The sale of a principle requires the seller to find other shelter after the sale. This results the asset being even less liquid than typical real estate.

It provides no Return on investment.

This is not to say that buying a principle residence is a bad thing financially. On the contrary it can be a very wise thing to do in a tight rental market.

Consider a tax deductible (mortgage + property tax) vs rent.  In many areas, you are money ahead to pay the mortgage+tax vs rent.  And someday when the mortgage is paid off, the shelter expenses in your budget disappear.

So it is my belief that only your heirs will ever realize this investment because, only on the owners death will the asset turn into something that can provide a return (rental property) or sold.

And it should also be pointed out that while I do not think that houses are good financial investments, I own one and will always own one. I own one for quality of life reasons.

I once had a couple of Caltech Graduates in a rental property.  They kept doing the math on purchasing housing as an investment never came out on top.  It was not until I pointed out to them the quality of life issues associated with owning that they purchased a home and I lost some very good tenants.

Pro Opinion  [Stuart Balfour]
In California, property increases in value in excess of inflation, though it is highly cyclical.  In other states like Indiana, property values are not very cyc lical and increase in lockstep with the rate of inflation. In Indiana, purchase of residential property cannot be an investment.

In California, one cannot afford to ignore the appreciation potential of land and residential property.  Buying property on a mortgage of 80% gives one a 4:1 leveraged investment on the potential for an increase in value of the land.  If you wish to speculate even more, buy the property on a 10% mortgage for 9:1 leverage.  The opportunity for profit lies in the increase in value in absolute dollar amount being greater than the interest paid on the mortgage.  You have put down only a small investment, but you are capturing the increase in value of the whole property.

As with all leveraged investments, the greater the leverage, the greater the risk.  If held solely as a speculative investment, owning a whopping 90% mortgage when land goes into a down cycle may bankrupt you.  Contrast a homesteader who's going to live there for umpteem years and doesn't care.

The only way out of paying PMI is to prove that you now exceed the 80% loan-to-value ratio.  This typically requires an appraisal and, depending on the lien holder and PMI company, can be difficult.

• Margin loan stock you already own. It is safest to only margin 25-30% of your portfolio instead of the allowed 50% to prevent the loan from being called.
• Get a loan from your 401(k). With a house purchase you can take 10 years to pay this off.  Drawback: the loan becomes due if you quit working at Cisco.  This loan is against your own 401(k) balance.
• Withdraw money from your IRA, if this is your 'first home'.  Drawback: reduces your IRA balance and it isn't possible to re-deposit the withdrawn monies into your IRA.

That said, it doesn't mean that there are no downsides to no-point no-cost refinancing. The chief among them is that though you might be getting a deal better than what you currently have, you aren't getting the best. More in Stuart's own words.

[Stuart Balfour] (Paraphrased) There is actual work involved in refinancing. Like appraisal of the house, preparation of the documents etc. Someone has to pay the money for this. And you are fooling yourself, if you don't believe it is you. You either pay upfront, or it gets added to your mortgage, or you get locked at a higher rate (typically .25% to .5%). For every no-point no-cost offer there exists an offer at a lower rate, if you are willing to pay the closing costs up front.

The alternative to refinancing a no-cost, no-fee loan would be to borrow an amount of money equivalent to the normal costs and fees (home equity line), and re-invest that money long term. You will typically be able to invest the money at a rate higher than the note rate, and come out ahead. The difference can be significant: for example, if the typical costs of a $400K 80% mortgage on a $500K home run 1.25%, that's $5000. If the note rate is 6%, borrowing $5000 for 30 years would result in repayment of $10,792. But the $5000 invested at 10% would result in capital of $82,247. So the net at 30 years would be $71,455 in your pocket for NOT refinancing. Of course, we then need to consider the difference between the total of payments of the old loan versus the new. If the difference is less than $71K, you lose to refinance. These numbers will be different if the loan is not held to maturity.

[Chui-Tin Yen] My opinion is that refinancing with a true no-closing cost loan will definitely save money. With the following exceptions:

1. Because you have to take out a new loan first and then pay the old one off. The interest overlap may not be recovered.
2. Time is gold (or, work is a hassle). Refinancing requires paper work, taking hours off to sign escrow documents (usually means both couple). So it really depends on how much saving would justify your troubles.
3. Risks. Each time you refinance. You are taking some risks. If your payoff check is sent by FedEx and scheduled to arrive on 9/12/2001, you are screwed. You should also be careful to check the closing fees for surpises too. Such as unreimbursed appraisal, credit check fees, etc.
4. Timing. By refinancing now. You lose the ability to refinance for 30-90 days due to overheads. Over this period, interest rate may drop.

Each individual will consider these factors differently. So it is hard to say how much of a difference is justified.

1. fix up: paint, landscaping, housecleaners: $5K+
2. inspections: building, termite, foundation, chimney, maybe others: $1K-$2K If the inspections turn up any mold, termite damage, cracks in the foundation, or other infirmities, you can have substantial expense to remedy them, or take a big hit on sale price.
3. appraisal: $350-$450
4. any buyer-required fixups, as per buyer's agent or inspectors (usually there are some of these): $??
5. capital gains taxes on profit above $250K (single) or $500K (married)
6. county and local taxes (usually divided up as per custom, but seller ends up paying most of them).
7. prepayment penalties on mortgage payoff, if any
8. packing and moving costs (if you actually live in the house)
9. survey (most times not required on urban properties, but often required for rural properties). If a fence or structure has to be moved or removed because it's over the property line or in the setback, this can be additional substantial expense.
10. costs to correct any zoning, ordinance or CC&R violations (I had to fill in a basement one time, though it had been there for 12 years. Another time I had to cap an active well, and remove underground abestos pipe from the property. These aren't cheap.)

1. mortgage settlement costs (assume $400K mortgage on $500K home): 1%-1.5% of amount borrowed: $5000
2. lenders appraisal: $300-$400
3. buyers appraisal: $300-$400
4. buyers inspections: $1000-$2000
5. moving costs: >$1000
6. county and local transfer taxes, buyers share (usually paid through escrow)>/li>
7. escrow costs: .5%-1% of value of property: $3750 (title insurance, escrow fee, document costs)
8. down payment, if not carrying over equity from a previous home: 20% of property value: $100K.
9. boundary survey (if the seller doesn't provide one) on a rural property, $1200 (optional)