Monday, April 7, 2014

BIG HOUSE, Small House

I always enjoy talking with my neighbors, who are mostly retired, and listen to their stories growing up. Some of them grew up in our neighborhood and knew each other since they were little. One of them used to swim in our swimming pool (now covered with a redwood deck) in the summer when he was about seven or eight.

Back then people would buy a house and they would stay in it until it is paid off. Neighbors had time to know or befriend each other. Their children grew up or grew old together. Retirement was easier then because there were no mortgages to worry about.

It is very common these days that after building up a little equity, people would sell their house to acquire a bigger and fancier one. There is nothing wrong with doing that, IF you can afford it. If it will put your finances in jeopardy, DO NOT DO IT. 

There are so many things to consider before deciding whether buying a bigger house is the right thing to do. You have to ask yourself the following questions:  

  1. Do you have enough time and money to pay your mortgage off before you retire? 
  2. Can you afford to pay higher monthly mortgage?
  3. Are you prepared to pay higher property tax and home insurance?
  4. Can you afford the upkeep of a bigger house?

By staying in the same house they bought long time ago, my neighbors are still paying the property tax based on the original price of the house. The value of their house is also way up compare to the original price they paid. 

The same thing helped us kept upfloat after losing some of our investment income. Having no mortgage to worry about and having a very low property tax made it easier for us to adjust to our new budget. We would really be in trouble right now if we had a mortgage to pay.

If you ask my neighbors for tips on how to retire comfortably, they only have one thing to say; plan on paying off everything while you are still working. When you retire, the only bills you should have are the utility bills. 

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