Buying your home outright?

Question

Having enough money to buy a house without mortgage...is it better to do just so?..or would it still be better getting a loan?

Answer 1

Having the possibility, generally, it is better to pay cash and avoid repaying the interests of a mortgage...however, if you have just enough to buy the property, you might consider paying 80% of the value of the house and getting a small loan. By doing so you would have some money saved for a rainy day...which you could put into an ISA and make up for the interest that you pay on the loan....

Answer 2

Depends entirely on your circumstances,location and intentions.

If you are middle aged or older and have no interest in making medium>long term investments AND like an ultra-safe life, then buying your house outright would be a great idea.

IF however you are in the UK or other country which has an ongoing and fairly consistent rise in property value and you are interested in longer term investments and are not too close to retiring age, you might consider perhaps paying just 20% as a deposit - and then doing the same for four other properties all with interest-only mortgages.

If you buy right (at least 12½% discount of fair market value), and purchase in an area of housing need, then you should find that rental covers mortgage payments from day 1 - and may even yield a modest profit.

In the UK and other countries, you can reasonably expect house prices to manage AT LEAST 5% increase on average per annum, and nearer double that if you buy in the right area. After a few years you will have effectively doubled the value of the houses AND be enjoying a GOOD profit from the increased rent.

You can then release some equity from any/all of these houses and enjoy TAX-FREE cash (you don't pay tax on a debt - which is what a mortgage is). The great part is, the increased rental will STILL cover the mortgage payments :)

Or yup, buy your house outright and do nowt :)

Answer 3

There is no simple answer - it depends on your circumstances.

Do you have a need for spare cash? If so, you probably don't want to use all your cash top buy outright.

Contrary to another reply you definitely do NOT get tax breaks on mortgages.

You could actually MAKE money by taking out a mortgage though if you are willing to take some risks. For example, you could get a mortgage at an interest rate of 5%, and then find an investment that yields say 6%. That way you'd be paying 5% to your mortgage company, but making 6% on the cash that you didn't use to buy outright. Obviously (unless you get some kind of guaranteed return on the investment) there is a risk you could lose money rather than make it.

This is a common trick for students - take out a student loan at v. low interest rate and stick the money in a cash ISA. The yield on the cash ISA more than covers the interest rate on the loan.

Answer 4

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RE Buying your home outright?

Having enough money to buy a house without mortgage...is it better to do just so?..or would it still be better getting a loan?

Answer 5

If you have any other debts then you are better having a mortgage which will be at a lower interest rate than virtually any other form of lending,

The other advantage is that during the life of a mortgage the bank/building society will hold the deeds to the property, and they will look after them nice and secure for free. Once the mortgage is paid off they become your responsibility

Answer 6

I bought my last house for cash and leaving aside the fact that I don't have to pay interest on any mortgage, actually buying the house was far easier as I did not have to wait for mortgage offers etc., I was able to hire the surveyor of my choice and he did the survey 2 days after my offer was accepted. Therefore I was able to complete within 2 weeks - it was only the conveyancing that made it take that long, and because my solicitor didn't have to deal with a mortgage lender, his fees were less. Also, as I was a true cash buyer, the sellers accepted my offer which was £20k below another offer from someone who had a property under offer but had to apply for a mortgage.

Answer 7

There are plenty of good financial reasons to have a mortgage on your property but being able to bail out and lose only your down payment is not one of them. You are responsible for that mortgage whether or not the development tanks. A mortgage is not an insurance policy it is a loan that you have to repay. Foreclosure is devastating both financially and emotionally. One reason you might want to have a mortgage is that it is a very low rate source of financing. Mortgages are tax deductible, at least for now. If you can invest the money extra money that you will have in your possession as a result of the loan at a greater return than the interest rate of the loan then you actually create wealth. If you planning on just keeping money in a bank account earning .5% interest it would make better financial sense to pay cash for the house. A mortgage really needs to be a part of a financial plan when you are lucky enough to have the potential to pay cash.

Answer 8

Depends on a couple of things...1) what interest rate could you get? 2) what would you do with the money instead? 3) would you have money leftover for emergency reserve?

I wouldn't put my last dollar into my house. If you can get a low rate, it may be more wise to take the loan (80% or less to avoid PMI) and invest the money. If the money isn't in the house you have a lot more flexibility in case of an emergency where you need cash. Plus, you get the tax benefit of interest paid on a home mortgage.

In my situation, we pay extra each month on the house. But we are keeping our mortgage.

Answer 9

It depends. There are really good tax write offs for your mortgage, that you can take year after year.
You should find out what the cheapest interest rate that you can get for a mortgage is. Then calculate how much you will pay in interest each year.

Figure out how much money you would save in taxes (an accountant can help) based off of how much you paid to the mortgage company. (for instance, you might have a $14,000 deduction in your annual wages based off of a $200,000 mortgage) - which would probably equate to $3500 a year in cash.
Then figure out if you had that money in the bank instead of buying the house, how much you would earn in interest. So if you could have invested the $200,000 at 5% interest, you may have earned $10,000.
That will give you your answer.

Answer 10

It totally depends on your financial situation. You have to look at the equity/downpayment you put into it in the balance of the rest of your investment portfolio. It wouldn't make sense to put all your net worth into the home equity and then still have credit card loans, car loans, student debt, etc. The bottom line is that your equity will be returning a rate of return in the short term of what your mortgage rate would have otherwise been. You shouldn't bank any a capital gain on the equity based on recent housing market experiences - the historical returns are in the modest single digits.