Buying property...pay cash or get home loan?

Question

We're thinking to purchase our fist home. We are fortunate enough to have the option to purchase the home with cash on hand instead of paying with home loan.

Do we have any real benefit of getting home loan to pay for the house rather than pay it off with cash? What would be some of the disadvantages for paying with cash? We would appreciate it if any home owners can share your knowledge regarding this matter. Thank you.

Answer 1

The concept is called Gearing i.e. you borrow the money and together with your own, buy the assets (in this case the home) This enabless you to buy more and bigger assets than just using your own money. The shrewd investor will be able to grow a lot faster. The key word is "shrewd". If you misjudge the entry then the property is bought at the peak. You pay high interest without seeing either capital gains or high yields like rentals, for some time. If forced to sell for whatever the reason you can be a distress seller and there are lots of predators waiting to pounce. Stay clear of something you do not understand. We do not know you or your circumstances to provide good advice e.g. what you would do with the extra cash? Go for a holiday and spend it all? Buy a new expensive car and watch it depreciate? Blow it on the casino? It is not a wise thing to have cash for which you have no idea what you want to do with it.

Answer 2

Get a mortgage loan with terms that you can afford. This way, you are using someone elses money to buy the property.

Some say use cash and avoid paying the interest. However, the interest is a tax deductible expense and with todays rates, it really a better deal.

Also, you want to keep the cash in case of an emergency. You never know when you might need that money for medical or some other major event. Yes, you could get a loan against the house at a later date, but that usually takes a few weeks to close. Also, the cash will be earning interest income, which can offset some, if not all, of the mortgage interest.

Answer 3

Question to think about is can you earn more than 5-6% on that money if you were to leave it where it is currently invested. Rates of return on even a basic money market account can easily be 5% and investments could yield more.
You should always put down at least 20% to avoid mortgage insurance, which only benefits the lender in case of default.
If you obtain a mortgage at 6% with a 15 year term, the interest on the loan is tax deductible. Therefore the net effective interest rate is less because you are able to write off this expense. Determine if will you earn more on the money than you spend on net interest, and if you will actually hold onto as an investment rather than blow it. If you have credit cards or other loans, pay these off first.
Also, as others have stated, there is a benefit to your credit to have a mortgage, which could increase your purchasing power. There is also a benefit of having the cash for purchases that you need to make such as vehicles, furniture, etc. because when you get a car loan or furniture loan that interest is not deductible.

Answer 4

Hi if it was me i would buy it 70 % cash 30% loan then monthly payments will be real low the 30% put in maintance fund or less depending age of house if house is new right after the move go on a vacation everyone needs a break after a move lol

. ps if you can afford to pay cash and still have plenty of money pay cash the house will make money every year on it's own and when you hold the title and deed outright it is the same as haveing money in the bank the equity in the house will always be more then you could get from any savings accounts intrest ( a lot more ) good luck to ya and do what you think is best

Answer 5

pay cash but get a small loan such as 40 thousand and use some of your money for landscaping and new furniture after you move in.If the house is in good shape and it does not need any work with the roof or furnace then in a year or so if you don't want the loan any more then just pay it off.By taking the loan your options are open.

Answer 6

Okay, all I will say is this:

Loans have interest and over the course of a loan repayment that interest equals to thousands if not tens of thousands of dollars.

The interest you will receive from keeping that money in a high interest savings account will never come close to equalling the interest on the loan

It is your chose, if you pay with cash then you have less emergency money on hand. (things will go wrong, trust me. Repairs, upgrades, etc)

But if you buy out right, in the long run when you are getting older, you will see a huge savings

Answer 7

If you want to build your credit, buy your home with a loan, pay on it for 5 years, make sure there are no clauses to stop you from paying it off early. Some companies will charge a penalty for early pay offs.
If you pay cash, that is equity already built up. which in the long run would be cheaper for you. No interest rates to worry about.
The choice is really yours.

Answer 8

Assuming you are in the US, the advantage, of course, is the amount of loan interest you save. The disadvantage is that you will not have the tax deduction of the interest. However, over time I don't think the tax deduction would outweigh the interest value. Cash would seem the better choice.

Answer 9

Pay cash is better. If u get loan and deposit money in the bank u will get low interest than you pay for loan

Answer 10

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