What are the merits and demerits of mortgage finance?

Answer 1

Not sure of what you are asking. If the question is should you pay cash for a house as opposed to financing the property then the answer is one of leverage.

If you utilize all of your funds to purchase the property then all you are generating is paper profits. The money is not available unless you sell or refinance. It has no bearing on how much the house appreciates over time. If you lose your job or have any kind of other emergency then you will have to attempt to get a lender to lend you money. Without a job that is not going to be easy.

The other side of the coin is for you to put the smallest amount down, finance the rest, then utilize your cash for other investments, either income producing real estate, mutual funds, etc. etc.

You are then creating real profits that you can use not just paper profits. You would also benefit from the tax benefits (a 7% mortgage is only costing you 4.5-5% after your tax deduction) It is the cheapest money you will be able to borrow and thus leverage!

If you email me I will send you a powerpoint presentation on "harnessing your mortgage" which goes into greater details.

Answer 2

Major downside: You're paying interest.

Major upside: You can buy a property without having the cash to pay for every last penny of the price. Given the effects of leverage, a way to make the same amount of money work much harder for you, thus making you more money.

Buying, even with significantly higher monthly costs, blows the doors off of renting and investing the difference (in general).