Cash vs Mortgage: What is the Best Option?August 31, 2020
The debate of cash vs a mortgage when it comes to buying a house came up in a recent discussion. For some people the answer would be it’s a “no-brainer!” However, if you are an individual who is not a part of the 1% category, when it comes to having more money than you know what to do with, then you may not be so quick to hand over all that cash. There are sometimes substantial benefits to doing this. In my opinion the answer is not always as clear-cut.
“Paying Cash depends on Your Financial Goals“
“The more cash you have is the more attractive you look to sellers.”
It is not uncommon for someone who has the means to pay all cash for a house to take a small mortgage in order to ensure that all their liquidity is not tied up in one asset. This practice ensures that you have enough money available for unexpected events and additional savings.
It is also my personal belief that deciding whether or not to pay all cash for a home depends on certain factors. For instance, if you are purchasing a house to use as a means of income. In this case, the rental income should be enough to cover the mortgage payment and provide additional income for the homeowner. Therefore, this should eliminate the need to pay all cash.
Another factor to consider is whether the total cost to acquire the property will be burdensome. If this is not the case, paying cash may be the way to go. However, if you are in search of your dream home, and are considering using funds which are a part of your investment portfolio, then it may be advisable to consider paying down only a portion in cash and borrowing the rest. You should ask yourself, is the risk of losing the interest on the investments worth the interest you are saving from paying cash?
“Weigh the Pros and Cons”
“Developing pros and cons will help you make the right decision”.
Recently, the following article by Greg Daugherty on Investopedia was being reviewed. It was found to be rather informative and insightful. For anyone who may be weighing their options, this may also help you to make a well informed decision. Like most things in life, you should first weigh the pros and cons in order to determine which option is right for your unique situation. The following pros and cons for paying cash were highlighted in the article:
- You’re a more attractive buyer who is more likely to be taken more seriously by sellers
- You could get a better deal as you are in the perfect position to bargain
- Avoids the hassle of getting a mortgage
- Tying up your money in one asset class
- You’ll lose the financial leverage that a mortgage provides
- You’ll sacrifice liquidity.
Before making such a big decision it is recommended that you seek out the advice of a licence professional, such as a Financial Advisor.
I would love to know your thoughts re the topic, as well as the article. What would you do if you had the funds readily available? Would you pay all cash for your home, or would you get a mortgage and keep the funds invested? You can check out the article for yourself below