In the first four months of 2021, 30% of U.S. home purchases were all cash. This is the largest amount of cash buyers since 2014. If you are in the position to pay all cash for a home, that’s great! Although the argument has been made that with the current interest rates at record low numbers, getting a mortgage is almost like taking advantage of “free” money. So, which is better, paying cash or getting a mortgage loan? Let’s look at the benefits of each.
Paying Cash
There are many pros to paying cash for your home. Here are the best reasons to consider going this route.
No Payment!
For most of us, housing is the largest expense we face every month. Could you imagine not having to make that monthly payment? Living in a home that is completely paid for would eliminate a good deal of stress. You wouldn’t have to worry about several areas that often are a concern, like a possibility of losing your job or how you will pay your mortgage if you were to get sick, just to name a few.
Without a monthly mortgage payment, it is also likely that you would be able to invest more money which could help to fund other things in life like retirement, or a child’s college tuition, or other large projects in the future.
Save $ … No Interest!
Even with the record low-interest rates, it is rather shocking to see how much money is spent on interest over the life of a mortgage loan. To put this into perspective, on a 30-year mortgage of $300,000 and a 3% interest rate, it comes out to $155,332.83 in interest. Paying cash would save you that money.
Makes the Buying Process Easier!
Your offer has a better chance of being accepted when you are offering to pay cash. This is true for a handful of reasons. First, it is simply a fact that sellers like cash offers, and when your offer is up against several others on the same home, it can really help to have the advantages a cash offer presents to the seller. There aren’t as many “hoops to jump through” before the escrow process closes with a cash buyer, you do not need an appraisal on the home, and the seller doesn’t have to worry about the chances of financing falling through at the last minute.
Getting A Mortgage
On the flip side, there are benefits of obtaining a mortgage, believe it or not. These are some of the benefits of obtaining a mortgage that you may want to consider before making any decisions.
Take Advantage of Tax Deductions
Did you know that mortgage debt is tax-deductible? Homeowners can write off mortgage interest up to $375,000 from their primary residence on their taxes. While the benefits are not as good as they used to be, any saving on your taxes is a good thing, right?
You May Earn More Elsewhere
Paying all cash will lock up a huge sum of cash that will appreciate only as much as the real estate market. If you know how to invest in stocks or have someone who can help you, it may be a smarter move in the long run to take the hundreds of thousands of dollars you’d be spending on the house and invest that in stocks or other investments instead.
Less Risk
You will only need to put down between 3.5-20% cash when you get a mortgage. So, if the market were to crash, you’d only be losing that amount of your hard-earned cash, as opposed to the entire cost of the home if you were to skip the mortgage and buy with cash.
Are You Ready?
Whichever way you decide to purchase a home, you always want to have a professional by your side to help you through the process. A skilled, full-time real estate agent is going to have the knowledge and experience to not only navigate through any potential obstacles you might face in the process but can help you to avoid many challenges that you might encounter otherwise. So be sure to hire an agent you trust will advocate for you and have your best interest in mind throughout the entire process. If you do not have representation or know an agent in your area, please give us a call. We are happy to answer any questions you have and be your trusted fiduciary during your home buying journey. If we cannot offer representation in your area ourselves, we have partners across the nation and the world and will connect you with an agent you can get to know, like, and trust to be your guide! Let’s get connected!