Well, that depends. Everyone gets worried about how much interest they are going to pay.

Here is the interest you pay on a 30 year note for $200,000 at 6% interest (assuming you pay $1200 a month on the note, I just estimated that):

$231,095.51

Including principle you have paid $431,095.51 for the $200,000 house.

Sounds like alot.

Now then, here is the amount you would have if you invested the same $200,000 at 10% return in the market over the same 30 years (compounded annually):

$3,489,880.45

So, at the end you would have $3 million more dollars by investing that money instead of putting it into the house. Of course, the house would appreciate in value over those same 30 years. I would be surprised though, if a $200k house would be worth $3 million in 30 years, not to mention that in my scenario I STILL own the house. I just paid $231k more for it than you did. I turned those years into $3 million though. Now then, if you pay cash and invested those $1200 every month that you would have paid on a note, the numbers would be similar, but I would still come out ahead because I started with $200k while it would take you 13 years to do the same.

One last point. Let's say you buy a $150,000 house and sell it 10 years later for $500,000. That's a 233% return. Pretty good. If you put $15,000 as a downpayment on the same $150,000 house and finance the rest, when you sell for $500,000 10 years later you have made 2,333%....

Certain types of debt are to be avoided at all costs. High interest revolving debt comes to mind. Certain types of debt are useful though, low interest mortgages are one of them.

Companies and investors use this principle all the time, they get financing for purchasing new acquisitions and such. Most corporations continue to carry debt even when they have enough cash to pay if off. That is because their return on that cash outweighs the interest they pay the lender.

Aha.

The assumption is a 10% roi. I would say that is extremely optomistic, given the long range world economic forecasts and the pall that any curtailment in energy sources casts over everything. Look back at the performance of the markets during the first half of the 20th century. Not much movement there. We have been in an expansionist mode from about 1947 through the early 90s. The bottom fell out of certain sectors; others have shown some growth, but much of it has been relatively flat. Interest rates are currently low relative to the 80s, but high historically.

The internet is a poor place to try to explain financial concepts. Suffice to say that I have seen no forecasts that have turned out to be as optomistic as people would like. You have a high tolerance for risk, and that is possibly a function of your age, being somewhat on the "younger" side!! Trust me. That will change over time. If it does not, be prepared for a very rough ride in your golden years!!

Companies have armies of accountants and their hands in the pockets of the lenders. I do not have those options. Do you? You are on your own, totally dependent on the largess of the larger system, and content to take what ort falls from their table.

Ummmm...You seem to keep forgetting to reduce your profits by the interest you pay over time. You mention the interest, but not how it effects your "bottom line".

Have you, in your figuring "disaster proofed" your portfolio by diversifying into less "volatile" investments? LIke I said, Beware the Enrons that are out there!! Talk to those former millionaires.

It is ,as I have made the excuse for myself before, a function of my age. I don't even buy green bananas anymore, so most of my investments are as bulletproof as they can be while giving be a decent return.

Yes, the assumption is 10% ROI. That is what the market has done over the past 100 years. If you want to assume a 6% return, I still make $1.1 million over the 30 years. You seem to think the market will stagnate over the next few years. That is possible. Do you think it will stagnate over the next 30-40 years? That is my investing horizon. If you think the market will be stagnant or decline over the next 30 years you are betting on something that has not happened since the market began.

You are correct in that my risk tolerance is on the higher end of things...yes that is a function of my age. It is wise to move investments into less risky vehicles as you age. It is unwise to use those low risk investments when you are young, however.

I thought I did reduce my profits by the interest paid, my total return was almost $3.5 million in the example and I only claimed $3 million in profits. That is my initial investment minus the interest paid.

To the last question, yes I am diversified within the equities markets. I do not own bonds or gold right now as it doesn't fit with the profile for my age. In time I will move funds from equities into safer, income style investments. I am in no way advocating the same cookie cutter approach for everyone, I am saying that for those with a longer term to invest this strategy may make sense.

Rick,

I went to my old lender when I was looking to move and gave them the first shot. Told them I was relocating from Dallas to Phoenix and would be needing a new loan. Was ready to pay 20-25% down and wanted a good rate.

They went in their computers and after seeing my FICO (780 or so) they came back with a very good offer. Two years later I wanted to re-fi and again went back to them and made them the offer of doing a re-fi with no points or minimal charges or I could go elsewhere. Again they did the total re-fi for about $350 and my loan rate went down by 1%.

If your existing morgage holder is happy with you and your FICO is good then you hold most of the cards. Push the limits and tell them that you are not paying PMI, points and so on or you will go elsewhere. They do not want to lose the business and usually will match others offers as the paperwork is minimal for them where-as you start over with other companies.

Rick, I agree age has alot to do with it. I'm 49 and as I said I plan to retire soon. Actually I planned to retire a 47 but I cant seem to pull the trigger. Work isnt as bad when you don't have to be there.

I havn't run all the numbers but I also assumed that I would be investing the money that I would have been paying in interest. In your $200k example that is probably over $900 a month for quite a few years.

Also I look at my house as part of my overall holdings. If I don't have to make that $1200 month payment , that saves me from having to make something like $1600 to clear the $1200.

Ive been investing in the stock market since 1980 and one thing Ive learned is to diversify. That means some fixed income to smooth out the bumps.

At least your running the numbers. Thats better than most. Just remember to invest the money in appreaciating assets.

Good Luck!