WITH MORTGAGE RATES BELOW 4%, MORE AND MORE PEOPLE ARE WONDERING IF THEY SHOULD JUST GUARD THEIR SAVINGS AND GET A MORTGAGE ON THEIR HOME. LET’S EXPLORE A FEW PROS AND CONS OF GETTING A MORTGAGE:
- Pro – The two big reasons to take out a mortgage even if you can afford to pay cash are maintaining liquidity and maximizing returns. Paying all cash, while commendable, isn’t a good idea if it means committing too much of your savings to an asset that is inherently illiquid. You don’t want to get into a situation where you are forced to sell the house or other investments at the worst time possible.
- Con – On paper, getting a mortgage and using your cash to invest may seem like a better deal. What that equation doesn’t account for is the enormous sense of satisfaction that comes with owning your home outright. No one can put a price on peace of mind. Odds are that you will make more over the long run investing those funds, but what you save on interest over the life of the loan – tens of thousands, if not hundreds of thousands of dollars – isn’t vulnerable to market ups and downs.
- Pro – Using your mortgage as a tax strategy. We often see clients that could pay cash for a home and have plenty to spare. What we are finding is that a lot of those buyers are acting under the advice of their accountants. Accountants know that you can use mortgage interest to help reduce your annual tax liability.
- Con – Cash empowers you to make a better deal. When making an offer on a home, cash talks. If you are able to close quickly without the need for financing, you are often a sellers’ first choice when they have multiple offers.
When it comes to finances there is no right or wrong answer that fits everyone’s financial situation. Go with your gut, speak with a trusted accountant or financial advisor. Remember, you can always go for the middle ground, and for many buyers this may be the best option of all. Take out a mortgage and lock in today’s historically-low rates, but make more than the minimum payment whenever you can.