Using Your Cash vs Getting a Mortgage
Most of us grew up hearing, from our parents, how bad it is to be in debt and, as we got older, the same advice is given to us by friends and business associates. So, it is only natural to assume that, if you had the choice, you would buy a home with cash; or sink as much cash as possible into your home to avoid the massive debt associated with a mortgage.
There are advantages to buying your home with cash versus obtaining financing via a mortgage.
Paying cash for your home eliminates not only the mortgage interest payments but also all the ancillary expenses that come along with getting a mortgage: appraisal fees; bank fees; lawyer fees; stamp duty fees. So, in essence, you get the house at a lower overall expense to you.
Cash will make your offer more attractive to most sellers, because in most cases it has the flexibility of closing the deal faster, if required, than one requiring financing. Plus, a cash offer might allow you to get the property at a lower price, a cash discount if you will.
Also, a cash buyer’s home will not be leveraged, which gives you, the homeowner, greater autonomy to sell the house more easily – even at a loss – regardless of market conditions.
Not So Quick Though…Mortgages Can Also Make Sense!
Seeking finance, regardless if you have the cash, or a significant amount, also has significant benefits. Just because you can pay with cash does not mean you should.
Tying up all, or most of, your liquidity in a real estate purchase could tie your hands in other transactions. Opting to go with a mortgage can give you some flexibility in future investment opportunities’.
Cash buyers also need to be sure to consider their medium to long term plans. If the home requires major repairs or renovations, it may be tough to obtain a mortgage down the road, as you don’t know what your credit report will look like, how much the home will then be worth or other factors that determine approval for a mortgage. Having cash on hand to effect major home maintenance can be a major benefit to you.
The best advice though, when considering which option makes the most sense to you, is to opt for the choice that gives you the most return for your investment.