Since we were old enough to care, we’ve probably had it instilled in our minds that debt is a bad thing and to avoid it at all costs. Many would say this was sage advice, and few would argue with that notion; I wouldn’t argue with that notion.
I will, however, contend that mortgage loans may actually be favorable over paying for a home in cash. Now, before you disregard everything I’m about to say, hear me out.
Related: How to Apply For a Mortgage
Not everyone has disposable income they can throw at a house to pay for it in full, but if you do, you’re probably a money savvy individual who makes smart financial choices. With that, obtaining a mortgage allows you to invest the money you would use to purchase a home into stocks, bonds and other types of investments.
Why is this good? Well think about it like this, say you take $300,000 (price of your potential home) and sock it away in a mattress for future use, such as retirement. That may seem like a sizable nest egg, but with the average cost of living sitting at $40,938 per year (without taking into account possible social security or pension payments) you’re going to run through that $300k in less than 10 years.
Now, say you take that $300,000 and invest it in a diversified, balanced portfolio of stocks and bonds. Over time your assets may grow, and once you’re ready to use that money (let’s say for retirement), you could have grown your investment considerably by letting your money work for you. Investments allow the money you have saved to generate more income through interest.
Of course, you can counter this logic by pointing out that a mortgage includes paying a sizable amount of interest over the course of the loan. While it is true that you’ll be paying interest that you otherwise would not have paid by buying your home with cash, with current interest rates as low as they are, there is the possibility that the gains you make in the market more than offset the interest you’ll pay on the loan. A good compromise may be to make a sizable down payment and invest the rest, that way you are diversified among real estate and the stock market.
Growing your liquid money through investments isn’t the only high point in getting a mortgage. Thanks to the IRS, you can deduct interest payments from your taxes and put that money towards your savings, and who doesn’t love tax deductions!
Remember, even if you purchase a home in cash, there are still regular payments that need to be made on property taxes, home insurance, and HOA fees.
At the end of the day, the decision to get a mortgage loan or pay in cash is up to you and depends on what’s best for your needs. If getting the most bang for your buck is a priority, then a mortgage may be a very good option. Growing your liquid funds and having money stored up for an emergency is a great reason to opt out of paying cash for a home, even if you can afford it.
Interested in applying for a mortgage? Head over to AmeriSave.com and check out our rates today!
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