4 Reasons to Finance Your Home Instead of Paying All Cash
If you had the money to, would you purchase your home in all cash? It sounds great – no debt, no closing costs, and no interest payments. However, buying a home in all cash may not be the best financial choice for you. Here are a few reasons why you may want to consider getting a mortgage for a property:
Home loans may be cheaper than other loans
Compared to different types of investments such as car loans and student loans, interest rates on home loans are relatively low.
It may not be best to invest all of your money in one asset
Many people believe that it is essential to diversify your investments to lower risk. One of the most hallowed rules in finance is diversification. Invest the portion of the money that you would have used to pay all cash for your home into other types of investment accounts.
Real estate is not a liquid asset
When you pay all cash for a property, you are depleting your liquid assets. Why not hold onto some of that cash and get a mortgage? Selling real estate may take months, so you may not get the cash back immediately.
Have more cash-on-hand for emergency expenses
Life may throw unexpected turns your way. It’s always important to have emergency savings available in case you need cash-on-hand immediately. If you pay all cash for your home, you may be depleting your savings, and reducing the amount of your liquid assets.
Getting a mortgage (even if it’s a small one) may give you the best of both worlds. Instead of trying to pay for your entire home in cash, maybe consider paying for a smaller portion of it in cash. Most people opt to put 20% down on their home. Putting 20% down not only may lower your interest rate, but also helps borrowers avoid paying mortgage insurance. A down payment allows you to put some cash towards your home. You would still be investing in a major life purchase whether you purchase a home all-cash or get a mortgage.