Should you pay all cash or take out a mortgage

Not everyone can pay all cash for a home purchase.  Even if you can pay all cash, it’s not always the best route to go.  Below are the advantages and disadvantages of paying all cash versus purchasing a mortgage.

The benefits of paying all cash for your mortgage:

  • No interest payments
  • No principal payments
  • No credit check
  • No income qualifications
  • No bank or mortgage lender
  • No lender fees

Disadvantages of paying all cash:

  • Ties up all your savings and disposable income
  • Real estate is not easy or free to sell
  • Property could lose value
  • You lose taking the mortgage interest deduction on taxes
  • House rich and cash poor if all your savings is tied up in the house

Benefits of taking out a mortgage:

  • Mortgage interest is tax deductible
  • Mortgage rates are low
  • Small down payment
  • Cash on hand for other things
  • Improves credit score
  • Can pre-pay mortgage
  • Less risk if something happens to your home

Disadvantages of buying a home with a mortgage:

  • You don’t own the home until it’s paid off
  • Must get approved for a mortgage/could get declined
  • Incredible amount of mortgage interest gets paid
  • 15 to 30 years of monthly payments
  • Harder to sell a property with little to no equity

The best of both worlds would be to take out a mortgage, pay a bigger down payment and pay more than the minimum payment each month. This way not all your savings is put into the property in case something happens and you need the cash later.  You can always invest the cash you would have used to buy the property.

If you aren’t sure which way to go and you have a property in mind, give Sonja a call today to help with your options.  She can be reached at 661-979-9000 or by email at [email protected].

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