net worth depends on how home is financed
Real estate news By Jack Guttentag
Feb 26, 2007, 4:00 am PST
"I am buying a house for $180,000, which I could pay
for by selling assets, but everybody tells me to leave my
assets alone and take out a mortgage. Their advice makes
me nervous because it is always based on generalities, such
as 'you want the mortgage as a tax shelter' or 'you should
leave your investments alone.' They don't know anything
about my tax status or my investments. Is there a better
way to make this decision?" There is a better way.
Use a spreadsheet called "Future Net Worth," which
can be downloaded from my Web site.
The spreadsheet allows you to measure your future net worth
on the assumption that you pay all cash, then measure it
again on the assumption that you take a mortgage, and see
where you end up in each case. The spreadsheet calculates
your net worth year by year in both cases. I will illustrate
the process, using my own assumptions, which will be simplified
to make the explanation easier to follow.
I assume you are purchasing a house for $180,000 and your
nest egg also amounts to $180,000. You can use the nest
egg to pay for the house, or you can leave it untouched
and borrow the $180,000. (Of course, the spreadsheet also
allows any combination in between, such as making a 20 percent
down payment from the nest egg and borrowing the balance.)
The loan would be a 30-year fixed-rate mortgage at 6 percent
with a monthly payment of $1,079. I assume that you have
$1,500 of income on top of that available for investment.
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