It is very easy to have your mortgage paid off and have your money liquid. We have a line of credit on our house where we can draw up to $250K just by writing a check. That's pretty darn liquid. And at 4.5%, it's pretty tough to find a better short-term loan.
So if liquidity is your main concern, pay off the house and get a LOC that you can draw from if needed.
I can almost guarantee that rates on your LOC in the future are going to be higher than they are now. Not to mention the fees involved. He can lock in a spectacular rate NOW. If he goes 15 year fixed (which is what I'd do if I were him) it gets that much better.In this day and age, liquid cash has a much higher peace of mind factor than the paid off illiquid asset. IMHO, of course.
We're doing fixed rate helocs on folks like kutta (good credit unencumbered property or very small balances) at 5.5 and 10 years. Most home equity lines have a 10 year fixed rate. You can lock 5.85 for 15 years. Also many people with adjustable rate helocs are converting to fixed for a small fee. Others are sitting on sub 4% adjustables with rates so low. And any access to the very easy liquidity carries the interest rate tax benefits.
I'm another vote for pay off the house.
I'm just not excited about the financial aspects of building your own. I meant to comment in the other thread Tiger started on that, but he seems to have looked around enough to feel only building will satisfy him. Shame.
Can you expand on this? Legitimately curious. I'll take a PM if necessary.
Please post...willing to listen (even though I have no other option - i own the empty land and have to build on it)
This isn't a big deal. As TGunz has pointed out many times in the long RE thread, the economics of real estate is regional, so what I have to say may not even apply. But with so many REOs on the market being sold 40%+ below 05-06 values, it seems like someone buying in this market would be focussed on finding a steal. In hard hit regions home sales are actually very brisk driven 50%+ by foreclosures, distressed and short sales and the bargains are real. I am very close to buying one or two homes in such a region because I can get a positive cash flow instantly. The price-rent ratio is finally in line and the deflation may have overshot the bottom (mathematically). My hesitation is based on the possibility of rents crashing in the area (Temecula CA). So, I'm watching closely. It isn't like I will lose the opportunity. If I had the money I could buy ten tomorrow. Inventory is sky high. All of this downward pressure on housing has new home sales at levels not seen since the 50s and new construction is stalled. The material cost of building hasn't deflated while used home prices have. In some areas brand new construction is being sold for a loss just to keep the cash flow moving. But the point is, the best deals are in existing homes, not new construction.
All that said, build away if you have the land and use the economy as leverage with your builder. Good luck.