I am planning on buying a house in North Alabama, should I pay cash or put a large amount down pay mortgage?

Question

Is it better to pay it all off and be done with it or is there a benifit to paying a mortgage and using my money in other areas such as cd's etc. ?

Answer 1

In my opinion there is no advantage to being real estate rich and bank poor.

There is a reason for mortgages in our society as well as the government offering a tax break to those that have a mortgage.

For you particular situation you should always check with your tax consultant about your financial situation.

Now lets go over a few things that I think are good about having a mortgage.

Let us say that you are going to purchase a property for $150,000 in Alabama. You go to your bank book and write a check for the full amout to include any and all closing fees. Closing fees are about 1-2% or about $2,550.

Now you have a $150,000 property that you own free and clear, with no liens.

Now let's say that you now need some money next month to help a sick parent out. Guess what you have to do. You have to go complete a loan application and see if you can qualify for a loan on your free and clear home you own.

This is not a small chore in itself. they will want to see if the property is worth it, the will want to see if you are able to make the monthly mortagage payments.

If things go your way and things are really good you could have your loan completed in about 25-30 days. Now that is not the only thing, but you also have to pay for he priviledge of using your home as collateral to get the money, so let's figure that is ok and you only had to pay 1-2% in origination fees which if you borrower the maximum would be around 85% of $150,000 the complete fees,points and all would come to about 3% total which is about $3,825.00 to borrower money from your own property.

Now let's do it the American way. Put the minimum down to use as a leverage to buy this house,about 10% is all I would put down, with excellent to good credit. You may put more down it will lower your loan amount thus lower your monthly payments.

Now you get a loan for the remainder $135,000. You will have to pay closing cost which should come to approximately $4,050 total.

You get to deduct the closing cost over the life of the loan. You get to deduct the interest paid on the loan you have.

But most importantly look in your bank account and guess what is there. You have the minimum of $135,000 at your disposal to use as you see fit.

If you want to use it there are no charges to borrow your own funds. If the scenario come up where you need money for that parent emergency, it is immediately available, all you need to do is write a check for the amount you want to use.

If you had paid all cash the total cost to you in fees and points would be $6,375 to purchase the house and refinance the house to get the needed money to use in your parents emergency.

You may take this same $135,000 and use it as an investment tool.

Now what do you have A house that is valued at $150,000 as well as a bank account worth at least $135,000 so your approximately net worth as I see it is $285,000 plus what ever else you might have in other invstments.

If you used all you cash to pay for the house, your net worth is approximately $150,000,plus what ever else you might have in the bank or other investments.

I hope this has been of some use to you.

"FIGHT ON"

Answer 2

If you feel that you can make more than 6% return on your money then I would not pay cash for the home. If you want to pay it safe and still have extra cash then I would say pay cash for the home. CD's are paying 4 to 5%. Stocks or mutual funds could pay more but certianly have a risk of loss. So it depends how risky you are. By paying cash, you are basically making a 6% return on that money. That 6% rate is based on the current 30 year mortgage right now.

Answer 3

first you have tax benefits of getting a mortgage, also you can further profit from a mortgage by investing in something that gets a better return then your interst on your mortgage. an investment professional can get you into investments that pay 7-11%, your mortgage will be around 6%. over history the stock market is over 10% a year by itself. most stock brokers i know have a mortgage so they can use the money to invest to make them more money.

Answer 4

It depends on what your income situation is. If you are in a high tax bracket, you would probably enjoy a great tax benefit by having a mortgage, but if you are just average, pay it off. Real estate is the best investment you can make & you wouldn't have to worry about monthly payments!

Answer 5

some would say it would be best to go with the mortgage, but I personally feel that if you have the cash available to make the whole payment then you should do so. Especially with the mortgage rates going crazy as they are now in certain markets.

Answer 6

From my understanding, having a home 100% paid off is not all that good because if it's paid off, there is no interest to claim on income taxes. Ask your accountant this question.

Answer 7

Don't be STUPID! Pay cash, own it outright. You will save more in the long run and be able to invest what you save! Come on now be SMART!