortgage free in the smaller place and putting the former mortgage payment into equity investments will make you more money in the long run. But your life could be boring as shat. Even though you will be mortgage free, your house will still likely cost you 10k a year to maintain if it's 10 years old or older.

[GGG]

A bigger house luxury purchase. So you need to compare it to other luxuries.

If you put 300k into a bigger house at 3% interest you are paying 9k a year to service that debt. Lets assume that the non interest portion is a wash compared to other investments. So your cost of having a bigger home is 9k a year plus another 500 in property taxes and 500 in higher utilities.

So the question becomes it costs you 10k a year initially and say an average 5k a year for 10 to 15 years to get a bigger house. So you are looking at between 50-75k in costs to get a bigger house. As well as the bigger house using up a lot of investment dollars.

So what would you rather spend that money on. Travel, House, Vacation Property, Retire Earlier, work less. So pick what will make you happy.

[Sylvanfan]

I have been considering a similar idea. Certainly a lot different financial situation as I am closer to 40 and still owe a quarter million on my shat shack. I have been considering getting into a bigger place with a rentable basement suite. This essentially allows for a bigger house, for the same mortgage payment. Which I would hope would help with value as the property can generate revenue to help offset it's cost.

Still when the day comes where interest rates go up and the bubble blows up and every city in Canada turns into downtown Detroit..the bank won't really care about repossessing my house. They'll go after the nice places first and forget they had an interest in houses like the one I currently live in.

[Schraderbrau]

The houses we are now looking at are around $650K, I figure we would then have a 170K mortgage all said and done. With our current mortgage we were very aggressive our payments were around 2000 a month by choice. With a new mortgage at 170K over 25 years at current rates we would be paying about half of that or 1000 per month. After going so aggressive for so long I would back it off and enjoy life a little.

Our current house is also a 1998 so it is a bit older and would require some cash to keep it up. Going with something newer avoids those upkeep costs like carpet and shingles. We already bit the bullet on the big cost of windows so that is not an issue thought. A big part of me says go for it and buy the big house, but the conservative in me worries about rates going up and the bottom falling out.

[CalgaryFan1988]

Personally, if I was you, I would be happy to be mortgage free.

Your house is more than big enough to raise a family comfortably, I would probably keep putting the same amount of money that you were paying into your mortgage (or close) into mutual funds and RRSP's. In 20 years or so you'll be set.

That's me though, I'd rather just be content with what I have.


Also, most newer houses don't have the same build quality as older houses.

[Sylvanfan]

Originally Posted by Schraderbrau

The houses we are now looking at are around $650K, I figure we would then have a 170K mortgage all said and done. With our current mortgage we were very aggressive our payments were around 2000 a month by choice. With a new mortgage at 170K over 25 years at current rates we would be paying about half of that or 1000 per month. After going so aggressive for so long I would back it off and enjoy life a little.

Our current house is also a 1998 so it is a bit older and would require some cash to keep it up. Going with something newer avoids those upkeep costs like carpet and shingles. We already bit the bullet on the big cost of windows so that is not an issue thought. A big part of me says go for it and buy the big house, but the conservative in me worries about rates going up and the bottom falling out.

A former co worker of mine in Sylvan Lake has probably lived in 12 houses over the past 14 years all brand new. He has never spent a cent maintaining a house.

Really there might be a way where you could take out a mortgage for like 400k, and use the money you have to generate enough money to pay the full mortgage. With that type of equity, you can start looking at more tax efficient moves to help you pay for your house.

[Bring_Back_Shantz]

Originally Posted by Sylvanfan

A former co worker of mine in Sylvan Lake has probably lived in 12 houses over the past 14 years all brand new. He has never spent a cent maintaining a house.

Really there might be a way where you could take out a mortgage for like 400k, and use the money you have to generate enough money to pay the full mortgage. With that type of equity, you can start looking at more tax efficient moves to help you pay for your house.

Maybe not, but he's probably paid enough in realtor fees that he'd have been a lot better off just slapping a coat of paint on from time to time.

[DoubleF]

Depends what you need to do with your house. As others have noted, you have a decently sized home. Do you hate the community? Do your neighbors suck? Will your kids be sad to leave friends? Those factor in too. You have a few options...

Do nothing - One of your current choices
Purchase - One of your current choices (some newer homes are super shoddy, quite a few are pretty good, you'd have to do a lot of research). Can build brand new, or just purchase brand new
Renovations (Don't think it's been discussed yet).
Covert to a lifetime renter (Not really something I think fits your goal)

Personally, I would avoid moving if you like the area. There must be some way you could potentially adjust your situation to meet your needs. Storage lockers, throwing away or selling that dusty junk in the basement, telling the kids they can share a room till they move out etc.

You're in your 30s. A huge house sucks in a decade or longer when the kids leave the home for post secondary. But perhaps you will just downsize when that time comes? I mean, if you have accessibility issues with the place that won't be fixed via reno and clean up (neighborhood, lack of parking etc.), that's a different thing entirely because the upgrade is based on an actual need.

[bubbsy]

man i'm envious. Just bought a house (GTA) and have about half a million mortgage...

Would love to hear your approach to paying off the mortgage quickly (PM)!

[Locke]

What about putting the 170K on a LoC? It would allow you to pay as much or as little as you want.

[Schraderbrau]

Thanks for all in the input guys. Its always interesting to hear what other peoples thoughts are on things like this.

Bubbsy as for your question about paying off my mortgage fast Im not a guru when it comes to paying it down. For me part of it was pure luck and getting into the Calgary market at the right time (I bought a new condo downtown about 8 months before the boom of 2007 hit and made a really good return when I sold it) and the other part has been putting a lot of money towards my mortgage when i had the money to spare. I bought my first house at 21 and while all of my friends were buying big trucks and spending their money on toys I was putting every spare dollar I had onto my house. I also keep an agressive mortgage payment, rather then having a 25 year mortgage I set it for 20 years and increased my payments. Combine the extra money on the house with the agressive payments and after 14 years I have chipped away at it to the point where it is almost done.

[Schraderbrau]

Originally Posted by Locke

What about putting the 170K on a LoC? It would allow you to pay as much or as little as you want.

Maybe a stupid question but whats a LoC?

[Derek Sutton]

Originally Posted by Schraderbrau

I have a dilemma and I dont know what the best move to make is. I am in my mid 30's and I am about to have my mortgage paid off on my current house. It is nothing special probably an average house in Calgary worth about 500K. Me and the wife have now been contemplating moving into something bigger for the family but that would mean getting back into a mortgage after finally getting mortgage free. Right now we are in a 1890 sq ft home but we have been looking at some nice 2500 sq ft plus places.

I know most people work to being mortgage free for retirement and I feel fortunate that I have been able to get there well in advance of that. So my question is should a person be happy to be mortgage free or is it worth going bigger and mortgaging up again? I see advantages to both situations:

A new mortgage would not be an issue money wise by being Mortgage free gives us the freedom of not worrying about that mortgage payment and opens up a lot of money for other things.

Having a mortgage on a newer house gives us something that we have always wanted, a nice new big house, that we can grow our family in.

What would you do?

Congratulations, what a great place to be. Could you, or would you want to wait another 3-4 years and save up that much more and still be mortgage free in a new place? Once your current mortgage is paid off you will be able to save that much faster. Really though, owing 170k on a 600k home is still a good place to be should you want to pull the trigger now. As well, if you are considering renovating or upgrading your current place instead of moving, I would move. I hate going through all that BS, dealing with all the contractors etc... You could still be mortgage free by your mid 40's which isn't too bad.

The thing with where you are now luxuries will come easier for you which you may want to enjoy for a year or two as well. I guess it really depends what your priorities are. You could also just go for another year and see how you fell about things then, after a year of debt freeness you might want to stay that way.

The downside to waiting; my sister and her husband did this, they wated to not owe anything on their new place. They saved, and saved and worked and worked, the more they saved the bigger and more expensive their house became they were gonna build all along). When they finally moved thier kids were 15 and 17 so now three years later they have this huge beautiful house for the two of them as the kids have moved out and on to college.

[Derek Sutton]

Originally Posted by Schraderbrau

Maybe a stupid question but whats a LoC?

Line of credit.

[ranchlandsselling]

Honestly I see it as a wash.

You've got a $500k house paid off. Consider being mortgage free as you've got enough equity to buy the average house in Calgary.

Move up, you've still got $500k in equity to buy an average house in Calgary should your financial situation change. Housing market goes up, you've leveraged yourself that your gain will be more than it would have been in the smaller house. Housing market goes down, your equity would still buy your old house back regardless as it would have gone down too. Congratulations you're now where most 50 year olds should be.

I know a buddy that just got a $900k mortgage. He has no interest in it amortizing, took a 30 year amortization (asked for interest only). He has 40% equity +/- and simply wants to keep the $900k working in his better interests.

What you've done is awesome but perhaps it's time to consider what that now frees you up to do. Just keep on the same mantra as you have been when it comes to not buying stupid toys (unless you want to). You should also be looking at your entire financial portfolio. You don't want to be 100% tied up to one asset (your house).

Caveat - taking out a HELOC and investing arbitrarily in the stock market with the hopes of being a wizard is a terrible idea and not what I'm talking about. That said, a good financial planner/advisor could help allocate or reallocate some of your net worth even if you go and buy a new house. sub 3.0% debt is an amazing tool at the moment if used properly.

[Bring_Back_Shantz]

I don't see the point of buying a new house just becasue it is bigger.
To me a bigger house isn't worth the money.
What is worth the money is the lifestyle you want.

I've lived in the burbs for the last 10 years, and have been mortgage free for several years.
I just bought a new place, and got back into the mortgage game because I wanted to move to the inner city, mostly I've acquired a taste for lattes, and have grown tired of Yop.

I could have just bought a bigger house where I was, but I decided to buy a smaller place where I really wanted to be.

So if you're just looking at getting a bigger house (1800 sqft, isn't small) for the sake of having more space, I'd say, why bother?
If you're looking at moving somewhere that will make you're quality of life better, then go for it.

[darklord700]

I think having a managable mortgage is a good thing. First the gain is sheltered by principle resident deduction. Second, you are forced to save by paying down the mortgage. In these crazy low rate environment, having a $150K mortgage isn't a bad thing.

Some people'll just waste away their mortgage payment when they become mortgage free.

While I was mortgage free for a while, I bougth better cars like a brand new CRV. Normally, I would have bought a slightly used CRV instead.